chp 1

Question 1

What is macroeconomics?

Answer 1

Study of the economy as a whole, in order to answer questions such as why do countries have such high inflation rates while some have stable prices, why there are periods of falling prices, and how government intervene can decrease unemployment, etc.

Question 2

What three factors are looked at the most in macroeconomics?

Answer 2

Unemployment rate, Real GDP, Inflation Rate

Question 3

What is Real GDP?

Answer 3

measures total income of everyone in the economy (adjusted for inflation rate by basing the prices of production on reference year)

Question 4

What is the Inflation Rate?

Answer 4

Measures how quickly prices are rising

Question 5

What is the Unemployment Rate?

Answer 5

Measures the fraction of the labour force that is out of work

Question 6

What are Endogenous Variables?

Answer 6

these are the variables that a model tries to explain. For example: In a demand-supply model of a product such as Phones, the endogenous variables would be the “Quantity of phones AND the price of the phones

Question 7

What are Exogenous Variables?

Answer 7

Variables that a model takes as given, and purpose of the model is to show how these exogenous variables affect the endogenous variables, these exogenous variables come from outside the model and serve as model’s influence, whereas endogenous variables are determined inside the model. For example: In the supply-demand the endogenous variables were the quantity and price of the phones. However in order to cause a change in either supply or demand, there needs to be exogenous variables such as Income or cost of raw materials. So in the model with these exogenous variables taking place we will show what happens to the endogenous variables, however we won’t be able to explain the reason for change in income or cost of raw materials through the model.

Question 8

Models that exhibit price flexibility are examples of ( ) models

Answer 8

Market Clearing

Question 9

What are Sticky prices?

Answer 9

Prices that do not respond quickly to changes in supply and demand. Example would be the price of a cup of coffee.

Question 10

What are Flexible prices?

Answer 10

Prices that change quickly in response to changes in supply and demand, an example would be the price of gas.

Question 11

What is microeconomics?

Answer 11

Study of how households and firms make decisions and how these decision-makers interact in the marketplace.