Macroeconomics: Chapter 6 Test Questions – Flashcards
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Self-regulating economy
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Problems such as unemployment are resolved without the intervention of the government. The economic problems are solved through the working of the invosible hand
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Keynesian Economics - who developed it
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John Maynard Keynes (British Economist) developed Keynesian economics
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When was Keynesian economics developed
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Keynesian economics was developed in 1936
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Keynesian economics definition
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Keynesian economics is an ideology that explains that economic slumps are caused by the consumers' inadequate spending. Keynesian economics also supports government intervention, and says that it is crucial for economic success These economic slumps can be mitigated by government intervention
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What are two policies that the government may enact to help the economy
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Monetary Policy Fiscal Policy
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Monetary Policy
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Monetary Policy uses changes in the quantity of money to alter interest rates and affect overall spending
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Fiscal Policy
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Uses changes in the government spending and taxes to affect overall spending
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Another word for recessions
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Contractions
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Another word for expansions
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Recoveries
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Recessions
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Periods of economic downturn when output and employment rates are falling
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Expansions
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Periods of economic upturn when output and employment rates are rising
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Business Cycle
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The short-run alternation between recessions and expansions
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Business-cycle peak
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The point at which the economy switches from an expansion to a recession
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Business-cycle trough
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The point at which the economy switches from a recession into an expansion
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Long-run economic growth (definition and is it a relatively new phenomenon?)
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The sustained upward trend of economic output over time Yes, long-run economic growth is a relatively new phenomenon
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Inflation
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A rising overall level of prices
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Deflation
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A falling of the overall level of prices
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Will the employment rate ever be at 0%
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The unemployment rate will never be at 0%, simply because of different factors. A person may quit the job because of difficulties, or an individual may be fired for doing poorly. But, there is indeed a type of unemployment rate that should be avoided.
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What type of unemployment rate is always tried by economists to be avoided
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Cyclical unemployment rate should be tried to always be kept at 0% - this unemployment rate is caused and increased due to recessions
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Price Stability - is it wanted by all economists?
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The economy has price stability when the overall level of prices hardly changes, or does not change at all
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Open Economy
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An economy that trades goods and services with other countries
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Trade deficit
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A country runs a trade deficit when the value of goods and services bought from other countries is more than the value of goods and services it sells to them (the country imports more than it exports)
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Trade Surplus
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A country runs a trade surplus when the value of goods and services bought is less than the value of goods and services being sold to the other countries (the country exports more than it imports)
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What is an example of a country that is running a trade deficit
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The United States
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What are three countries that are running trade surpluses
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Germany China Saudi Arabia
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Do trade deficits and trade surpluses indicate the success of the company?
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No, trade surpluses and trade deficits do not indicate the success of the country's economy because of how one may think that being in a trade deficit is bad, but, the United States' economy is certainly more sound than that of Saudi Arabia's. The United States is running a trade deficit (importing more than exporting) because of how that fits with the economy at the moment. The nation's GDP is doing just fine, and when looking around, it is clear that the nation's economy is doing well. This does not mean that having a trade surplus (exporting more than importing) is bad by any means
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What is a good indicator of a country's success?
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The GDP - Gross Domestic Product
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What is the GDP
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The gross domestic product is the total value of goods and services produced within the country over a certain period of time (this certain period of time is typically one year in length)
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What study of economics came first, Macro or Micro?
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Microeconomics came first because of how it had already been developed and a well studied branch by the Great Depression in the 1930s. Macroeconomics came soon after the Great Depression as people wanted to know why economic slumps occurred, and how to fix them
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Economics is about....
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Choices! Decisions!
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What do policy makers seek to do to business cycles
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Policy makers seek to diminish the severity of business cycles
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Macroeconomics definition
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The study of the economy as a whole rather than individual markets
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Macroeconomists study things like:
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Inflation Deflation Unemployment Rates Government Policies Trade Deficits and Surpluses And so on
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What is the definition of macroeconomics -slide
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Macroeconomics is the study of large scale economic issues such as those which affect the entire economy
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Is it true that macroeconomics is a highly practical discipline because of how it deals with principles that impact every part of life?
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Yes, macroeconomics is a highly practical discipline
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Why does the economy have an impact on almost every part of people's lives:
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The economy has an impact on almost every part of people's lives because of how the nation's economic well-being affects its employment, healthcare, consumer confidence, and so forth
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What two things does macroeconomics do?
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Macroeconomics does really just two things; It measures the economy Fixes it when it's broken
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The rest is details:
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What should the economy look like? How should the economy be fixed?
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Label whether question is microeconomic or macro: Should I go to business school or take a job right now? What determines the cost to a university or college of offering a new course? What determines the overall level of prices in the economy as a whole? What determines whether Citibank opens a new office in shanghai How many people are employed in the economy as a whole this year?
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Microeconomics Microeconomics Macroeconomics Microeconomics Macroeconomics
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National income
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Analyses the wealth a nation generates
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GNP stands for
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Gross National Product
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GDP stands for
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Gross Domestic Product
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National Net Income definition
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The sum of income taken from household incomes, business incomes, and government in ones
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What's the difference between GNP and GDP
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GDP - total value of goods and services produced by the country within a certain period of time GNP - total value of goods and services produced by a country, plus, the value of the goods and services produced by the companies but are located in other countries.
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Inflation
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How the cost of goods and services increases over time
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Economic output
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Goods and services which a national economy produces
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International trade
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Trade that occurs between nations and involves the trading of goods, services, and raw materials
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Paradox of thrift
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This paradox of thrift explains the people's reactions toward deflation and inflation. When there is a deflation, consumers will resist themselves from purchasing goods and services because of how they believe that the prices will continue to go down. This lack of investment will negatively affect the economy's success. When there is an inflation, many people will no longer be able to afford certain products, which will no longer allow them to invest into the economy's well-being. Basically, when families are worried about economic hard times, they cut back on spending, which hurts the economy even more!
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Can production and trade be illustrated through the circular-flow diagram?
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Yes, production and trade may indeed be illustrated through the circular-flow diagram.
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How does the circular flow diagram work? - draw it out on a sheet of paper
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Draw it
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Macroeconomics focuses on...
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Macroeconomics focuses o the economy as a whole
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Who supported a self regulating economy?
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Hayek
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Hayek vs Keynesian (major difference)
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Hayek supported a self regulating economy, one that fixes its economic slumps through the use of the invisible hand, NO government intervention Keynesian economics - consumers play a large role in the economy's success, and government intervention should be available to mitigate economic simple
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What four aspects are part of the business cycle
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Recessions Expansions Peaks Troughs
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How has the GDP been since the 1950s?
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The GDP, since 1950, has shown long run economic growth (a sustained upward trend in economic output over time)
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What is the difference between GDP and Real GDP
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GDP includes inflation rates while Real GDP excludes the inflation rates from its totals
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Is GDP or Real GDP used more often
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Real GDP is used more often than GDP because of how it provides more accurate statistics on the nation's success
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What is a quarter?
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A quarter signifies three months in one year
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When do economists officially label an economic situation a recession or an expansion
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If the economic situation portrays economic recession or expansion factors/indications for three months in a row (a quarter)
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How has the unemployment rate been since 2007
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The unemployment rate increased dramatically from 2007 to 2009 because of the Great Recession, but since then, it has been decreasing over a long period of time.
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What is the current unemployment rate
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The current unemployment rate is hovering around 4.3 or 4.4 percent - which is amazing, considering how in 2009, it had been 10 percent
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What was different between the Great Recession and the Great Depression
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While the Great Recession and Great Depression were both horrible, the major difference between the two was that the recession lasted for far less time than the Great Depression. Not only was there more government involvement, but the study of Macroeconomics has developed drastically since the Great Depression, allowing us to deal with recessions much more efficiently
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What is a Depression?
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The worst form of a recession Recession - my next door neighbor was fired from work yesterday Depression - my next door neighbor and I were fired yesterday
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What do economists try to do to the business cycle and have they been successful?
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Economists try to smooth out the business cycle, but sadly, they haven't been too successful at doing so : multiple recessions and the Great recession
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Americans have become able to afford many more material goods over time thanks to...
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Americans have been able to afford many more material goods over time thanks to long-run economic growth
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Was the 2001 recession milder than the 2007-2009 recession?
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Yes, the 2001 recession was milder than the 2007-2009 recession
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Is the European Union still being affected by the Great Recession?
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Definitely, especially the country of Greece, whose GDP has been decreasing continuously over the last several years
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What happened to Canada and Argentina during the 20th century?
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Argentina and Canada began the 20th Century looking like twins but ever since, Canadas standard of living is 3x higher than Argentina's. Canada is on par with the US's standard of living b/c of how Argentina dealt with high inflation and political instability
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In the short-run, movements of inflation are closely related to the...
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Business cycle When the economy is depressed, inflation tends to decrease, but if the economy is booming, inflation tends to rise
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What is the overall level of prices determined by in the long run
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In the long run, the overall level of prices is determined by the changes in money supply
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Why are inflation and deflation problematic
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These are problematic because deflation will cause people to save money, because of how money ultimately gains value over time. This can deepen a recession. On the other hand, inflation causes people to spend all of their money, because of how the value of money decreases over time, and in the worst cases, people stop using cash all together.
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Fast food measure of economy: McDonald's sold hamburgers for how much in 1954, and how much I'm 2013? What happened to overall consumer prices?
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1954 - hamburgers were sold for .15 cents each 2013 - hamburgers were sold for 1 dollar (6.5x higher) each Overall consumer prices rose even faster than this increase (8.5x)
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Countries with high investment relative to savings run...
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Trade Deficit
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Countries with low investment, relative to savings run...
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Trade surplus
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This year the value of a country's imports is equal to $1.2 billion, and the value of its exports is equal to $1.3 billion. This country is running a: Trade Deficit Trade Surplus
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This country is running a trade surplus
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When did Spain give up the Peseta for the Euro and what happened
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Spain gave up the Peseta for the Euro in 1999 and at first, the surplus caused a decrease in GDP, but over years, the GDP began to rise and stabilize itself one more (long-run economic growth)
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Montgomery Ward - what happened?
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Montgomery Ward during the Great Depression, had cut back on spending and saved money, which allowed them to survive. After WWII, the company did this yet again, which caused them to lose out on investments, and ultimately make them lose their success (Sears took over)
