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Questions and Answers
What does the economic theory deal with?
What does the economic theory deal with?
It deals with the basic proposition of how human beings or economic units behave against the problems of scarcity and react to observed changes.
Which branch of economics studies the behavior of an economy as a whole?
Which branch of economics studies the behavior of an economy as a whole?
Macroeconomics examines the individual income and demand and supply of labor in the economy.
Macroeconomics examines the individual income and demand and supply of labor in the economy.
False
______ publishing 'The General Theory' was a significant development in the field of macroeconomics.
______ publishing 'The General Theory' was a significant development in the field of macroeconomics.
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Match the following macroeconomic goals with their descriptions:
Match the following macroeconomic goals with their descriptions:
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What does the term 'opportunity cost' refer to?
What does the term 'opportunity cost' refer to?
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What is the focus of microeconomics?
What is the focus of microeconomics?
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Macroeconomics studies individual income.
Macroeconomics studies individual income.
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In Macroeconomics, the whole is ____________ than the sum of its parts.
In Macroeconomics, the whole is ____________ than the sum of its parts.
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Match the following goals with their objectives:
Match the following goals with their objectives:
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Study Notes
Economic Problem
- Human wants are unlimited, while resources are scarce, leading to the problem of scarcity and choice.
- Opportunity cost is the next best alternative choice that has been forgone, applicable to both micro and macro level decisions.
Classification of Economics
- Microeconomics studies individual entities like individuals, markets, firms, and households, focusing on micro aspects of the economy.
- Macroeconomics examines the behavior of the economy as a whole, studying aggregate behavior, and the interactions between individuals and firms.
- Long-run growth depends on economic aggregates, with macroeconomics considering the long-run growth rate and microeconomics focusing on the amount of output the economy is capable of producing.
Development of Macroeconomics
- Before Keynes' "General Theory", the distinction between micro and macro economic issues did not arise.
- The Great Depression of 1929 highlighted the need for separate study of macroeconomics, as classical models failed to explain prolonged high unemployment.
- Keynes' work led to the development of macroeconomics, emphasizing government intervention to affect output and employment.
Goals and Objectives of Macroeconomic Policies
- Full employment: ensuring all available resources are employed to produce goods and services, not necessarily 100% of the working labor force.
- High level of output (GDP): providing abundant goods and services, with GDP measuring the market value of entire output in a country during a year.
- Price stability: maintaining stable prices, with a steady level of low-moderate inflation, and avoiding high inflation or deflation.
- Economic growth: increasing the full production output level of a country over time, measured by growth in GDP or per capita income.
- Equitable distribution of income: narrowing the gap between higher and lower income groups, potentially through taxation.
- Sustainable Balance of Payment: maintaining a positive balance of trade, with net exports being the difference between the value of exports and imports.
Economic Problem
- Human wants are unlimited, while resources are scarce, leading to the problem of scarcity and choice.
- Opportunity cost is the next best alternative choice that has been forgone, applicable to both micro and macro level decisions.
Classification of Economics
- Microeconomics studies individual entities like individuals, markets, firms, and households, focusing on micro aspects of the economy.
- Macroeconomics examines the behavior of the economy as a whole, studying aggregate behavior, and the interactions between individuals and firms.
- Long-run growth depends on economic aggregates, with macroeconomics considering the long-run growth rate and microeconomics focusing on the amount of output the economy is capable of producing.
Development of Macroeconomics
- Before Keynes' "General Theory", the distinction between micro and macro economic issues did not arise.
- The Great Depression of 1929 highlighted the need for separate study of macroeconomics, as classical models failed to explain prolonged high unemployment.
- Keynes' work led to the development of macroeconomics, emphasizing government intervention to affect output and employment.
Goals and Objectives of Macroeconomic Policies
- Full employment: ensuring all available resources are employed to produce goods and services, not necessarily 100% of the working labor force.
- High level of output (GDP): providing abundant goods and services, with GDP measuring the market value of entire output in a country during a year.
- Price stability: maintaining stable prices, with a steady level of low-moderate inflation, and avoiding high inflation or deflation.
- Economic growth: increasing the full production output level of a country over time, measured by growth in GDP or per capita income.
- Equitable distribution of income: narrowing the gap between higher and lower income groups, potentially through taxation.
- Sustainable Balance of Payment: maintaining a positive balance of trade, with net exports being the difference between the value of exports and imports.
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Description
An introduction to macroeconomics, covering economic problems, classification of economics, development of macroeconomics, and goals of macroeconomic policies.
