8/8/2019 Introduction to Economics and the Macroscopic Behavior of Economic Systems

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Teerachot SiriburanonStudent ID: 10M51338

18/11/2010

Report for a lecture on ³Introduction to economics and the macroscopicbehavior of economic systems on November 12, 2010 by Shigeaki Ogibayashi

(Technical Management for Sustainable Engineering)

Briefly answer the following questions about economic systems.

1. Explain the basic difference between microeconomics and macroeconomics.

E conomics is the social science that analyzes production, distribution and consumption of goods and services, aiming to explain how economies work and how economic agents interact.E conomic agents are consumers, enterprises and public organizations relating to production,distribution and consumption of goods and services. Microeconomics is basically the study of individuals and business decisions while macroeconomics looks at higher levels of governmentdecisions. The brief summary of both can be explained as followed.

Microeconomics examines the behavior of basic elements in the economy such as buyers,sellers, and markets. It is composed of the theory of demand and supply, and theory of markets. For example, microeconomics would look at how a specific company could maximize its production andcapacity so it could lower the process and better compete in its industry.

On the other hand, macroeconomics deals with issues affecting an entire economy as a whole,including unemployment, inflation, economic growth and monetary policy. This looks at economy-wide phenomena such as Gross Domestic Product (GDP) and how it affected by changes inunemployment, national income, rate of growth and price levels. For example, macroeconomicswould rather consider at how an increase or decrease in net exports would affect a nation¶s capitalaccount or how GDP would affected by unemployment rate.

Therefore, the basic difference between microeconomics and macroeconomics is themicroeconomics examines the behavior of the behavior of basic elements in the economyor taking a

bottom-up approach but macroeconomic studies the behavior of the economy as a whole and not juston a specific companies, but entire industries and economies or a top-down approach.

2. W hat are the names of traditional and new approach for studying the behavior of macroeconomic system? Explain basic concept of both approaches.

The traditional approach is called E conometrics and a new approach is an Agent -basedSimulation.

Econometrics is concerned with the tasks of developing and applying statistical method tostudy and elucidate the behavior of macroeconomic system and to assess economic theories.

E conometrics combines economic theory with statistics to analyze and test economic relationships.The problem in econometrics is that observed data are the results of interaction between economicagents, reflecting complex economic equilibrium conditions, rather than being derived fromcontrolled experiments. E conometrics has developed method for simultaneous equation models. Themechanism of the behavior of economic system as a whole is limited in case of econometricsapproach.

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An agent-based simulation is a class of computational models for simulating the actions andinteractions of autonomous agents with a view to assessing their effects in the systems as a whole bythe use of computer simulations. There are agents as decision makers in artificial economic systemswhere effects of each act of each agent will be calculated using a simulation program with objectoriented programming where agents are represented as objects. There are five types of agents includedwhich are decision makers, product, product class, market and account included as instances of 14classes. The rules of agents will be set and the simulation will be processed.

3. A ccording to the recent result of the new approach, one of the most essential measuresin promoting economy of a nation is to increase the number of private firms. Explain thereason why it is.

W hen the number of all kinds of agents is equally increased, GDP proportionally increases.But GDP per capita or national output divided by the population is unchanged. It is found that GDPincreases with increasing number of any kinds of agents. But GDP per capita only increases withincreasing number of producers. There are also other factors that can influence GDP. For example, if the government encourages investment, then amount of unit investment, total amount of initial funds,wage of consumers increase and result to an increase in GDP. On the other hand, if the savings ratioincreases, GDP would decreases. Therefore, an increase of amount of money in the market will resultto an increase of GDP.

Therefore, if the number of private firms increases, those firms need to borrow the moneyfrom the bank to start their business and compete in the markets. The money flows to other people indifferent fields of business such as labors, raw material suppliers, etc. These create more money toflow in the market and finally can increase the total gross domestic product (GDP).

For example, if the government construct big paved road and turn out that not many peoplecome to use it. Only a few companies can get the money and the flow of money will not go further.On the other hand, energy business in windmills is one of the interesting fields for business. If thegovernment helps campaigning and support moneys to initiate the program and competitionsincreases. The number of firms will increase and give rise of the number of production and a decreasein production cost. Companies also should allow some increase of salary to employees when the

business is going well in order to create more money to flow in the markets. Finally, they couldreceive even more income in the future; otherwise people would have no money to create transactionsand no further investment continues.