Understanding Macroeconomics

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Questions and Answers

Which of the following best describes the primary focus of macroeconomics?

  • The behaviour of individual firms in competitive markets.
  • Government interventions in specific industries.
  • Fluctuations and trends in aggregate economic data. (correct)
  • The decisions made by individual consumers regarding their spending.

Which of the following issues falls under the purview of macroeconomic study?

  • The optimal output level for a small business.
  • The effect of a consumer boycott on a specific product.
  • The pricing strategy of a monopolistic firm.
  • The impact of immigration on the national unemployment rate. (correct)

Which scenario is LEAST likely to be analyzed within a macroeconomic framework?

  • The determination of the equilibrium price in the market for apples. (correct)
  • The effect of a government stimulus package on overall economic growth.
  • The impact of rising interest rates on national investment levels.
  • The relationship between inflation and unemployment across the country.

What is the most accurate interpretation of the term 'constant-dollar national income'?

<p>National income adjusted for inflation to reflect real purchasing power. (C)</p> Signup and view all the answers

What does a nation's real national income primarily indicate?

<p>The value of goods and services produced, adjusted for inflation. (A)</p> Signup and view all the answers

How does real national income change in relation to nominal national income?

<p>Real national income changes only when the actual quantities of goods and services produced change. (B)</p> Signup and view all the answers

What does the term 'national income' represent in macroeconomics?

<p>The total value of earnings generated from the production of all goods and services. (C)</p> Signup and view all the answers

What is the defining feature of economic growth?

<p>A sustained increase in a nation's real national income over time. (A)</p> Signup and view all the answers

In 2022, a company produced 5 million units at $10 each. In 2023, they produced 2.5 million units at $20 each. Assuming no other changes, what happened to nominal national income?

<p>Nominal national income remained unchanged. (B)</p> Signup and view all the answers

How does the resale of a used good, like a car at a used car dealership, affect national income?

<p>It increases national income only by the value added during the resale. (C)</p> Signup and view all the answers

What is the primary reason economists compare real national income across different time periods?

<p>To measure economic performance by adjusting for price changes. (D)</p> Signup and view all the answers

Why is real national income, adjusted for price-level changes, used to determine an economy's GDP growth rate?

<p>It provides a measure of output corrected for price-level changes. (D)</p> Signup and view all the answers

In macroeconomics, what happens to the total value of income claims when the value of national product increases?

<p>Income claims increase equally with the value of the national product. (D)</p> Signup and view all the answers

A shop buys a used appliance for $50, repairs it, and then sells it for $150. What is the impact on the value of national product?

<p>Increases by $100. (C)</p> Signup and view all the answers

What does Real GDP measure over a year?

<p>The total output of a nation's economy eliminating the effect of price changes. (D)</p> Signup and view all the answers

In an economy with four individuals, each contributes $2,000 worth of final goods and services. What determines how the national income might differ from $8,000?

<p>It will equal $8,000 regardless of savings, investment, taxes, or profits. (B)</p> Signup and view all the answers

In a simplified economy, Person A produces 50 chairs at $25 each, Person B bakes 20 cakes at $40 each, and Person C offers 30 hours of consulting at $50 per hour. What is the national product of this economy?

<p>$2,850 (D)</p> Signup and view all the answers

Which of the following statements provides the most accurate description of the business cycle?

<p>Short-term variations around the national income's trend. (A)</p> Signup and view all the answers

Which of these definitions most accurately describes potential output?

<p>The GDP when resources are fully and normally employed. (E)</p> Signup and view all the answers

What does the 'output gap' measure in macroeconomics?

<p>The difference between potential and actual output. (C)</p> Signup and view all the answers

What is the formula for the output gap?

<p>The difference between Y and Y*. (A)</p> Signup and view all the answers

What does it mean if the output gap has `Y < Y*`?

<p>Output is lost given it means there are unemployed resources. (C)</p> Signup and view all the answers

Suppose actual output is less than potential output. How is the unemployment rate affected?

<p>Unemployment rate is high. (A)</p> Signup and view all the answers

In what way do economic expansions or booms generate issues?

<p>Inflationary pressures increase. (D)</p> Signup and view all the answers

How is potential income or output treated in the study of national income's short-run fluctuations?

<p>Constant. (E)</p> Signup and view all the answers

What name is given to the short-run fluctuations in real GDP near its trend value?

<p>Known as 'the business cycle'. (A)</p> Signup and view all the answers

What situation within the business cycle occurs when an economy is using existing capital, labour is limited given shortages and costs are rising?

<p>Peak (A)</p> Signup and view all the answers

What does the trend-line on a vertical axis graph representing real national income and a horizontal axis representing time approximate?

<p>Path of potential output (A)</p> Signup and view all the answers

What does the fluctuation around the trend-line on a graph approximate when real national income is represented on the vertical axis and time on the horizontal?

<p>Business cycle (B)</p> Signup and view all the answers

What determines when macroeconomists deem a 'recession' to have occurred?

<p>Real GDP decrease over two quarters. (B)</p> Signup and view all the answers

In which years did the economy have a recessionary gap? (See Table 19-1)

<p>2006, 2007, 2011 (C)</p> Signup and view all the answers

In which years did the economy have an inflationary gap? (See Table 19-1)

<p>2009, 2010 (D)</p> Signup and view all the answers

What is the unemployment rate when the economy is at 'full employment'? (See Table 19-1)

<p>6.3% (D)</p> Signup and view all the answers

In which years were factors of production fully employed? (See Table 19-1)

<p>2008, 2012 (E)</p> Signup and view all the answers

What was the output gap in 2007? (See Table 19-1)

<p>-$3 billion (A)</p> Signup and view all the answers

Based on the provided data for the year 2009, what is likely happening with workers and factories? (See Table 19-1)

<p>Workers are working longer than they usually do; beyond normal capacity (B)</p> Signup and view all the answers

How did the increase of women of women into the labour force relate to GDP?

<p>Raised potential GDP (B)</p> Signup and view all the answers

Workers are considered unemployed if they have no job, are legally eligible to work and...

<p>actively searching for jobs. (A)</p> Signup and view all the answers

Over the last 50 years, what is a trend relating to Canada's employment and labour force?

<p>The economy has mainly grown in employment matching the labour force. (D)</p> Signup and view all the answers

How is Canada's unemployment rate measured?

<p>Statistics Canada does a Labour Force Survey each month. (B)</p> Signup and view all the answers

Flashcards

Macroeconomics

The study of fluctuations and trends in aggregated data at a national or global level.

Real National Income

The value of output produced by the economy, measured in constant dollars, adjusted for inflation.

Economic Growth

An upward trend in real national income over an extended period, indicating increasing production and living standards.

National Income

The value of a nation's total output, equivalent to the total income earned in the economy.

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Real GDP

Used to compare aggregate output across different time periods by using constant prices.

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Business Cycle

Short-run fluctuations of national income around its long-term trend; alternating periods of economic expansion and contraction.

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Potential Output

The level of GDP that would be produced if the economy's resources were fully employed at a normal intensity of use.

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Output Gap

The difference between potential real national income and actual real national income; Y - Y*.

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Recessionary Gap

Occurs when actual output is less than potential output (Y < Y*), indicating unemployed resources and lost production.

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Inflationary Gap

Occurs when actual output is greater than potential output, often associated with inflationary pressures.

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Recession

A fall in real GDP that lasts for at least two consecutive quarters, indicating a significant decline in economic activity.

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Unemployed

A person who is without a job, is legally eligible to work, and is actively searching for employment.

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Unemployment Rate

The percentage of the labor force that is unemployed; calculated as (number of unemployed / labor force) * 100.

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Study Notes

  • Macroeconomics focuses on the study of trends and fluctuations in aggregated data.
  • Macroeconomics studies the level of economic activity and the rate of unemployment.
  • Changes in the price of a particular good in a specific market falls outside the scope of macroeconomics.
  • "Constant-dollar national income" is an equivalent term for "real national income."
  • A nation's real national income measures the value of output produced, gauged in constant dollars.
  • Real national income changes only when the underlying quantities change.
  • National income, in macroeconomic terms, refers to the income value generated by the production of total output.
  • Economic growth refers to an upward trend in real national income over a long time.
  • If Canada's auto manufacturers produced 2 million cars at $20,000 each in 2013, and 1 million cars at $40,000 each in 2014, the nominal national income would remain unchanged, all other things being equal.
  • If Honest Rob's Used Cars purchases a used car for $2000 and resells it for $3000, the value of national income increases by $1000.
  • To compare aggregate output across two time periods, economists compare the real national income for those periods.
  • Real national income, which is nominal national income adjusted for price-level changes, should be used in determining the economy's real GDP growth rate between two time periods.
  • An increase in the value of the national product results in an equal increase in the value of income claims on that output.
  • If Appliance Mart buys a used refrigerator for $100, repairs it, and then resells it for $250, the value of the national product increases by $150.
  • Real GDP measures the quantity of total output a nation's economy produces over one year.
  • If an economy has 3 individuals who each produce and sell $1000 worth of final goods and services, the national income for this economy is $3000.
  • For a small economy: Individual A makes 100 chickens worth $8 each, Individual B makes 50 bags of corn worth $10 each, Individual C makes 40 bushels of apples worth $20 each, the national product in this economy is $2100.
  • The business cycle is described as the short-run fluctuations of national income around its trend value.
  • Potential or full-employment output refers to the GDP that could be produced if the economy's resources were fully employed at a normal intensity of use.
  • The "output gap" in macroeconomics is the difference between potential and actual real national income.
  • The output gap is the difference between Y and Y*.
  • An output gap with Y < Y* represents a loss of output due to unemployed resources.
  • If actual output is less than potential output, a larger output gap generally indicates a greater unemployment rate.
  • Economic booms are often accompanied by inflationary pressures, which can cause problems.
  • Potential income (output) is typically assumed to be constant when studying short-run fluctuations in national income.
  • Short-run fluctuations in real GDP around its trend value are referred to as "the business cycle."
  • A business cycle is at its peak when existing capital is used at a high degree, shortages in labor and goods markets are developing, and costs are rising.
  • On a graph showing real national income and time, the trend-line would probably be a good approximation of the path of potential output.
  • On a graph showing real national income on the vertical axis and time on the horizontal axis, the fluctuations of real national income around the trend-line would indicate the business cycle.
  • Macroeconomists usually define a "recession" as a fall in real GDP that lasts for at least two quarters.
  • An recessionary gap occurs when Actual Output is lower than Potential Output.
  • An inflationary gap occurs when Actual Output is higher than Potential Output.
  • When the economy is at "full employment" the unemployment rate is 6.3%.
  • The factors of production are said to be "fully employed" in 2008 and 2012.
  • The output gap in 2007 is -$3 billion.
  • Due to the inflationary gap in 2009, it is probably the case that workers are working longer than normal hours and factories are operating beyond their normal capacity.
  • Women entering the labor force in large numbers in the 20th century and increasing the economy's GDP raised potential output.
  • A worker is considered unemployed if that worker has no job, is legally eligible to work, and is actively searching for employment.
  • Over the last 50 years in Canada, the main trend of the economy has been one of growth in employment that roughly matches the growth in the labor force.
  • Statistics Canada conducts a Labour Force Survey each month to determine Canada's unemployment rate.
  • Canada's unemployment rate has been as low as 3.4% in the 1960s and as high as 12% during the recession in the early 1980s.
  • If a country's labor force is 15 million people, and 1.35 million of those are unemployed, the country's unemployment rate is 9.0%.
  • If a country's labor force is 15 million people, and 1 million of those are unemployed, the country's unemployment rate is 6.7%.
  • If a country's population is 30 million and it has a labor force of 15 million people, and 1.35 million people are unemployed, the country's unemployment rate is 9.0%.
  • If a country's population is 30 million and it has a labor force of 15 million people. If 14.5 million people are employed, the country's unemployment rate is 3.3%.
  • If the city of Calgary has a population of 1 million, a labor force of 575,000, and employment equal to 545,000, it can be concluded that for legal and various other reasons 425,000 people are excluded from the labor force.
  • If the city of Calgary has a population of 1 million, a labor force of 575,000, and employment equal to 545,000, the unemployment rate in Calgary is approximately 5.2%.
  • If a country has an unemployment rate of 20%, and the population is 38 million and the labor force is 25 million, then the number of people unemployed is 5 million.
  • If a small city has a population of 100,000 and a labor force of 60,000, employment is 55,000 and 5000 workers are unemployed, 40,000 people are not in the labor force.

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