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MODULE: MACROECONOMICS BB106 Unit 1: Introduction to Macroeconomics TUTORIAL 1

Question 1:

Macroeconomics is mainly concerned with two topics. What are these two topics and how are they related to each other? Macroeconomics is concerned with long-run economic growth and short-run changes in the levels of employment and output. These short-run fluctuations are known as business cycles Long-run economic growth and business cycles are related to each other because they happen simultaneously For example: in a country, there are a lot of different group of industry such as: automobile, service line and etc

Question 2:

What are the three primary measures used in macroeconomics to assess the performance of an economy? The three primary measures used in macroeconomics : real GDP, unemployment, and inflation Real GDP provides: an overall indicator of output or production in the economy unemployment measures : the degree to which labor resources are being fully used Inflation : tracks the overall increase in the level of prices in the economy Each measure is important for tracking the short-run and long-run health of the economy and for creating macroeconomic models to address important policy questions. example: gov should increase or reduce spending to stabilize county economic?

Question 3:

What is the opportunity cost of unemployment for an economy? What social problems have been linked to higher rates of unemployment? is the production of goods and services that could have been produced if the unemployed workers would have worked Besides forgone production, unemployment has been linked to a number of social problems such as crime, political unrest, depression, heart disease and other illnesses.

Question 4:

Assume that a painter produces 20 paintings this year and 20 paintings next year. What is the annual change in nominal GPD if the price of paintings rises from $1,000 this year to $1,500 next year? Can you conclude that the economy grew from this year to next year based on your answer? Why? - The nominal GDP (price times quantity) in year 1 is $20,000 and the nominal GDP in year 2 is $30,000 - The change in nominal GDP from the first year to the next is $10,000 - but the level of output stayed constant at 20 paintings per year - The economy grew in nominal terms because the price of paintings went up - In reality, this economy did not produce more output in the second year

- can conclude that real growth did not take place from year 1 to year 2
Question 5:

What is the difference between economic investment and financial investment? Give an example for each type of investment. - Economic investment : is the purchase of new capital goods, such as machinery, tools or factories with the purpose to produce goods and services. - example: The purchase of a construction crane - Financial investment : refers to the purchase of assets like stocks and bonds for financial gain. -example: purchase of Google stock - The main difference between these two types of investment is that financial investments do not contribute to the

production of output and are therefore not counted in GDP.

True / False Questions

1) The business cycle is primarily concerned with changes in the level of overall prices over time. F 2) Economists and policymakers are generally more concerned about nominal GDP than real GDP. F 3) Real GDP per capita is found by subtracting population from real GDP.F 4) Any person without a job is considered to be unemployed. F 5) If the total population is 175 million, the labor force is 100 million, and 89 million workers are employed, then the unemployment rate is 11 percent. T

6) Inflation reduces the purchasing power of a person's income and savings. T 7) Buying 100 shares of Google stock would be an example of economic investment. F 8) A nation that wants to invest in more newly created capital in the present must be willing to forgo present consumption. T 9) The United States has had significant trade and current account surpluses in recent years. F 10) Expansionary fiscal policy is so-named because it involves an expansion of the nation's money supply. F

Multi-Choice Questions

1. Macroeconomics is mostly focused on: A. the individual markets within an economy. B. only the largest industries in the economy. C. the economy as a whole. D. why businesses fail. 2. Nominal gross domestic product A. is a measure of the overall level of prices B. measures the value of final goods and services produced within the borders of a given country during a given time period using current prices C. measures the value of final goods and services produced within the borders of a

given country during a given time period corrected for changing prices D. only changes when the level of output changes 3. Real GDP refers to: A. the value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income. B. GDP data that embody changes in the price level, but not changes in physical output. C. GDP data that reflect changes in both physical output and the price level. D. GDP data that have been adjusted for changes in the price level. 4. Suppose a small economy produces only DVDs. In year 1, 100,000 DVDs are produce and sold at a price of $10 each. In year 2, 100,000 DVDs are produced and sold at a price of $20 each. As a result A. Nominal GDP does not change from year 1 to year 2 B. Real GDP increases from $1M to $2M

C. Real GDP does not change from year 1 to year 2 D. Real GDP decreases from $2M to $1M 5. Short-run fluctuations in output and employment are referred to as A. business cycles B. economic growth C. inventory cycles D. recessions 6. Unemployment describes the condition where: A. equipment and machinery are going unused. B. a person cannot get a job, but is willing to work and is actively seeking work. C. a person does not have a job, regardless of whether or not they want one. D. any resource sits idle.

7. Suppose a family's income increases by 5% at the same time that inflation is 6%. Then

A. the family's standard of living will increase B. the family's standard of living will not change C. the family's standard of living is not affected by inflation D. the family's standard of living will fall 8. Which of the following is the best example of economic investment? A. Apple builds a new plant to manufacture iPhones B. Your college purchases a 5-year old building in order to offer more classes C. A retiree purchases U.S. government bonds D. Your purchase Yahoo stock 9. The current account in a nation's balance of payments includes: A. its goods exports and imports, and its services exports and imports. B. foreign purchases of domestic assets. C. purchases of foreign assets. D. all of these.

10. Fiscal policy refers to the:

A. manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. B. manipulationof government spending and taxes to achieve greater equality in the distribution of income. C. altering of the interest rate to change aggregate demand. D. fact that equal increases in government spending and taxation will be contractionary.