Macroeconomics Theory and Practice

Macroeconomics Theory and Practice

In this course, the student will develop short-term models of aggregate economic behavior very similar to those currently used by business and government to explain historical economic outcomes, produce forecasts, and evaluate alternative government policies. We will primarily use graphical analysis techniques in the development of our macroeconomic models, although some very simple algebra and calculus may also be used.



AnswersQuestions
FALSEPercent Change in (Q/L) = (Percent Change in Q) - (Percent Change in P).
Total GDP/Total PopulationGDP Per Capita
Good Economic ModelAccurately describes historical outcomes, and It must make reasonable predictions about the results of future observations.
FALSECartesian coordinate system is not the usual graphical representation.
Elasticity_________ represents a combination of percentage change and marginal analysis.
Unemployment RateIs the number of unemployed individuals divided by the total of those employed and unemployed total labor force.
TRUEPercent Change in (P x Q) = (Percent Change in P) + (Percent Change in Q)
Empirical StudyThe test of a proposition or theory using actual observations or numbers is called _______.
Positive__________ is also referred to as a direct relationship. As the value of X increases, the value of Y increases.
DepressionA recession that is major both in scale and duration.
TRUEPercentage of Change = ending value- starting value /starting value x 100.
TRUEUnderstanding measures of Elasticity is critically important in Microeconomics, references to Elasticities are infrequent in Macroeconomics
TRUEMacroeconomics is analysis of the behavior of an economy as a nation.
FALSEPolitical Science is the study of mankind in the ordinary business of life.
Empirical StudyThe test of a proposition or theory using actual observations or numbers is
Real GDPWhat is the value of total output (nominal GDP) corrected for any changes in prices.
A period of decline in total output, income, employment, and trade, usually lasting from six months to a year.Recession is
Marginal analysis___________ relates to the effect that a small or unit change one variable has on another variable.
ImportsConsumer Price Index (CPI) includes
Marginal change_________ is a very small increase of decrease in the quantity of some variable.
RightIndependent variable can be seen in the _______________ of the equation.
Other things being equalCeteris paribus, means
CurveA line showing X and Y pair is referred as ____________.
TRUECommon characteristics in each of the relationship of two variables is that the change in independent variable X produces a change in dependent variable Y and represented in a math equation.
The change in the physical output of an economy, typically measured as the change in Real GDP.Economic growth is
TRUEOne of the Macroeconomic objectives is to develop better laws and government policies to maximize welfare of the society.
EquilibriumA market is in ______________ when the quantity demand is equal to quantity supplied at the market price.
Competitive Free Market__________ is when many suppliers and many consumers engaged in trade without interference from government.
Change on Quantity Supplied______________ is a movement along a fixed supply curve in response to a change in the price of that good, ceteris paribus (everything else unchanged).
Equilibrium Price__________is the price at which the quantity demanded is equal to the quantity supplied. Other things being unchanged, there is no tendency for this price to change.
SmithAccording to __________, that if more of the time is spent in one activity then you must invest your resources to develop specialized tools or machines to aid me in my task.
Law of Demand__________as the price of a good or services increases, the quantity you would be willing and able to purchase during some period of time declines.
Price Ceiling___________ is a legal requirement that maintains the market price below the equilibrium price.
Change in Supply__________as the shift of the supply curve in response to a change in one of the variables assumed to be held constant under the ceteris paribus assumption (e.g., technology), holding the good's price constant.
The correct answers are: _________ simcard., 1/2Compute the opportunity cost , where 10 mobile phones is to 5 Simcards.
BarterThe fundamental method of exchange is ____________.
Shortage___________is the amount that the quantity demanded exceeds the quantity supplied when the market price is below the equilibrium price.
Positive sum game____________ is when we specialize and both benefit after the exchange
Absolute__________ is an advantage of a person who can produce a good or service with fewer resources than another person.
Increase in demandIn Demand Curve Shifts, a change in any of these will cause the demand to curve shift to the right or left, when the demand curve is shifting to the right. The rightward shift is called ___________________.
Production Possibilities curve____________ a graph that indicates all possible combinations of two goods or services that can be produced within an economy given the full and efficient use of all available resources.
Comparative advantage___________if a person can produce a good or service with lower opportunity cost than can another
Everything else unchangedLaw of Demand Ceterus Paribus
General Purchasing Power______________ is the characteristic of money or currency where it can be used as a medium of exchange for any good or service.
Increase Opportunity Cost___________, as more scarce resources are used to increase production of one good or service, production of another good or service falls by larger and larger amount.
Dependent variable__________ a variable that depends on the value of the independent variable(s) can be seen in the left side of the equation.
Price Floor___________ a legal requirement that maintains the market price above the equilibrium price.
Purchasing PowerQuantity of goods and services that can be purchased with a given amount of money.
Surplus__________is the amount that the quantity supplied exceeds the quantity demanded when the market price is above the equilibrium price.
InterceptThe point where the curve crosses the vertical axis is referred as ____________.
Law of Supply___________ as the price of a good or service increases the quantity you would be willing and able
FrontierThe production possibilities curve is often referred to as a ___________.
MacroeconomicsAnalysis of the behavior of an economy as a whole.
RelativeMicroeconomic demand and supply curves depend on differences in ________ prices
ServicesIntangible but useful activities that are valued by people.
Demand curveThe _______ is a graphic representation of the market demand schedule and the Law of Demand
Change in DemandA shift of the demand curve in response to a change in one of the variables assumed to be held constant under the ceteris paribus assumption (e.g., income), holding the good's price constant.
SurplusWhen the amount that the quantity supplied exceeds the quantity demanded when the market price is above the equilibrium price
Ceteris Paribus______ Latin term that used in economics means all other non-price factors that affect the amount we consume or produce do not change.
Inflation RatePercentage increase in the average level of prices.
Nominal Gross Domestic Product (GDP)The market value of final goods and services (i.e., sold to final consumers) produced by a nation during a specific period, usually 1 year.
GoodsTangible things that satisfy people's wants and desires.
EquilibriumA market is in _______ when the quantity demanded is equal to quantity supplied at the market price.
MarketA _______is a collection of suppliers and consumers engaged in trade.
ShortageWhen the amount that the quantity demanded exceeds the quantity supplied when the market price is below the equilibrium price.
Demand scheduleWe can represent a single person's decision about how many items to purchase over a year in a table called a _______.
Economic Goods and ServicesGoods and services those are scarce. There is an opportunity cost involved in their use or consumption.
Deflation RatePercentage decline in the average level of prices.
Normal GoodAn increase in income leads to an increase in demand (the demand curve shifts to the right).
Inferior GoodAn increase in income leads to a decrease in demand (the demand curve shifts to the left).
Free GoodsThings that are available in sufficient amounts to satisfy all possible needs. There is no opportunity cost involved in their use or consumption.
Competitive Free MarketWhen many suppliers and many consumers (competitive) engaged in trade without interference from government (free).
RecessionA period of decline in total output, income, employment, and trade, usually lasting from six months to a year.
Nominal Gross Domestic Product (GDP)__________________ - the market value of final goods and services (i.e., sold to final
consumers) produced by a nation during a specific period, usually 1 year.
Expenditure approachWhat approach that measures total economic activity by adding the amount spent by allultimate or final consumers of products and service?
Purchasing Power___________is the quantity of goods and services that can be purchased with a given amount of money; the value of money
Price Index__________is the measure of the average level of prices for some specified bundle of goods and services, relative to the prices in a specified base year
DeflationWhen the average level of prices declines, this is called _________.
TRUEGDP Deflator = Nominal (current-dollar) GDP /Real (constant-dollar) GDP * 100
TRUEPrice Index = current-year total cost of market basket of goods and services / base-year total cost of market basket of goods and services
FALSEDeflation Rate = Price Index Year 2 - Price Index Year 1 /Price Index Year 1 * 100
TRUENet Domestic Product (NDP) = C + In + G + NX = GDP - depreciation
Non Renewable Natural ResourcesWhat kind of resources in which examples are petroleum, natural gas, coal, and nonfuelminerals extracted from the ground is included in GDP in the products produced from them
GDPTransfer Payment - a payment made for which no goods or services are provided in return. Transfer payments are excluded from _______.
TRUEReal GDP - value of total output corrected for any changes in prices. Also referred to as "constant-dollar" GDP.
Real GDP is reported quarterly by the Bureau of Economic Analysis
Pushed PricesWhen the price of resources in the production process increases, firms try to pass on these increases to the product price this is called ________.
TRUEThe GDP Deflator is described as a variable-weight price index (also referred to as a Paasche price index)
Nominal Gross National Product (GNP)_____________________- the market value of final goods and services produced by labor and property supplied by the residents of a nation during a specific period, usually 1 year.
Value Added____________________the amount by which the value of a firm's finished products exceeds the value of goods and services the firm purchases
FALSEWhen the government increases money supply faster than the economy is growing you generally end up with deflation.
Inflation Rate__________- percentage rate of increase in the price index per period.
Menu costs________ represent a cost to not only individuals but also the macroeconomy or reduce overall economic efficiency in that they represent an unnecessary cost of transforming resources into final goods and services.
GDP Deflator___________ is also known as the Implicit GDP Deflator or Implicit Price
CPI or Consumer Price Index__________ is described as a fixed-weight price index (also referred to as a Laspeyres price index), which measures the cost of a fixed basket of goods relative to a base period
Price CeilingA legal requirement that maintains the market price below the equilibrium price.
Supply curveThe __________ is a graphic representation of the market supply schedule and the Law of Supply
Nominal Gross National Product (GNP)The market value of final goods and services produced by labor and property supplied by the residents of a nation during a specific period, usually 1 year.
MicroeconomicsAnalysis of the behavior of individual decision-making units (individuals, households, firms).
Nominal Interest RateThe market interest rate that is paid by borrowers to lenders.
Price floorA _______ is the opposite situation of a price ceiling.
Business CycleRecurrent, systematic fluctuations in the level of business activity, often characterized by changes in growth rate of real GDP.
Productivity______________ - average output per hour of labor (e.g., total real GDP divided by the total number of labor-hours worked)
InflationWhen the average level of prices increases over time the economy is said to be experiencing _______________.
Underground economy____________consists of transactions that are not documented for various reasons.
Hyperinflation___________ is a term used to denote a very high rate of inflation.
Leisure timeWhat do you call the hours (not rendered) beyond government mandated 40 hour work week
Real wage___________ is nominal wage corrected for the average level of prices.
Natural Rate of Unemployment_____________ unemployment arising from frictional, structural, and seasonal unemployment, further as described as the unemployment rate that coexists with macroeconomic stability.
Unemployment Rate___________ = (Number Unemployed / Labor Force) * 100
TRUELabor is a service that is supplied by individuals and demanded by firms.
TRUEUnemployment Rate (percent) = Unemployed/Total Labor Force * 100
TRUEHyperinflation is generally caused by governments printing money to finance large fiscal deficits caused by wars, revolutions, the establishment of new states, or exorbitant social programs.
FALSEProduction Costs = opportunity costs of resources required (e.g., cash costs) to change prices.
FALSEStructural Unemployment - dynamic labor force in a stable economy with imperfect information.
Labor Demand Curve___________ is the amount of labor demanded by firms at a given real wage rate.
Participation Rate___________ = Labor Force / Civilian Non institutional Population * 100
TRUEDemand-Pull Inflation - caused by an increase in aggregate demand for goods and services.
TRUEGDP Deflator = Nominal GDP/Real GDP x 100
TRUECivilian Non institutional Population - persons 16 years of age and older who are not inmates of institutions
TRUEDeflation = Decrease in average level of prices
TRUEConsumer Price Index=Only goods and services purchased by households included Quantities fixed (the market basket) Imports (of consumer goods) included.
TRUEAnother problem with the unemployment rate as a measure of overall labor activity is that the employed may not be working as much as they would like
TRUECost-Push Inflation - caused by an increase in the costs of production of goods and services.
Cynical__________ Unemployment is associated with business cycles and, more particularly, with temporary downturns in the economy
Full Employment Output_________ is the level of output at which the labor market is at its natural rate of unemployment.