Ecnm 612 Macroeconomics

ECNM 612

MACRO ECONOMICS

MIDTERM

I.  DEFINITIONS.  Define any 10 terms.  Give examples where pertinent.

Macro Economics                                Opportunity cost                        

        Model        / Theory                                Micro Economics

        Real capital                                        Fiscal

        Deficit                                                GDP

        Debt                                                Net exports  

        Consumer Price Index                        Producer Price Index                        Consumption spending                        Investment

        Inflation                                        Production Possibility Curve

1. Macro Economics

Macroeconomics is a part of economics that studies how the aggregate economy behaves. It studies the behavior, decision-making of a national or regional economy as a whole.

Monetary policy and fiscal policy are two examples of macroeconomics. Monetary policy relates to money supply and interest rates. Fiscal policy relates to government expenditure and income, and taxes and subsidies.

2. Opportunity cost

Opportunity cost is the cost of choosing one thing over another. It refers to a benefit that we could have received, but gave up, to take another course of action.

Example: I spent one hour to have lunch with someone, but I could have done my homework within that one hour.

3. Micro Economics

Microeconomic is another part of economics that studies how individuals and firms make decisions.

Examples: the study of the minimum wage is part of microeconomics. The increase of the minimum wage can make young teenagers more difficult to find jobs. Also, supply and demand curve for Nike running shoes is also an example of microeconomics.

4. Deficit

A deficit happens when expenses are more than revenue.

Example: Fiscal deficit happens when the government’s total expenditures exceed its revenue.

5. GDP

It refers to Gross Domestic Product. It represents the value of all the finished goods and services that are produced in a country in a period.

Consumer spending + government spending +business capital spending + (exports-imports) = GDP

example: When consumer confidence level is high, consumers will be willing to spend more. GDP will increase.

6. Debt

Debt refers to some money borrowed from one part from another. In macroeconomics, the national debt is the net accumulation of the government’s budget deficits.

Example: Bonds that are issued by the government is an example of a debt instrument.

7. Net exports

Net exports = total exports- total imports. It is part of the calculation for GDP.

Example: China imports $100 billion worth of goods from the U.S. Then, U.S. government purchases $50 billion worth of exports from China. The net exports are $50 billion.

8. Consumer Price Index

Consumer Price Index is the measurement of changes in the price level of consumer goods and services.

Example: CPI can represent the cost of housing, apparel, food, etc.

9. Inflation        

Inflation refers to an increase in the price level of goods and services in a period. Example: $100 can $100 worth of goods today. In 10 years, $100 might only buy $60 worth of goods.

10. Investment

In economics, an investment is something consumers purchase today, but they do not consume it right away. The investment will create more value in the future.

Example: People who bought lands in Malibu 30 years ago can sell their lands for a huge amount money today.

II.  ESSAY QUESTIONS.   Please answer Question three (3), and either question one or two.   Answer all  parts of each question.

2.  a)  What is the Business cycle ?  Demonstrate and explain.

     b)  What is the importance of GDP ?  

     c)  What is the distinction between nominal GDP and real GDP?

                 What is the GDP price deflator ?

     d)  From a macro economic perspective, how do we measure economic

                growth ?    Explain, and give examples.

     e)  How important do you  think is the measurement of macro-economic

                growth ?

A. The business cycle represents the increase and decrease in production output of goods and services. It is the rise and fall of economic growth that happens over time. It is usually measured in the real gross domestic product. There are four stages: expansion, peak, contraction, and trough.

B. GDP is one of the essential tools to measure economy’s output. It is also one of the primary tools to indicator the size and health of a country’s economy. Economists can look at negative GDP to determine whether the economy is in a recession or not.