Peter Antonioni

Over the last 50 years, the U.S. economy has grown at an average annual rate of about 2.8 percent. Roughly 1.1 percent has come from population growth: the country typically adds more workers each year. But the majority of it comes from the fact that it gets more productive each year — to the tune of about 1.7 percent annually.

Macroeconomics is the study of the economy as a whole. What follows are summaries of some key information about how the economy works, including the basics of fiscal and monetary policy, the key summary statistics that macroeconomists examine in order to assess the health of an economy, and how the economy behaves in the short- and long-term.

Microeconomics is that part of economics that looks at the world from the perspective of consumers and firms — asking how they make their decisions and how those decisions come together to make different kinds of markets. You do that by building models of different situations that explore the results of different types of conditions.

Economies run on people, firms, and governments requiring and buying things. A need exists (demand) that firms fulfill (supply). Students of microeconomics spend time learning about the behavior of supply and demand in individual markets. Students of macroeconomics are interested in the economy as a whole, so the emphasis is on aggregate (that is, total) demand for goods and services and aggregate (total) supply.

The interest rate is a special kind of price because it reflects exchanges through time. An annual interest rate of 5 percent says that in return for giving up $1,000 today, you can get $1,050 a year from now. Thus, $1,000 is the "price" of "buying" $1,050 in one year. To put it another way, you can get $1 in one year for a "price" of about 95 cents today.

Recall the Rule of 70. Remember, this rule is an easy way to calculate the time it takes something to double. If real gross domestic product (GDP) for instance grows at x percent per year, you divide x into 70 to find out how many years it will take for real GDP to double.Thus, if real GDP grows at 3 percent per year, it will double in 23 years and 4 months, double again in another 23 years and 4 months, and be 8 times what it was 70 years from the start.

In case you didn't know, the profit motive is powerful. Think about it. Hundreds of millions of people have invested trillions of dollars in pension funds, IRAs, and other assets to provide for their retirement or their children's education or for other reasons. The large banks, mutual funds, and other investment advisors compete for this business by trying to offer their investors a better return than their rivals.

The assumption (pretense) that underlies gross domestic product (GDP) — that you can think of the economy as just producing one, very multi-purpose good. Why do macroeconomists make this assumption?The simple answer is that they'd like to talk about "the economy" as parsimoniously as possible. If someone asks about the U.

Many economists think that the measures of inflation tend to overestimate the true increase in the cost of living. That is, if the inflation rate is quoted as being 3 percent, economists think that the true cost of living has actually increased by less than 3 percent.Here are some of the reasons why: The substitution effect: Inflation at 3 percent means that on average prices have increased by 3 percent.