1. Introduction and National Accounts Flashcards
(19 cards)
How does the “From Micro to Macro” section define Economics and the levels it investigates?
◦ Economics is defined as the study of dealing with scarce resources.
◦ It distinguishes three levels of investigation:
1. Individual economic level: Behavior of individual entities like households (utility maximization) and companies (profit maximization).
2. Level of interaction (markets): Relations and cooperation between economic entities.
3. Macroeconomic level: The overall result of individual actions and the environment for decisions
What is a key characteristic of modern macroeconomics according to the “From Micro to Macro” section?
◦ Modern macroeconomics is described as microeconomically sound.
◦ This means it is based on the aggregated decisions of individual households and enterprises.
The “From Micro to Macro” section provides examples to link individual actions to macroeconomic outcomes. What analytical distinctions are highlighted using these examples?
The examples, such as the real estate boom/crash or the effects of immigration on wages, highlight the importance of distinguishing between:
◦ Partial equilibrium and general equilibrium.
◦ Considering whether second-round effects exist.
◦ When the ceteris paribus (all else equal) assumption is justified.
◦ (Examples also include a simple vs. advanced model for immigration effects and finding oil / ‘Dutch disease’. The slide on page 22 includes charts related to the real estate example.)
What are the several markets identified as being of central importance at the macroeconomic level?
The central macroeconomic markets are the Goods market, the Financial market (including money and capital market), and the Labor market. The course is interested in the general equilibrium on all these markets.
Why is an understanding of macroeconomics important for managers, according to the sources?
◦ Managers need to make decisions like where to produce or in which markets demand will increase.
◦ The success of a company centrally depends on external factors like economic developments and economic policy decisions, which managers must correctly interpret.
◦ Successful management requires an understanding of the business environment, including relevant economic developments.
◦ The economic situation can develop rapidly and differently, implying the need to understand potential risks (e.g., asking if a collapse like Greece could happen in Switzerland).
How do economists analyze economic policy problems, according to the sources?
Economists use (mathematical) models. These models:
◦ Involve the specification of the problem, transparent assumptions, and consistent analysis.
◦ Allow for clear identification of model assumptions and causal relationships.
◦ Use mathematical functions to describe causal relationships.
◦ Include exogenous (independent) and endogenous (dependent) variables, and model parameters.
◦ Show dynamics and are suitable for comparative statics.
◦ Model statements are compared with empirical analysis.
What are the challenges and methods of empirical analysis in macroeconomics?
◦ Empirical analysis requires experiences and real events.
◦ A challenge is that there is no artificial laboratory data in macroeconomics; economists must use existing data based on past real situations.
◦ Key econometric findings in macroeconomics are based on time series data, “natural experiments” (like German reunification), and comparisons between countries (or regions, cantons). (An example given is analyzing the effect of Hartz reforms on German unemployment.)
What are the central economic variables that are key learning objectives of this macroeconomics course?
The central economic variables are:
◦ The total production and its growth rate (GDP).
◦ The unemployment rate.
◦ The rate of inflation.
◦ The learning objective is to understand their definition, determinants, and measurement for analysis and interpretation.
What is the Gross Domestic Product (GDP), and how is it commonly used?
◦ GDP is the most commonly used measure of economic performance since the mid-20th century.
◦ It summarizes the economic activities within a country and year.
◦ Nominal GDP measures the value of all final goods and services, expressed in current prices, produced in a country during a given period. It has a geographic focus, is a flow size, and measures value added to avoid double counting.
◦ Real GDP uses constant prices for calculation.
How is a recession defined based on GDP according to the sources?
Economists speak of a recession if the seasonally adjusted GDP falls for two consecutive quarters.
What is the difference between nominal and real values in economics?
◦ Nominal values are expressed in monetary units (e.g., nominal wages, nominal interest rate).
◦ Real values are measured in physical goods. They represent the actual measure of wealth or purchasing power (e.g., relative prices, real wages, real interest rates).
◦ An increase in nominal GDP can be due to an increase in production and/or an increase in prices.
Describe the simple economic cycle presented in the sources.
The simple economic cycle involves Households and Firms.
◦ Households are suppliers of production factors (Labor, capital, land) traded on Factor Markets.
◦ Households are also buyers of goods and services traded on Goods markets.
◦ Firms use factors from households to produce goods and services for households.
◦ Financial flows represent the monetary transactions: Sales revenue for firms equals GDP, which is also equal to Factor compensation (Wages, interest, dividends) received by households, which equals Household income, which equals Household expenditure on goods and services.
◦ (This concept is illustrated with a diagram on page 35 showing the flows.)
What are the three types of GDP measurement approaches described in the sources?
The three types are:
◦ Production approach: GDP equals the value of the final goods and services produced in the economy during a period.
◦ Income approach: GDP is the sum of all payments to factors of production (labor, capital, land).
◦ Expenditure approach: GDP is the sum of all spending on final goods produced within a country for private or public consumption, investment, or net exports.
◦ (An example involving an aluminum factory and car manufacturer is used to illustrate these concepts.)
What alternative approach to measuring economic activity is mentioned for countries or regions where standard GDP data is unavailable?
A new approach since 2012 uses satellite data on nighttime light intensity. This is mentioned as a method when standard GDP data is unavailable for many poorer countries or at regional levels.
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(The slide on page 38 includes a source citation for this method and a chart comparing nighttime light intensity change to GDP growth.)
How is Total Supply and Total Demand represented in a macroeconomic equation, according to the sources?
◦ Total supply consists of domestic production (Y) and imports (M).
◦ Total demand consists of household consumption (C), private sector investment (I), government expenditure (G), and exports (X).
◦ This relationship is expressed as Y + M = C + I + G + X.
◦ This can be rearranged to Y = C + I + G + (X - M), which represents GDP (Y) as the sum of consumption, investment, government spending, and net exports.
what is a gross domestic product ?
Gross domestic product is the value of all goods and services manufactured domestically during a given period that are not used as an advance payment for the production of other goods and services.
What is a gross national income ?
Gross national income is the value of all goods and services manufactured by nationals over a given period of time that are not used as a pre-output for the production of other goods and services.
What is a national income?
The national income of an economy is the income paid to the domestic factors of production labor and capital.
