[MACRO] 01 - Introduction

Question 1

Definition: Macroeconomics

Answer 1

Deals with the economy as a whole. Macroeconomics focuses on the determinants of total national income, deals with aggregates such as aggregate consumption and investment, and looks at the overall level of prices instead of individual prices.

Question 2

3 Economic Problems handled by Macroeconomics

Answer 2

1) Unemployment
2) Inflation
3) Output Growth

Question 3

Definition: Aggregate Behaviour

Answer 3

The behaviour of all households and firms together

Question 4

Definition: Sticky Prices

Answer 4

Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded.

Question 5

Definition: Stagflation

Answer 5

Occurs when the overall price level rises rapidly (inflation) during periods of recession or high and peristent unemployment (stagnation)

Question 6

Definition: Inflation

Answer 6

An increase in the overall price level

Question 7

Definition: Hyperinflation

Answer 7

A period of very rapid increases in the overall price level

Question 8

Definition: Deflation

Answer 8

A decrease in the overall price level (mainly a theoretical concept)

Question 9

Definition: Business Cycle

Answer 9

The cycle of short-term ups and downs in the economy

Question 10

Definition: Aggregate Output

Answer 10

The total quantity of goods and services produced in an economy in a given period

Question 11

Definition: Recession

Answer 11

A period during which aggregate output declines for two consecutive quarters.

Question 12

Definition: Depression

Answer 12

A prolonged and deep recession.

Question 13

3 Types of Government Policies that influence macroeconomics

Answer 13

1) Fiscal Policy
2) Monetary Policy
3) Growth or supply-side policies

Question 14

Definition: Fiscal Policy

Answer 14

Gov. Policies concerning taxes and expenditures

Question 15

Definition: Monetary Policy

Answer 15

Tools used by the Federal Reserve to control the quantity of money in the economy

Question 16

Definition: Unemployment Rate

Answer 16

Number of unemployed adults/total labour force.

• Labour force only counts the individuals who are willing to work.

Question 17

Definition: Structural Unemployment

Answer 17

Unemployment that is caused by changes in the structure of the economy

Question 18

Definition: Critical Unemployment

Answer 18

Unemployment that is caused by a recessions or the business cycle.

Question 19

Definition: Disinflation

Answer 19

Decrease in the overall inflation rate. The Inflation rate can still be positive, but disinflation occurs when that rate decreases.

Question 20

4 Actors in the Macroeconomic World

Answer 20

1) Households
2) Firms
3) Government
4) Rest of the World

Question 21

Definition: Transfer Payments

Answer 21

Cash payments made by the gov. to people who do not supply goods, services, or labour in exchange of these payments. They include Social Security benefits, veterans’ benefits, and welfare payments.

Question 22

3 Markets in the Macroeconomic World

Answer 22

1) Goods-and-Services market
2) Labour market
3) Money (financial) market

Question 23

Definition: Goods-and-Services Market

Answer 23

Here Firms supply to the goods-and-services market. Households, the gov. and firms demand from this market

Question 24

Definition: Labor Market

Answer 24

Households supply the labour that firms and the gov. demand

Question 25

Definition: Money Market

Answer 25

Households supply funds to this market in the expectation of earning income and also demand (borrow) funds from this market.

The gov., firms and the rest of the world also engage in borrowing and lending, coordinated by financial institutions

Question 26

Definition: Corporate Bonds

Answer 26

Promissory notes issued by corporations when they borrow money

Question 27

Definition: Expansion/Boom (Business Cycle)

Answer 27

The period in the business cycle from a trough up to a peak, during which output and employment rise.

Question 28

Definition: Recession/Slump (Business Cycle)

Answer 28

The period in the business cycle from a peak down to a trough, during which output and employment fall.