Macroeconomics

Self-interested behavior is simply behavior designed to increase personal satisfaction, however it may be derived.

An aggregate is a collection of specific economics units treated as if they were one unit. In macro, no or very little attention is given to specific units making up the various aggregates.

Macro primarily concerns two things: long run economic growth and short run fluctuations in output and employment that are often referred to as the business cycle.

Some important data in macro:
(1) GDP
real GDP (gross domestic product): a measurement of the value of final goods and services produced within the borders of a given country during a given period of time, typically a year.

nominal GDP: totals the dollar value of all goods and services produced within the borders of a given country using their current prices during the year that they were produced.

Real GDP corrects for price changes.

(2) Unemployment
a state a person is in if he cannot get a job despite being willing to work and actively seeking work.

(3) Inflation
an increase in the overall level of prices

In order to raise living standards over time, an economy must devote at least some fraction of its current output to increasing future output.

Financial investment: the purchase of assets like stocks, bonds, and real estate in the hope of reaping a financial gain.---This is merely the transfer of the ownership 

Economic investment: it only includes money spent purchasing newly created capital goods such as machinery, tools, factories and warehouses.

Firms are often forced to cope with shocks--situations where they were expecting one thing to happen but then something else happened. Demand shocks are unexpected changes in the demand for goods and services. Supply shocks are unexpected changes in the supply of goods and services.But shocks don't necessarily mean good things or bad things happen.

Business cycle fluctuations typically arise because the actual demand that materializes ends up being either lower or higher than what people were expecting. If the prices of goods and services would always adjust quickly to unexpected changes in demand, then the economy could always produce at its optimal capacity since prices would adjust to ensure that the quantity demanded of each good and service would always equal the quantity supplied.

If the prices are fully flexible, there will be no short-run fluctuation: output would remain constant and unemployment levels would not change because firms would always need the same number of workers to produce the same amount of output.

An inventory is a store of output that has been produced but not yet sold. If prices are inflexible, then an unexpected decline in demand that persists for any length of time will result in increasing inventories that will eventually force the firm's management to cut production. When this happens, output falls and unemployment rises.

Prices are inflexible in the short run for several reasons.
(1) firms often attempt to set and maintain stable prices because they make for easy planning.
(2) a firm with just a few competitors may be unwilling to cut its price due to the fear of starting a price war, a situation where its competitors retaliate by cutting their prices as well, thereby leaving the firm worse off.