Deck 1: Introduction

Question 1

In general terms describe trends in the inflation rate,considering the period since 1953.How are these trends related to movements in the inflation rate over this period?

Answer 1

Trend inflation rose steadily in the 1950s and 1960s,then rose dramatically during the 1970s.Beginning in the early 1980s,inflation fell precipitously until 1987,then has remained relatively constant around 2% since.

Question 2

Explain the difference between macroeconomic variables that are in terms of levels and growth rates.Which important macroeconomic variables are which? Which one is the unemployment rate?

Answer 2

Variables such as GDP and the price level are in terms of levels.Inflation and GDP growth are in terms of growth rates,meaning that they are measured between two different points in time.Unemployment rates are a percentage,but the unemployment rate is not a growth rate because it is not measured over time.

Question 3

We measure economic growth by the percentage change in real GDP.In general terms outline the course of the U.S.output growth rate in recent decades,both in terms of its trend and its changes around trend.Pay particular attention to the stability of the growth rate.

Answer 3

Real output growth has been highly volatile around a trend of roughly 3% a year.It was relatively steady during the 1960s and consistently positive.During the 1970s and early 1980s there were numerous periods of negative growth.Since 1983,growth has been positive and relatively stable except for brief periods in 1990-1991 and 2001.

Question 4

Both the trade and budget balance were in roughly zero until the 1980s when the budget deficit increased dramatically and the U.S.trade deficit increased dramatically.However,during the late 1990s the budget deficit shrank-in fact,moving to surplus-at the same time that the U.S.trade deficit increased significantly.Since 2000,the budget deficit has increased significantly,particularly after 2008.What is the relationship between a country's trade balance and its stance as a borrower or lender? Historically,has the U.S.been a net lender or net borrower? Why do you think that this is? Do you think that the U.S.budget situation might have anything to do with this?

Question 5

What determines the rate of growth in output over periods of one or two decades? Over longer periods such as a century?

Question 6

Explain the difference between Microeconomics and Macroeconomics.

Question 7

What is meant by real Gross Domestic Product? How do you think that you calculate a real statistic?