51 Questions
What is the focus of macroeconomics?
Macroeconomics focuses on the economy as a whole, analyzing issues such as economic growth, inflation, unemployment, and balance of trade.
Which of the following are considered key challenges in macroeconomics?
Inflation
Classical, Keynesian, and Monetarist are different schools of thought in macroeconomics.
True
What are some key areas covered by macroeconomics?
Macroeconomics covers areas such as fiscal policy, monetary policy, and the analysis of national income and economic output.
What are some examples of worldwide economic problems mentioned in the text?
poverty, unemployment, inflation, recession, population explosion
What is the expected outcome of studying Economics according to the text?
All of the above
Economics for Grade 12 will be covered in the total of ___ hours and ___ minutes per year.
87, 45
Studying Economics in Grade 12 is optional.
False
What are the two branches of economics traditionally divided into?
Microeconomics and Macroeconomics
What is the focus of microeconomics?
Individual decision-making behavior
Macroeconomics studies the economy as a whole, while microeconomics focuses on individual agents.
True
Macroeconomics focuses on ______ behavior of the economy.
aggregate
What does GDP stand for?
Gross Domestic Product
What is the measure of the market value of all final goods and services produced in a country in a year?
Gross Domestic Product
What does HDI stand for and who deployed it?
Human Development Index, United Nations Development Programme (UNDP)
What does inflation represent?
A regular and continuous rise in the general price level
Inflation is cumulative, which means even a small rise in price at the beginning may become a very large one in the ________.
future
Indexing wage contracts and interest rates to inflation helps retain purchasing power.
True
Match the following inflation types with their descriptions:
Creeping Inflation = Moderate inflation where the price level rises at a slow rate Hyperinflation = Uncontrollable rise in the prices of goods and services Deflation = General level of prices of goods and services decreases Galloping Inflation = Prices rise rapidly at a rate of 10 to 20% per year
Define inflation.
Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling.
List the phases of business cycles.
The phases of business cycles are expansion, peak, contraction, and trough.
Define trade deficit and surplus.
Trade deficit refers to a situation where a country imports more goods and services than it exports, leading to a negative balance. Trade surplus occurs when a country's exports exceed its imports, resulting in a positive balance.
Who was the pioneer proponent of economics?
Adam Smith
What are the major schools of thought in macroeconomic analysis?
Classical and Neoclassical
What is the main policy implication of neoclassical economics?
Government should focus more on long-term growth and controlling inflation.
Which economist is associated with the Laffer curve theory?
Arthur Laffer
Keynesian economics views recession as arising when aggregate demand is less than the level of output when labor is fully employed. The focus is on stimulating aggregate demand through _______________.
fiscal policy
Macroeconomics focuses on broad issues such as growth of production and the number of unemployed people. (True/False)
True
Match the economists with their respective schools of thought:
John Maynard Keynes = Keynesian Milton Friedman = Monetarist Robert Lucas = New Classical George Akerlof = New Keynesian
What are the factors that can cause a shift in aggregate demand?
Consumption, investment, government purchases, and net exports.
How does wealth influence consumption?
Greater wealth leads to increased consumption, while decreased wealth leads to decreased consumption.
How do expectations about future prices and income affect aggregate demand?
Expectations of higher future prices and income lead to increased consumption and aggregate demand, while expectations of lower future prices and income lead to decreased consumption and aggregate demand.
What factors affect investment?
All of the above
An increase in government spending will shift the aggregate demand curve to the right.
True
Why is the short-run aggregate supply (SRAS) curve upward sloping?
Due to sticky wages and worker misperceptions
What is the concept of sticky wages in relation to the SRAS curve?
Wages that are inflexible due to labor contract agreements or social conventions
Explain how real wages are calculated in relation to the price level.
Real wage = Nominal wage / Price level
In the scenario provided, what happened when the price index fell to 1.25?
The real wage rose to $24, leading to a decrease in the quantity of labor hired.
In the concept of sticky wages, the quantity supplied of goods and services increases when the price level drops.
False
Which one of the following is not a macroeconomic question?
What causes a firm to grow?
Technological change has the largest impact on which form of unemployment?
Structural unemployment
If the national economy is closed, i.e. a country has no interaction with the rest of the world, then GNP will always equal GDP.
False
Which one of the following refers to the recurrent ups and downs in the level of economic activity?
Business cycle
One of the following is not true about the evolution and recent development of macroeconomics.
The most recent wave of new Keynesian economics is more micro-based.
What is economic growth?
Economic growth refers to the increase in a nation's capacity to produce goods and services over time.
Differentiate between GDP and GNP.
GDP (Gross Domestic Product) measures the total value of all goods and services produced within a country, while GNP (Gross National Product) measures the total value of goods and services produced by residents of a country, both domestically and abroad.
What is inflation?
Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power.
What are the different types of unemployment and their causes?
The different types of unemployment include frictional, structural, and cyclical unemployment. Frictional unemployment occurs due to individuals transitioning between jobs, structural unemployment is caused by changes in the structure of industries, and cyclical unemployment is a result of changes in economic conditions.
Define a trade or business cycle and its phases.
A trade or business cycle refers to the recurring pattern of expansion and contraction in an economy. The phases of a business cycle include expansion, peak, recession, and trough.
Write the difference between the balance of trade and the balance of payments.
The balance of trade measures the difference between a country's exports and imports of physical goods, while the balance of payments includes all economic transactions between a country and the rest of the world, including goods, services, and capital transfers.
List and briefly explain the different schools of thought in macroeconomics.
Some key schools of thought in macroeconomics include Classical economics, Keynesian economics, Monetarism, New Keynesian economics, and Supply-Side economics. Classical economics focuses on free markets, Keynesian economics emphasizes government intervention during economic downturns, Monetarism advocates for controlling the money supply, New Keynesian economics integrates microeconomic foundations into Keynesian analysis, and Supply-Side economics emphasizes reducing barriers to production.
Study Notes
Introduction to Economics
- Economics is an important discipline that helps understand worldwide economic problems.
- The significance of economics has increased in recent years due to various economic issues.
- Poverty, unemployment, inflation, recession, and population explosion are worldwide problems that require an understanding of economics.
Importance of Economics Education
- The study of economics equips students with subject knowledge, understanding, skills, values, and attitudes.
- It helps students develop competencies to engage in the community as informed and active citizens.
- Economics education supports students in understanding their economic world and interpreting events that affect them directly or indirectly.
Student Profile and Textbook Contents
- The Ethiopian General Education Curriculum Framework (GECF) includes Economics as a compulsory general subject in Social Sciences and Agriculture.
- The student profile expected at the end of Grade 12 Economics study includes knowledge, attitude, digital literacy, communication skills, and business management skills.
Expected Outcomes of Grade 12 Economics Study
- Demonstrate appreciation for the link between production, distribution, and consumption.
- Articulate contemporary issues in economic growth and development.
- Participate in collaborative engagements aimed at social and economic development.
- Participate in citizenship activities, recognizing and appreciating cultural aspects and livelihood of various places.
- Define key terms of macroeconomic variables using enquiry skills.
- Articulate the link between poverty and environmental degradation.
- Contribute to efforts aimed at sustainable development in Ethiopia and beyond.### UNIT 1: THE FUNDAMENTAL CONCEPTS OF MACROECONOMICS
INTRODUCTION
- Macroeconomics studies the overall or aggregate behavior of the economy, such as the overall level of output, prices, and employment.
- The unit is divided into three sections: definition and focus areas of macroeconomics, key challenges, and schools of thought.
DEFINITION AND FOCUS AREAS OF MACROECONOMICS
- Macroeconomics is the study of the structure and performance of national economies and of the policies that governments use to try to affect economic performance.
- The focus areas of macroeconomics include:
- Aggregate behavior of the economy
- Economic growth
- Employment
- Inflation
- Distribution of income
- Macroeconomic policies
- International trade
MACROECONOMIC GOALS
- Macroeconomic goals include:
- Achieving economic growth
- Full employment
- Price stability
- Reducing budget or balance of payment deficit
- Ensuring fair distribution of income in society
MACROECONOMIC VARIABLES
- Examples of macroeconomic variables include:
- Gross Domestic Product (GDP)
- Gross National Product (GNP)
- Economic growth rate
- Price level (rate of inflation and deflation)
- Investment
- Savings
- Consumption
- Government budget
- Level of employment and unemployment
- Total labor force
- Demand for money and supply of money
- Total export
- Total import
- Trade balance
- Exchange rate
KEY CHALLENGES IN MACROECONOMICS
- At the end of this section, you will be able to analyze different challenges of macroeconomics.
- Key challenges include:
- Economic growth
- Inflation
- Unemployment
- Business cycles
- Balance of trade### Macroeconomic Variables and Challenges
- Macroeconomic variables include economic growth, inflation, unemployment, business cycles, and trade balance.
- Economic growth represents an increase in the capacity of an economy to produce goods and services, leading to higher incomes and living standards.
Economic Growth
- Economic growth rate is the rate at which the real GDP of a country increases over a period of time.
- A higher economic growth rate can be achieved by increasing the amount of factors of production (labour, land, capital, and productivity) and institutional arrangements (rule of law, property rights, and contractual rights).
- Economic growth measures economic performance in terms of value of income, expenditure, and output.
Challenges in Measuring Economic Growth
- Measuring real income in developing countries is not simple due to:
- Subsistence farmers producing for own consumption, which is not correctly reported.
- Underreporting income due to fear of tax and inefficient taxation systems.
- No allowance for non-monetary sectors in the national income account.
- Distortion in prices.
- Not deducting the cost of pollution and environmental degradation from gross national product (GNP).
Limitations of Measuring Economic Growth
- The national income is in value terms, which change as the price level changes.
- Does not take into account population growth, which can lead to an increase in national income without an increase in per capita income.
Alternative Measures of Economic Growth
- Real per capita income: the ratio of total GNP to total population.
- Human Development Index (HDI): a non-monetary index that measures the level of development, including indicators such as education, health, and life expectancy.
Inflation
- Inflation represents a regular and continuous rise in the general price level.
- Inflation is cumulative, and even a small rise in price in the beginning can become a large one in the future.
- The rate of inflation is the percentage change in the overall level of prices from one year to the next.
Effects of Inflation
- Inflation increases the cost of living, and decreases the purchasing power of currency.
- Inflation can lead to a decline in the standard of living.
Types of Inflation
- Creeping inflation: moderate inflation that occurs at a slow rate (less than 3% per year).
- Walking inflation: annual inflation rate of 3-10% per year.
- Running inflation: prices rise rapidly at a rate of 10-20% per year.
- Galloping or jumping inflation: prices rise at a quick rate (dual or triple-digit annual rates) for a short period.
- Hyperinflation: prices rise uncontrollably, for example, at a rate of more than 50% a month.
Causes of Inflation
- Demand-pull or cost-push inflation.
- Wage, profit, scarcity, deficit, currency, credit, and foreign trade-induced inflation.
Unemployment
- Unemployment is a macroeconomic problem that affects people most directly and severely.
- Unemployment has economic costs to broader society, including the opportunity cost of unused resources.
Types of Unemployment
- Frictional unemployment: occurs during the time when workers move between jobs.
- Cyclical unemployment: occurs due to a deficiency of aggregate effective demand resulting from business depressions.
- Structural unemployment: occurs when there is a lack of adjustment between demand for and supply of labour.
Labour Market Concepts
- Labour force: the sum of the employed and unemployed.
- Labour force participation rate: the percentage of the adult population that is in the labour force.
- Unemployment rate: the percentage of the labour force that is unemployed.
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