40 Questions
When did macroeconomics emerge as a separate branch of economics?
During the 1920s and 1930s
What is the main focus of macroeconomics?
Long-run economic growth and short-run fluctuations in output and employment
What is Gross Domestic Product (GDP) used to measure?
The value of goods and services produced within a country's borders
What is the term used to describe short-run contractions and expansions in economic output?
Business cycle
What is the upward phase of the business cycle called?
Boom
Why might an increase in GDP not necessarily indicate economic improvement?
Because GDP does not account for inflation
What is the study of macroeconomics concerned with?
The performance of national economies and government policies
What are the two main concerns of macroeconomics?
Economic growth and business cycles
What is the term for a situation where a person is willing to work but cannot get a job?
Unemployment
What is a rapid increase in prices of goods and services called?
Inflation
What is the term for a trade situation where exports exceed imports?
Trade Surplus
What is the term for a policy that concerns government spending and taxation?
Fiscal Policy
What is the term for a situation where prices of most goods and services are falling?
Deflation
What is the term for an economy that has extensive trading and financial relationships with other national economies?
Open Economy
What is the term for a situation where a country's inflation rate exceeds 50% per month?
Hyperinflation
What is the term for a policy that influences the growth of money supply?
Monetary Policy
What is a shock in the economy?
A situation in which firms expect one thing to happen but something else happens.
What determines how demand shocks affect the economy?
The flexibility of prices.
What is the crucial assumption of the classical approach?
Wages and price flexibility
What happens when prices adjust quickly in response to a demand shock?
Prices rise.
What happens when prices adjust slowly in response to a demand shock?
Output changes.
Who introduced the Keynesian approach through a book?
John Maynard Keynes
What is critical to the model's implications about demand shocks?
The assumption about price stickiness.
What was the prevailing economic condition during the period when Keynes wrote his book?
Great Depression
Why do Keynesians argue that persistent unemployment occurs?
Because wages and prices adjust slowly
Who introduced the idea of the invisible hand?
Adam Smith.
According to Adam Smith, what leads to the maximization of the general welfare of everyone in the economy?
Individuals pursuing their own self-interest.
What is the solution to high unemployment proposed by Keynes?
Increasing government purchases of goods and services
What is a key assumption of the classical approach?
That people pursue their own self-interest.
What event led to a reduction in confidence in the Keynesian approach?
Stagflation
What is the term used to describe the combination of high unemployment and high inflation?
Stagflation
What happened to the classical approach in the 1970s?
It experienced a major resurgence
What happened to the total output of goods and services in some countries despite their standard of living not improving?
It increased many times over
What is the primary reason for the vast differences in living standards between rich and poor countries?
Some countries have experienced modern economic growth
What is the income group of Malaysia according to the World Bank data in 2021?
Upper Middle Income
What is the characteristic of countries that have experienced modern economic growth?
Their output per person rises
Which of the following countries has the highest GDP per capita in 2021 according to Table 1?
Monaco
What is the primary reason why some countries have not experienced an improvement in their standard of living despite an increase in their total output of goods and services?
Their population growth rates are similar to their output growth rates
Which of the following countries is classified as Low Income according to Table 1?
All of the above
What is the characteristic of countries that have not experienced modern economic growth?
Their output per person remains virtually unchanged
Study Notes
Introduction to Macroeconomics
- Macroeconomics is the study of the structure and performance of national economies and the policies that governments use to affect economic performance.
- Macroeconomics attempts to answer questions about long-run economic growth, short-run fluctuations in output and employment, and the causes of business cycles.
Macroeconomic Concerns
- Economic growth: an increase in a country's output of goods and services, measured by Gross Domestic Product (GDP).
- Business cycle: short-run fluctuations in economic output, including recessions and expansions.
- Unemployment: a state where a person is willing to work but cannot find a job.
- Inflation: a sustained increase in the general price level of goods and services in an economy over time.
Classical Approach
- Originated from Adam Smith's "The Wealth of Nations" (1776).
- Introduced the concept of the "invisible hand," where individuals pursuing their own self-interest leads to the maximum welfare of everyone in the economy.
- Assumes that free markets and individual self-interest will lead to economic well-being.
Keynesian Approach
- Introduced by John Maynard Keynes in "The General Theory of Employment, Interest, and Money" (1936).
- Argues that wages and prices adjust slowly, leading to persistent unemployment.
- Proposes that government intervention, such as increasing government purchases of goods and services, can help alleviate unemployment.
Classical vs. Keynesian Debate
- Keynesian approach dominated from WWII to 1970.
- Stagflation (high unemployment and inflation) in the 1970s led to a resurgence of classical macroeconomics.
- Modern classical macroeconomics emphasizes the importance of microfoundations and the role of expectations in macroeconomic outcomes.
Modern Economic Growth
- Rapid and sustained economic growth is a modern phenomenon.
- Started with the Industrial Revolution in England.
- Countries with output per person rising are experiencing modern economic growth.
International Economy
- Every major economy is an open economy, with extensive trading and financial relationships with other national economies.
- International trade and borrowing relationships can transmit business cycles from one country to another.
Explore the basics of macroeconomics, including the study of national economies, economic growth, and business cycles. Learn about the policies that affect economic performance.
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