chapter 4

Question 1

what is macroeconomics

Answer 1

study of the economy as a whole, it examines forces that impact firms, consumers, and overall economic performance. it focuses on broad economic activities such as GDP, inflation, employment, and government policies

Question 2

types of analysis

Answer 2

1. short term analysis
2. long term analysis

Question 3

what is short term analysis

Answer 3

examines business cycle fluctuations

Question 4

what is long term analysis

Answer 4

focuses on trends in outputs, living standards, and economic growth

Question 5

what is the historical context

Answer 5

1. markets naturally correct themselves when disequilibrium occurs
2. however the great depression and stock market crash demonstrated that self correction was not always effective requiring a shift in economic policies

Question 6

what are key arguments

Answer 6

1. unemployment and unused capacity can persist in market economies, making government intervention necessary
   2.government intervention is applied through fiscal and monetary policies in order to promote output
2. these policies shorten the downturn of a business cycle

Question 7

what does the employment act of 1946 focus on

Answer 7

1. why do output and employment decline sometimes?
2. what are the sources of price inflation and how can we control them
3. how can a nation increase it’s economic growth

Question 8

what are the 3 main objectives of macroeconomics

Answer 8

1. output
2. employment
3. stable prices

Question 9

what are the types of gdp

Answer 9

nominal and real

Question 10

how to calculate gdp growth rate

Answer 10

(GDP today-GDP last year / GDP last year) x100

Question 11

economic policy instruments

Answer 11

1. fiscal policy
2. monterey policy

Question 12

what is fiscal policy

Answer 12

1. government expenditures
2. taxation

Question 13

what is monterey policy

Answer 13

1. regulating financial institutions
2. buying and selling bonds

Question 14

what does government expenditures impact (fiscal policy)

Answer 14

1. overall spending and private consumption

Question 15

what does taxation impact

Answer 15

influence private spending, saving, and reduces disposable income

Question 16

what is soft landing

Answer 16

a strategy where the government raises taxes to slow economic growth and prevent overheating

Question 17

what is fiscal policy used for

Answer 17

1. long term economic growth
2. stimulate spending during recessions

Question 18

who controls monterey policy

Answer 18

central bank

Question 19

what does monetary policy affect

Answer 19

1. short term interest rates
2. credit conditions
3. actual GDP and potential GDP

Question 20

fiscal vs monetary policy effectiveness

Answer 20

1. monetary policy: faster and has immediate impact
2. fiscal policy: slower due to legislative approvals

Question 21

how to calculate changes in price from one period to another

Answer 21

CPI

Question 22

how to calculate CPI

Answer 22

(prives in year 2 - prices in year 1 / prices in year 1) x100