Deck 6: A: an Introduction to Macroeconomics

Question 1

Which are the richest and poorest countries listed in Global Perspective6.1.How does Canada compare to these two countries?

Answer 1

In 2016, the United States was the richest country while North Korea was the poorest as measured by adjusted GDP per capita.Canada was the second richest country.

Question 2

List two concerns with inflation.

Answer 2

First, if the rate of inflation exceeds the rate of income growth, then inflation means a decline in living standards.Inflation is especially problematic for people on fixed incomes.Second, an unexpected increase in inflation reduces the purchasing power of savings.

Question 3

Define macroeconomics and provide two key concerns it studies.

Answer 3

Macroeconomics studies the behaviour of an economy as a whole.It focuses its studies upon two key concerns: (1) long-run economic growth, and (2) short-run fluctuations in output and employment (the business cycle).

Question 4

What is the difference between nominal and real GDP?

Question 5

Why do economists worry about unemployment?

Question 6

What is modern economic growth?

Question 7

Suppose that we are in a condition of "stuck" prices so that the price of wooden chairs will not go above or below $125/unit.Further suppose that chair factories have been built on a business plan designed to deliver 200/month.How many chairs will be sold in a market in which demand (which includes a modest amount of inventory) is characterized by: (a) P = 425 - 1.5Q, (b) P = 530 - 1.5Q, and (c) P = 400 - 0.5Q, where P is in $/chair and Q is in chairs/month? In each case, what happens to planned inventory.

Question 8

What is the difference between financial investment and economic investment?

Question 9

Suppose that we are in a condition of fully flexible prices, but production of nails will not go above 200 chairs/month.What price will chairs sell for if market demand is characterized by: (a) P = 425 - 1.5Q, (b) P = 530 - 1.5Q, and (c) P = 400 - 0.5Q, where P is in $/chair and Q is in chairs/month?

Question 10

In this list, identify those investments which are financial (F) and those that are economic (E): Canada Savings Bonds, stock in Potash Corporation of Saskatchewan, an old house you plan on fixing and reselling, new machinery for a factory you own, land that you plan to develop, an old window factory, your university education.

Question 11

Suppose that we are in a condition of "stuck" prices so that the price of nails will not go above or below $2/kg.Further suppose that nail factories have been built on a business plan designed to deliver 6,000 kg/week.How many nails will be sold in a market in which demand (which includes a modest amount of inventory) is characterized by: (a) P = 5 - 0.5Q, (b) P = 6 - 0.5Q, and (c) P = 4 - 0.5Q, where P is in $/kg and Q is in thousands of kg/week? In each case, what happens to inventory.

Question 12

Suppose that we are in a condition of fully flexible prices, but production of nails will not go above 6,000 kg/week.What price will nails sell for if market demand is characterized by: (a) P = 5 - 0.5Q, (b) P = 6 - 0.5Q, and (c) P = 4 - 0.5Q, where P is in $/kg and Q is in thousands of kg/week?

Question 13

In order to compare GDP across nations, economists typically make 3 adjustments.What are these adjustments and why are they carried out?

Question 14

Why do economists measure growth in an economy using real GDP rather than nominal GDP?

Question 15

What is GDP per capita?

Question 16

If households are typically the source of savings and businesses the source of investments, how then are savings and investments coordinated?

Question 17

What roles do expectations play in macroeconomics?

Question 18

In order to grow, what must a country do?

Question 19

What are two broad categories of macroeconomic shocks?

Question 20

What three key statistics do macroeconomists study to assess the health of the economy? Give a short explanation of each.

Question 21

If prices are "stuck" and there is an unexpected demand increase, describe what happens in the economy.

Question 22

Why do economists use the term "sticky" prices rather than "stuck" prices?

Question 23

"Most prices are not that sticky." Evaluate this claim.

Question 24

Describe and discuss two economic solutions to solve the Great Recession.

Question 25

What are inventories and what role do they play in an economy with sticky prices?

Question 26

What are two reasons why prices might be sticky?

Question 27

What will happen to prices and output levels if there is an unexpected decrease in demand and prices are fully flexible?

Question 28

Describe and discuss the two explanations of the Great Recession?

Question 29

What is the Great Recession? Describe its causes and also its impact on the Canadian Economy.

Question 30

What will happen to prices and output levels if there is an unexpected demand increase and prices are fully flexible?

Question 31

If prices are "stuck" and there is an unexpected demand decrease, describe what happens in the economy.