...Macroeconomics: Branch of economics that studies the economy as a whole, especially the overall levels of production, employment, consumption, investment and prices. Microeconomics: Branch of economics that studies the individual behavior of firms and consumers and how they interact on a particular market. Macroeconomics focuses on the following issues: - Where does economic growth come from? - Could economic growth continue indefinitely, or is there some limit to growth? - Is there anything that governments can do to alter economic growth? - What are the origins of business cycles? - Should governments act to smooth business cycles ? - What does cause high rates of inflation? - How does the central bank affect prices and interest rates? - What are the root causes of a high unemployment rate? - Should countries adopt fixed or flexible exchange rates against the U.S. dollar? To answer previous questions, Macroeconomists use theories and models. - In economics, as in other sciences, explanations and predictions are based on theories and models. - A theory is a set of rules and assumptions used to explain observed phenomena. - A model is a simplified representation of the reality based on theories. - In economics, a model usually consists of a system of equations. 1 14/01/2016 - The relationship between facts, theories, model, and predictions: Predictions Model Theories Data “If I couldn’t formulate a problem in economic theory mathematically...
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