Chapter 5

Question 1

macroeconomics

Answer 1

analyzes the performance of the whole Canadian economy and global economy which is the combined outcomes of all individual microeconomic choices

Question 2

fallacy of composition

Answer 2

the idea where what is true for one is not true for all or the whole is greater than the sum of its parts

Question 3

paradox of thrift

Answer 3

the idea where attempts to increase savings/ being thrifty causes total savings to decrease because of falling employment and incomes

Ex: if i save more from my income, your savings will increase and your spending will decrease. but if many people save more and spend less, businesses experience falling sales, cut back production and lay off workers so that incomes fall

Question 4

input markets…

Answer 4

determine incomes

Question 5

output markets…

Answer 5

determine the value of all products and services sold

Question 6

the fundamental macro question

Answer 6

can markets self adjust?

Question 7

“YES- Markets Self-Adjust”

Answer 7

-BASED ON J.B Say’s Law: supply creates its own demand
- HAYEK: “I want to set them free”

• HANDS OFF believes:
  1. macro and micro outcomes are the same
  2. external events or government policy cause business cycles
  3. gov failure is more likely than market failure

Question 8

“NO- Markets Fail Often”

Answer 8

• BASED ON J.M Keynes founder of macro. in the 1930s
• KEYNES: “I want to steer markets”
• HANDS ON believes:
  1. fallacy of composition (micro and macro outcomes are different)
  2. markets cause business cycles through connection failures between input and output markets, roles of money, banking and expectations
  3. market failure is more likely than gov. failure

Question 9

market failure

Answer 9

where market outcomes are inefficient or inequitable and fail to serve the public interest

Question 10

government failure

Answer 10

where gov. policy fails to serve the public interest

Question 11

good macro outcomes

Answer 11

higher GDP, lower unemployment, and low and predictable inflation

Question 12

consumer choices

Answer 12

• spend income? or save?
• buy Canadian products and services? or imports from other countries?

Question 13

business choices

Answer 13

• investment spending: where business purchase new factories and equipment
• hiring workers? or not?
• buying inputs domestically? or importing?
• selling outputs domestically? or exporting?

Question 14

government choices

Answer 14

• buying products and services
• fiscal policy

Question 15

fiscal policy

Answer 15

the use of government spending and taxes/ transfers to influence economic conditions like achieve the macro outcomes of steady growth, full employment and stable prices

Question 16

bank of canada and banking system choices

Answer 16

• making loans? or not?
• monetary policy

Question 17

monetary policy

Answer 17

where the bank of canada changes interest rates and the supply of money to achieve the macro outcomes of steady growth, full employment, and stable prices

Question 18

Rest of the World (R.O.W) choices

Answer 18

• buying canadian exports? or not?
• selling imports to canada? or not?
• investing money in canada? or not?
• accepting canadian investments? or not?

Question 19

your personal economic success is affected by…

Answer 19

1. GDP: higher GDP per person allows for higher living standards
2. unemployment: affects the odds of finding a job
3. inflation: reduces living standards if income does not rise as fast as the prices of what you by