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Briefly answer the following questions about economic systems.

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¢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.
¢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 government
decisions. 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 and
capacity 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 in
unemployment, national income, rate of growth and price levels. For example, macroeconomics
would rather consider at how an increase or decrease in net exports would affect a nation¶s capital
account or how GDP would affected by unemployment rate.

Therefore, the basic difference between microeconomics and macroeconomics is the

microeconomics examines the behavior of the behavior of basic elements in the economy or taking a
bottom-up approach but macroeconomic studies the behavior of the economy as a whole and not just
on a specific companies, but entire industries and economies or a top-down approach.

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The traditional approach is called ¢conometrics and a new approach is an Agent-based

Simulation.

¢conometrics is concerned with the tasks of developing and applying statistical method to
study and elucidate the behavior of macroeconomic system and to assess economic theories.
¢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 economic
agents, reflecting complex economic equilibrium conditions, rather than being derived from
controlled experiments. ¢conometrics has developed method for simultaneous equation models. The
mechanism of the behavior of economic system as a whole is limited in case of econometrics
approach.
 An agent-based simulation is a class of computational models for simulating the actions and
interactions of autonomous agents with a view to assessing their effects in the systems as a whole by
the use of computer simulations. There are agents as decision makers in artificial economic systems
where effects of each act of each agent will be calculated using a simulation program with object
oriented programming where agents are represented as objects. There are five types of agents included
which are decision makers, product, product class, market and account included as instances of 14
classes. The rules of agents will be set and the simulation will be processed.

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-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 GDP
increases with increasing number of any kinds of agents. But GDP per capita only increases with
increasing 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 ratio
increases, GDP would decreases. Therefore, an increase of amount of money in the market will result
to an increase of GDP.

Therefore, if the number of private firms increases, those firms need to borrow the money
from the bank to start their business and compete in the markets. The money flows to other people in
different fields of business such as labors, raw material suppliers, etc. These create more money to
flow 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 people
come 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 the
government helps campaigning and support moneys to initiate the program and competitions
increases. The number of firms will increase and give rise of the number of production and a decrease
in 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 could
receive even more income in the future; otherwise people would have no money to create transactions
and no further investment continues.