Deck 5: An Introduction to Macroeconomics

Question 1

You probably use "aggregates" frequently in everyday discussions. Try to think of some examples. (Here is one: Have you ever said, "The students at this college generally think..."? What, precisely, did you mean?)

Answer 1

Examples of aggregates in day-to-day life
• Audience watching basket ball generally think that their respective countries will win the match.
• The producer of pizzas generally believes that, if the price of price of pizza goes down, more people will prefer to buy pizza.

Question 2

Which of the following problems are likely to be studied by a microeconomist and which by a macroeconomist?
a. The rapid growth of Facebook
b. Why unemployment in the United States rose from 2007 to 2010
c. Why Japan's economy grew faster than the U.S. economy in the 1980s, but slower in the 2000s
d. Why health-care costs have risen so rapidly in recent years

Answer 2

Micro Economics:
Micro economics deals with the individual behavior. It tells about the economic variables at the disaggregate level.
Macro Economic s:
Macro economics deals with the behavior of the entire economy. It tells about economy as a whole, which includes general price level, general employment, aggregate demand, aggregate supply, general wage rate, etc.
a.
Growth of F book - Micro economist:
The rapid growth of F book will be examined by a micro economist because in this case, the growth of a single firm (Facebook) is studied.
b.
Unemployment rate in the U.S. - Macroeconomist
The study is deals with the countries total unemployment. Since it deals with the aggregate unemployment, it is the macro economics study and the macro economist should examine this.
c.
Comparison of growth rates of the U.S. and Ja - Macroeconomist
The study is comparing the growth rate of two countries. Since the studies analyses the two countries growth rate, it is the macroeconomics study and should examined by the Macro economist.
d.
Study of health-care costs - Micro economist:
The study on rapid rise in health-care costs in recent years will be analyzed by a micro economist. The health care sector is a single sector. Since it is the single sector, it is come under micro economics category. Thus, it should be examined by the micro economist.

Question 3

Try asking a friend who has not studied economics in which year he or she thinks prices were higher: 1870 or 1900? 1920 or 1940? (In both cases, prices were higher in the earlier year.) Most people think that prices have always risen. Why do you think they have this opinion?

Answer 3

Reason for the expectation of increasing price over the period of time
Over the period of time, income of the people tends to increase; this in turn increases the cost of production. To compensate the increase in the cost of production, firms will increase the price of the commodities. Hence, the people believe that over the period of time, general price level in an economy increases.

Question 4

Use an aggregate supply-and-demand diagram to study what would happen to an economy in which the aggregate supply curve never moved while the aggregate demand curve shifted outward year after year.

Question 5

Give some reasons why gross domestic product is not a suitable measure of the well-being of the nation. (Have you noticed newspaper accounts in which journalists seem to use GDP for this purpose?)

Question 6

Which of the following transactions are included in gross domestic product, and by how much does each raise GDP?
a. Smith pays a carpenter $50,000 to build a garage.
b. Smith purchases $10,000 worth of materials and builds himself a garage, which is worth $50,000.
c. Smith goes to the woods, cuts down a tree, and uses the wood to build himself a garage that is worth $50,000.
d. The Jones family sells its old house to the Reynolds family for $400,000. The Joneses then buy a newly constructed house from a builder for $500,000.
e. You purchase a used computer from a friend for $200.
f. Your university purchases a new mainframe computer from IBM, paying $25,000.
g. You win $100 in an Atlantic City casino.
h. You make $100 in the stock market.
i. You sell a used economics textbook to your college bookstore for $60.
j. You buy a new economics textbook from your college bookstore for $100.