The Introduction of Macro Economics

Activity : 1. Class Lecture & Discussion 2 Activity : 1. Class Lecture & Discussion 2. Library Research Main Literature: “Economics” -Paul A Samuelson & William D Nordhaus-

Main Literature “Economics” -Paul A Samuelson & William D Nordhaus-

Marking Criteria: 1. Weekly Assignments : 30% 2 Marking Criteria: 1. Weekly Assignments : 30% 2. Mid Semester Exam : 30% 3. Final Semester Exam : 40% PENTING!!! Total Mark < 40%  Fail (Tidak Lulus)

The Fundamentals of Economics A. Introduction The Twin Themes of Economics Microeconomics & Macroeconomics The Logic of Economics B. The Three Problems of Economic Organisation Market, Command, & Mixed Economies C. Society’s Technological Possibilities Inputs & Outputs The Production-Possibility Frontier Opportunity Cost Efficiency

A. Introduction Why people study economics ? Many Reasons, such as: They hope to make money Worry to be considered illiterate if not knowing the law of supply & demand etc… However, there is a general reason for learning the basic knowledge of economics: “ All your life-from cradle to grave- you will run up against the brutal truths of economics”

By the way What is Economics ??? There are many definition of it, BUT in short Economics can be defined as: “ The study of how societies use scarce resources to produce valuable commodities and distribute them among the people”

There are two main Idea of Economics The goods are scarce (Scarcity) Society must use its resources efficiently (Efficiency) ….. That is, Scarcity & Efficiency is the twin themes of Economics

Microeconomics & Macroeconomics The branch of economics that is concerned with the behavior of individual entities such as markets, firms and households. In addition, Adam Smith (1776) is considered as the founder of microeconomics.

. Macroeconomics : Is concerned with the overall performance of economy, such as the determination of total investment & consumption, how a central bank manage money & interest rate, and what influences a nation’s economic growth. Additionally, John Maynard Keynes is considered as the founder of Macroeconomics in 1936 through his book titled “ General Theory of Employment, Interest and Money”.

The logic of Economics As a science, economics main purpose is to understand the complex economic activities of society, from an individual to a nation. Economists use scientific approach to understand those economic activities, which is consist of: Economic theories & Analysis  Generalisation Observing economic affairs The use of statistic and historical record Econometrics

The Common Fallacies in Economic Reasoning/Logic: The Post Hoc Fallacy Occurs when we assume that, because one event occurred before another event, the first even caused the second event. 2. Failure to Hold Everything Constant Occurs when we can not hold other things constant when we are analysing the impact of a variable on the economic system. 3. The Fallacy of Composition Occurs when we assume that what is true for the part is also true for the whole.

B. The Three Problem of Economic Organisation Every human society, from a very traditional society to the very advanced society, must confront and resolve the three fundamental problems of economic, they are: What commodities are produced & in what quantities? How are goods produced? For Whom are goods produced?

Market Economy Command Economy Mixed Economy Three types of Economy Market Economy Command Economy Mixed Economy

C. Society’s Technological Possibilities Every economy has a limited stock of resources (i.e. labor, technical knowledge, land, energy, materials, factories and tools, etc). The fact that goods are scarce relative to wants, an economy has to decide how to cope with limited resources. An economy must choose among different potential bundles of goods to produce (what), select the best technique of production (how), and decide in the end who will consume the goods (for whom)

Inputs = Factors of Production Inputs and Outputs Inputs = Factors of Production All commodities or services that are used to produce goods or services. To combine inputs for producing output, an economy uses its existing technology. In general, inputs are classified into following categories : Land or Natural Resources Labor at all skill levels Capital Resources

Outputs : Are the various useful goods and services that result from the production process and are either consumed or employed in further production process. Restating the three economic problems in term of inputs and outputs, a society must decide : What outputs to produce, and in what quantity How to produce that outputs  by what techniques inputs should be combined to produce the desired outputs For whom the outputs should be produced and distributed.

The Production-Possibility Frontier (PPF) Shows the maximum amounts of production that can be obtained by an economy, given its technological knowledge and quantity inputs available. The PPF represents the menu of goods and services available to society.

Alternative Production Possibilities Butter (millions of pounds) Guns (thousands) A 15 B 1 14 C 2 12 D 3 9 E 4 5 F

Opportunity Cost Is the cost of the forgone alternative of a decision Every decision in our life, whether to study economics, buy a car, or saving money in bank has its own opportunity cost. In each case we must consider how much the decision will cost in term of forgone opportunities. PPF also can be used to illustrate to concept of opportunity costs.

Productive Efficiency Occurs when an economy cannot produce one more good without producing less of another good. It happened when the economy is on its Production-Possibility Frontier. This also known as the “Full-Employment Economy”

Unemployed Resources & Inefficiency When there are unemployed resources, the economy is not on its PPF at all but, rather, somewhere inside it. This mean the economy produces less than its maximum production capacity or there is productive inefficiency in the economy. Business-cycle depression and economy system transformation from command economy to market economy are considered as the cause of the unemployed resources.

Assignment 1 Jelaskan maksud dari setiap istilah berikut dan berikan contoh masing-masing; a. PPF c. Scarcity b. Productive efficiency d. Inputs e. Outputs 2. Misalkan sebuah perekonomian hanya menghasilkan 2 jenis outputs, yaitu: baju dan jasa potong rambut dengan labor sebagai inputnya. Dalam Perekonomian ini labor mampu menyediakan 1000 jam kerja. Buat kurva PPF dari perekonomian ini jika untuk menghasilkan sebuah baju diperlukan 5 jam kerja dan ½ jam kerja untuk satu kali potong rambut.

3. Misalkan sebuah penemuan tehnologi baru berhasil meningkatkan produktivitas masyarakat dalam menghasilkan mentega dua kali lipat tanpa mempengaruhi produksi pistol sama sekali. Gambarkan PPF yg baru berdasarkan figure 1.2 (Samuelson& Nordhaus 2005: 10) untuk mengilustrasikan tradeoff yg baru! Next…

4. Para ilmuwan percaya bahwa kita menghabiskan sumber daya alam dengan cepat. Misalkan hanya ada dua inputs dalam perekonomian (labor & SDA) yg menghasilkan dua jenis output (bahan bakar dan karya seni), dengan tanpa ada kemajuan dalam tehnology produksi sama sekali di masyarakat tsb dari waktu ke waktu. Tunjukan dengan gambar apa yg akan terjadi dengan PPF dari waktu ke waktu ketika SDA semakin habis ! Next…..

5. Misalkan si “Cerdas” mempunyai waktu hanya 10 jam untuk belajar menghadapi dua ujian (pte makro & pancasila). (a). Gambarkan PPF untuk hasil ujian yg akan didapat oleh si “Cerdas”! (b). Misalkan si “Cerdas” belajar secara tidak efficient karena sambil mendengarkan musik atau chatting dgn temannya, dimanakah posisi “output”/hasil ujian si “Cerdas” dalam PPF yg telah anda gambar sebelumnya? (c). Bila si “Cerdas” ternyata mendapat tambahan waktu belajar dari 10 jam menjadi 15 jam & dia menggunakannya se-efficient mungkin, apa effectnya terhadap PPF hasil ujian si “Cerdas”??? Good Luck !!!