ECON 11 LE3

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Questions and Answers

What does the unemployment rate represent?

The number of jobs available in the market

The percentage of wage workers in private establishments

The total number of employed individuals

The percentage of the labor force looking for work (correct)

How is price stability typically defined?

A balanced government budget

A high rate of economic growth

A low and declining unemployment rate

A low and stable inflation rate (correct)

What does the Consumer Price Index (CPI) measure?

The trend in the average price of goods and services bought by consumers (correct)

The percentage of consumers who are unemployed

The average income of consumers over time

The total expenditure of the national government

Which of the following is a tool of fiscal policy?

Government expenditures and taxes Signup and view all the answers

What is the effect of raising interest rates according to macroeconomic principles?

It makes borrowing more expensive Signup and view all the answers

Which type of government spending is included in GDP calculations?

Government worker salaries Signup and view all the answers

What is considered an omitted activity in GDP calculations?

Household activities Signup and view all the answers

Which of the following formulas correctly represents GDP?

GDP = Consumption + Investment + Government + Exports Signup and view all the answers

Which of the following is NOT deducted from National Income to derive Personal Income?

Transfer payments Signup and view all the answers

What does GDP fail to account for in economic activities?

Environmental damage Signup and view all the answers

What happens when the Bangko Sentral ng Pilipinas (BSP) sells securities?

It decreases the money supply in the economy. Signup and view all the answers

How do reserve requirements affect a bank's ability to lend money?

Lowering reserve requirements allows banks to lend more, increasing the money supply. Signup and view all the answers

What effect do taxes have on people's spending and saving habits?

Higher taxes reduce disposable income, leading to reduced spending. Signup and view all the answers

What is the main focus of monetary policy as described?

To control the nation's money, credit, and banking system. Signup and view all the answers

What role does globalization play in policy-making in small, open economies?

It makes policy decisions more critical and interconnected. Signup and view all the answers

What is the relationship defined by the consumption function?

Consumption is a function of disposable income. Signup and view all the answers

What does the equation $C + I + G + X = GDP$ represent?

The components of a country's GDP. Signup and view all the answers

How is the marginal propensity to save (MPS) calculated?

MPS = 1 - MPC Signup and view all the answers

What does the identity $S = I$ signify in an economy?

Total savings in the economy equals total investments. Signup and view all the answers

Which of the following correctly describes the condition of macroeconomic equilibrium?

Aggregate supply equals aggregate demand. Signup and view all the answers

Study Notes

Macroeconomics Overview

Macroeconomics studies the overall economy, focusing on factors affecting firms, consumers, and workers in aggregate.
Two central themes are short-term fluctuations (business cycles) and long-term trends (economic growth).
Key questions include: causes and solutions to unemployment, sources of inflation, and ways to increase economic growth.

Measuring Economic Success

Macroeconomic policy aims for high and growing national output, high employment with low involuntary unemployment, and stable or gently rising price levels.
Instruments include monetary policy (controlling money supply) and fiscal policy (government spending and taxation).
Gross Domestic Product (GDP) measures the market value of all final goods and services produced in an economy.

Potential GDP and Employment

Potential GDP is the maximum sustainable output level.
Working-age population (WAP) is defined as individuals 15 years or older.
Labor force consists of people employed or unemployed and actively seeking work.
Key employment metrics include employment rate, unemployment rate, and underemployment rate.

Price Stability

Price stability involves a low and stable inflation rate.
Consumer Price Index (CPI) tracks the trend in average prices of goods and services.
Inflation is a sustained increase in general price level.
Types of inflation include hyperinflation and galloping inflation.

Headline Indicators

Headline indicators track economic progress.
Key indicators include GDP growth, rankings in global indexes (Innovation and Competitiveness), and unemployment rate.

Tools of Macroeconomic Policy

Fiscal policy encompasses government spending and taxes to influence the economy.
Monetary policy involves managing the nation's money supply and credit system.

Aggregate Supply and Demand

Aggregate supply (AS) describes the total output businesses will produce at various price levels.
Aggregate demand (AD) represents the overall spending in the economy at different price levels.
Equilibrium occurs where AS intersects AD, determining the overall price level and output.

Gross Domestic Product (GDP): Two Approaches

Flow-of-product approach: sums consumption, investment, government spending, and net exports to arrive at GDP.
Earnings/income approach: adds up the earnings of all factors of production (labor, capital) in the economy.

Real GDP vs Nominal GDP

Nominal GDP is calculated using current market prices.
Real GDP uses constant prices to account for inflation, enabling comparison of output over time.

Gross vs Net Investment

Gross investment measures the total investments made.
Net investment is difference between gross investment and depreciation.

GDP to Disposable Income

Gross domestic income (DI): is the total income earned within the country.
Personal Income: the income received by households.
National Income: the total income of a nation, less indirect taxes.
Disposable income = personal income - personal taxes.

Other Important Macroeconomic Concepts

Savings function and consumption function characterize relationships between disposable income and consumption + saving.

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Description

Test your understanding of key macroeconomic concepts such as unemployment rates, price stability, and GDP calculations. This quiz includes questions on fiscal and monetary policy tools and their effects on the economy. Get ready to enhance your macroeconomic knowledge!