Based on Principles of Economics by N.G. Mankiw the principles that show how economy works as a flow

1. PRINCIPLES 8-10
OF ECONOMICS
(the principles that show how economy works as a flow)
Based on Principles of Economics by N.G. Mankiw

2. Principle 8: A country’s standart of living
depends on its ability to produce goods
and services
• Productivity – the quantity of goods and services
produced from each unit of labor input.
• The growth role of a nation’s productivity determines the
growth rate of its average income.
• To boost living standards policy makers need to raise
productivity by ensuring that workers are well educated,
have the tools they need to produce goods and services
and have access to the best available technology.

3. Principle 9: Prices rise when the
government prints too much money
• Inflation – an increase in the overall level of prices in the
economy.
• Keeping inflation at a low level is a goal of economic
policymakers around the world
• The inflation is caused by the growth in the quantity of
money (the value of the money falls).

4. Principle 10: Society faces a short-run
trade-off between inflation and
unemployment
• The short-run effects of monetary injections are described
as follows:
- increasing the amount of money stimulates the overall level of spending and
thus the demand for goods and services
- higher demand may cause firms to raise their prices overtime, but in the
meantime, it also encourages them to hire more workers and produce larger
quantity of goods and services
- more hiring means lower unemployment
• This short-run trade-off plays a key role in the analysis of
the business cycle (fluctuations in economic activity, such
as unemployment and production).