Lecture 1: Introduction and National Accounts

Question 1

What does microeconomics analyze?

Answer 1

How individuals and companies make decisions and interact in markets.

Question 2

What does macroeconomics analyze?

Answer 2

Overall economic issues like growth, investment, unemployment, and price stability.

Question 3

What is the main focus of macroeconomics?

Answer 3

The overall economic background – the sum of all decisions by households and firms.

Question 4

What types of economic development does macroeconomics analyze?

Answer 4

Both short-term and long-term developments.

Question 5

What is macroeconomics concerned with?

Answer 5

Distribution of scarce resources, economic environment, growth, and business cycle fluctuations.

Question 6

Give an example of a macroeconomic question.

Answer 6

How does the Swiss National Bank react to changes in growth prospects?

Question 7

What is GDP?

Answer 7

The market value of all final goods and services produced in a country in a given period.

Question 8

What is meant by “final consumption” in GDP?

Answer 8

It includes only final products, excluding intermediate goods.

Question 9

What does GDP exclude?

Answer 9

Illegal goods, home production, and past-produced items.

Question 10

What is the difference between GDP and GNI?

Answer 10

GDP = domestic production; GNI = income of a country’s residents (even from abroad).

Question 11

Example where GDP increases but not GNI?

Answer 11

A Polish worker working in Switzerland increases Swiss GDP, not GNI.

Question 12

Example where GNI increases but not GDP?

Answer 12

A Swiss company earning profits in Germany increases Swiss GNI, not GDP.

Question 13

What is the GDP expenditure formula?

Answer 13

Y = C + G + I + (X - M)
(C = consumption, G = government, I = investment, X = exports, M = imports)

Question 14

What are the three methods of measuring GDP?

Answer 14

Output measure (value added)

Income measure (factor payments)

Expenditure measure (total spending)

Question 15

Why can’t you just add up all sales revenue to get GDP?

Answer 15

It would double-count intermediate goods.

Question 16

What is nominal GDP?

Answer 16

Output measured with current prices.

Question 17

What is real GDP?

Answer 17

Output measured with constant base-year prices.

Question 18

What type of variable is GDP?

Answer 18

A flow variable (measured over time).

Question 19

What is the GDP deflator?

Answer 19

Nominal GDP / Real GDP – it shows price level changes.

Question 20

What is a more common inflation measure than the GDP deflator?

Answer 20

Consumer Price Index (CPI).

Question 21

How is GDP growth rate for one year calculated?

Answer 21

(Value new–Value old)/Value old

Question 22

How is average GDP growth rate over n years calculated?

Answer 22

(n-th root of Yn/Yt) - 1

Question 23

How do you calculate the GDP with “Output measure”?

Answer 23

GDP equals the value of the final goods and services produced in the economy during a given period of GDP is the sum of value added in the economy during a given period.

GDP = Total of all value added activities

	Calculation of GDP example bread:
	==> Total value added = farmers (30) + bakers (70) + grocers (20) = 120
	==> Sum of the value of final products = grocers (120)

Question 24

What triggered the 2007 financial crisis?

Answer 24

A decline in housing prices after years of increase, leading to widespread mortgage defaults and a collapse in complex mortgage-backed securities.

Question 25

Why did banks stop lending to each other during the 2007–2008 crisis?

Answer 25

They couldn't assess the risk of the complex mortgage-backed securities held by others and feared defaults.

Question 26

How did the financial crisis turn into a global recession?

Answer 26

Through reduced trade and financial linkages with other countries.

Question 27

What is the “zero lower bound” (ZLB)?

Answer 27

The constraint that nominal interest rates cannot fall below zero, limiting central bank policy effectiveness.

Question 28

Why are low interest rates potentially problematic for the economy?

Answer 28

They limit the central bank's ability to stimulate demand and may encourage excessive risk-taking.

Question 29

Why is the slowdown in productivity growth a concern in the U.S.?

Answer 29

Because it's occurring alongside rising inequality, making it harder for broad-based income gains to occur.

Question 30

What are two structural problems in Euro Area labor markets that may increase unemployment?

Answer 30

1. Strong worker protections making layoffs costly; 2. Generous unemployment benefits reducing job search incentives.

Question 31

Why is a common currency like the Euro potentially problematic?

Answer 31

It removes the ability to set country-specific interest rates and eliminates exchange rate adjustments as a policy tool.

Question 32

How did China avoid a major downturn during the 2008–2009 crisis?

Answer 32

Through large fiscal stimulus and increased public investment.

Question 33

What are the two main drivers of China’s long-term growth?

Answer 33

High capital accumulation and rapid technological progress (partly from joint ventures and foreign investment).

Question 34

How did political control potentially help China’s economic transition?

Answer 34

It allowed protection of property rights for new firms, fostering investment during the transition from central planning.

Question 35

What is hedonic pricing in GDP calculations?

Answer 35

A method that adjusts prices for quality changes in goods like computers to better measure real GDP.