CH 4

Question 1

3 Goals of Macroeconomics

Answer 1

Economic growth
Full employment
Stable prices

Question 2

Compare the Great Recession/Depression

What Year, What Unemployment Rate, Which one was worse and why?

Answer 2

1. Recession– We had better knowledge of the Economy now therefore better policies to help

Depression: (1930) Unemployment: 25%
Recession (2007-8) Unemployment: 9%

Question 3

Economic Growth

Answer 3

Goal of MacroEcon– Increase Production of Goods and Services (GDP)

Question 4

What is full employment Full Employment

Answer 4

Goal of MacroEcon– Zero Cyclical Unemployment

Full Employment benefits everyone b/c:

• • Better Distribution of Income
• • Full economic potential not achieved with unemployment

Question 5

Why do we want stable prices?
and why is high inflation bad?

Is there a relationship between Inflation and Unemployment?

Answer 5

Stable prices are good for the economy.

High Inflation- (Bad) b/c high cost to society (purchasing power goes down)

Generally an inverse relationship with Inflation v. Unemployment (Phillips Curve)

Question 6

Standard of Living

Answer 6

How we compare countries..
(Total Real GDP/Population)– GDP per Capita

To increase, Real GDP must increase faster rate that population

Question 7

Business Cycle

How are Real GDP and Employment Related?

Answer 7

Fluctuations in Real GDP around its long term potential (growth)

There is a positive relationship btwn output (Real GDP) and Employment

Question 8

What Are:
Expansion & Recession
Boom &Depression

Answer 8

A period of increasing GDP
A period of decreasing GDP
When economy is ABOVE full potential trend
An unusually severe recession

Question 9

Simple Growth Rate

Answer 9

Year A- Year B (B-A)/A x100= Growth Rate

(50-25)/25= 1

Question 10

Compound Growth Rate

$100 at 3% , calc for 5 & 10 Years

Answer 10

Future Value= Present Value (1+ Int. Rate)^Time