Macro & Micro Economics

2304 Words Jul 31st, 2013 10 Pages
“Economics has never been a science - and it is even less now than a few years ago.”…Paul Samuelson

INTRODUCTION

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. A focus of the subject is how economic agents behave or interact and how economies work. A given economy is the result of a process that involves its technological evolution, history and social organization, as well as its geography, natural resource endowment, and ecology, as main factors. These factors give context, content, and set the conditions and parameters in which an economy functions.
The world economic events and how they affect the domestic economy
.The economic activity, and of the interactions
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These need not to be always correct. Also known by “FALLACIES OF ECONOMICS”, are mainly as follows:

The post hoc fallacy: This is explained as ‘X event follows Y event and hence is the result of Y’ which might not be true.

Failure to hold other things constant: When we study any economic relation between two factors, we keep other factors constant to come to any conclusion. But in reality other factors are also dynamic so relation observed is not accurate.

Eg: Kennedy-Johnson tax cuts of 1964 in US, which lowered tax rates sharply and were followed by an increase in government revenues in 1965. The fallacy is that it overlooks the fact that the economy grew from 1964-1965, because people’s income increased and hence the revenues.
The fallacy of composition: This occurs when there is a result true for a small sample space and we integrate the same result for population under consideration.

Eg: Increasing saving is obviously good for an individual, since it provides for retirement but if everyone saves more, it may cause a recession by reducing consumer demand

ECONOMIC SYSTEMS

1. Centrally Planned Economy
A centrally planned economy is the contrast of the market economy. All decisions are made by the public sector (government). There is very little insight into what the individual wants. Centrally planned governments would allocate resources as they see fit. This economic system is designed to promote
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