Chapter 1

Slides

VNP-Econ-Chapter 1
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Principle 10: Society Faces a Short-Run Trade-off between Inflation and Unemployment

Although a higher level of prices is, in the long run, the primary effect of increasing the quantity of money, the short-run story is more complex and controversial. Most economists describe the short-run effects of monetary injections as follows: Increasing the amount of money in the economy stimulates the overall level of spending and thus […]

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Principle 9: Prices Rise When the Government Prints Too Much Money

Although the United States has never experienced inflation even close to that of Germany in the 1920s, inflation has at times been an economic problem. During the 1970s, for instance, when the overall level of prices more than doubled, President Gerald Ford called inflation “public enemy number one.” By contrast, inflation in the first decade […]

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Principle 8: A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services

The differences in living standards around the world are staggering. In 2008, the average American had an income of about $47,000. In the same year, the average Mexican earned about $10,000, and the average Nigerian earned only $1,400. Not surprisingly, this large variation in average income is reflected in various measures of the quality of […]

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3. How the Economy as a Whole Works

We started by discussing how individuals make decisions and then looked at how people interact with one another. All these decisions and interactions together make up “the economy.” The last three principles concern the workings of the economy as a whole. Principle 8: A Country’s Standard of Living Depends on Its Ability to Produce Goods […]

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Principle 7: Governments Can Sometimes Improve Market Outcomes

If the invisible hand of the market is so great, why do we need government? One purpose of studying economics is to refine your view about the proper role and scope of government policy. One reason we need government is that the invisible hand can work its magic only if the government enforces the rules […]

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Principle 6: Markets Are Usually a Good Way to Organize Economic Activity

The collapse of communism in the Soviet Union and Eastern Europe in the 1980s may be the most important change in the world during the past half century.Communist countries worked on the premise that government officials were in the best position to allocate the economy’s scarce resources. These central planners decided what goods and services […]

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Principle 5: Trade Can Make Everyone Better Off

You may have heard on the news that the Japanese are our competitors in the world economy. In some ways, this is true because American and Japanese firms produce many of the same goods. Ford and Toyota compete for the same customers in the market for automobiles. Apple and Sony compete for the same customers […]

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2. How people interact

The first four principles discussed how individuals make decisions. As we go about our lives, many of our decisions affect not only ourselves but other people as well. The next three principles concern how people interact with one another. Priciples 5: Trade Can Make Everyone Better Off Priciples 6: Markets Are Usually a Good Way […]

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