Chapter 1

Question 0

Macroeconomics

Answer 0

Economy’s aggregate output - GDP
Unemployment, Inflation
International Trade, monetary policy, fiscal policy.

Question 1

Macroeconomics:

Answer 1

Study of the performance of the national and global economies.
Ex. Inflation, employment, etc.

Question 2

Two big Economic Questions:

Answer 2

1. What, how and for whom goods and services get produced.
2. When do choices made in pursuit of self-interest also promote the social interest?

–> Make rational choices.

Question 3

Human Capital

Answer 3

Quality of labour. The knowledge and skill that people obtain from education, on the job training and work experience.

Question 4

Capital

Answer 4

Tools, instruments, machines, buildings and other constructions that businesses use to produce goods and services.

Question 5

Four factors of production

Answer 5

land
labour
capital
Entrepreneurship

Question 6

Labour

Answer 6

Work time and work effort that people devote to producing goods and services.

Question 7

Whom?

Answer 7

Land earns Rent
Labour earns wages
Capital earns interest
Entrepreneurship earns profit

Question 8

Two Big Economic Questions:
Self interest
Social Interest

Answer 8

Self Interest: Choices that you think are best for you.

Social Interest: Choices that are best for society as a whole.

Question 9

Efficiency:

Answer 9

Achieved when the available resources are used to produce goods and services.

1. At the lowest possible price
2. In quantities that give the greatest possible benefit.

Question 10

Six Key ideas define the economic way of thinking:

Answer 10

• Tradeoff is a choice
• Rational choices are made by comparing benefits and costs.
• Benefit: what you gain from something
• Cost what you give up
• Many choices are “how much” choices made at the margin.
• Incentives

Question 11

A Choice is a tradeoff because:

Answer 11

Giving up one thing to get something else. This is the economic way of thinking, which places scarcity and its implication, choice, at center stage.

Question 12

Rational Choice

Answer 12

One that compares costs and benefits and achieves greatest benefit over cost for the person making the choice.

Question 13

There are two types of statements for economists as a social scientist:

Answer 13

What is: Positive statement

What ought to be: normative statements.

Question 14

Positive statements can be tested by checking it against facts

Answer 14

ex. Increasing the minimum wage results in more unemployments

Question 15

Economic Model

Answer 15

Description of some aspect of the economic world that includes only those features that are needed for the purpose at hand.

Question 16

Social Science and Policy Tool

Answer 16

• Economic model: Increase in min wage, increase population well-being.
• Data: ‘collect data’ on wages and hrs worked by population before & after increase in min wage.
• Estimate: (hypothesis) if ind. earn more or less after increase
• Effect: If people are willing to work more at H.Wage-> Earning increase; firms reduce demand for labour->firms hire less people ->earnings decrease.

Question 17

Testing the hypothesis:

Answer 17

• Natural experiments
• Statistical investigations
• Economic experiments