Chapter 1 Flashcards
What macroeconomists do
- data development
- macroeconomic research
- macroeconomic analysis
- macroeconomic forecast
Few economists make macroeconomic ________
Forecast
What Macroeconomic forecasters do
Combine alternative scenarios for their forecast
Macroeconomic analysis
To monitor the economy and think about the implications of current economic events
For the private sector, Macroeconomic analysts assess the _________ on their entity
Impact of general economic trends
For the public sector, Macroeconomic analysts try to _____
Assist in policy making
What is the objective of macroeconomic research
To make general statements about how the economy works
Macroeconomic analysis and forecasting are based on
Macroeconomic research
Define economic theory
A set of ideas about the economy, Organised in a logical framework
Define economic model
A simplified description of some aspect of the economy is usually expressed in a mathematical form
The steps for data development
- Assess the current state of the economy
- Test macroeconomic theories
- Analyze policy alternatives
- Make forecasts
Steps to develop and test a theory
- State the research question
- Make provisional assumptions
- Workout implications of the theory
- conduct an imperical analysis
- Evaluate the results
Usefulness of economic theory or models Depends on
- Reasonableness of assumptions
- Being understandable and manageable to be applied to real-life problems
- Empirically testable implications
- Theoretical results consistent with real-world data
What examines the economic consequences of assaulting policy, Regardless of its desirability
Positive analysis
“Tax cut will raise disposable income” is an example of
positive analysis
Payroll taxes are too high is an example of
Normative analyses
Why few economists make forecasts?
Because economic systems are complex and predicting their behaviour is difficult.
Define empirical analysis
It is implications evaluated by comparing them with data obtained in the real world
The idea of the invisible hand is that
if there are free markets and individuals conduct their economic affairs in their own best interests, the overall economy will work well.
The classical approach to macroeconomics builds on Smith’s basic assumptions these are
people pursue their own economic self-interests and that prices adjust reasonably quickly to achieve equilibrium in all markets.
In
the Keynesian theory, unemployment can persist because
Wages and prices don’t
adjust to equalize the number of people that firms want to employ with the number of people who want to work.
