Introduction

Question 1

Microeconomics

Answer 1

The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units—that is, firms and households.

Question 2

Macroeconomics

Answer 2

The branch of economics that examines the economic behavior of aggregates—income, employment and output—on a broader national scale.

Question 3

Differences between Macroeconomics and Microeconomics

Answer 3

Micro - Study of individual economic units e.g. individual firms, households.
Macro - Study of broad aggregate economic variables e.g. aggregate incomes, national output, consumption, savings, investment.
Micro - Variables are taken as given. Exogenously determined.
Macro - Variables change. Are endogenously determines.
Micro - Invented by classical economists, believed that economy is self adjusting and will always be at full employment
Macro - Came into being after the 1930 great depression. Believed that there is need for government involvement in economy.

Question 4

Why should we care about macroeconomics?

Answer 4

• For firms:
  Importance of knowing the economic situation of a region/country
  Importance of anticipating and assessing government policies that might impact the economic situation of a region/country
• For everyone:
  Importance of understanding the world we live in.

Question 5

Economic Theory

Answer 5

A box of tools with which an economist constructs economic models that facilitate the study of the real world.

Question 6

Economic Models

Answer 6

Simplified explanations of how the economy works.

Question 7

Macroeconomic Models

Answer 7

Simplified explanations or theories of how the economy works, i.e. simplified explanations of the real word. Macroeconomic models help in the forecasting of future trends of the economy.

Question 8

The Major Goals/Aims of Macroeconomic Policy

Answer 8

Full employment - Full employment is favored because the greater the level of employment, the greater the amount of goods and services available in the economy. It is also argued that the burden of unemployment and loss of goods and services fall disproportionately on people who are without jobs.

Price Stability - This is important because inflation affects other people more adversely than others. For example, people whose incomes rise more rapidly than prices and those who are able to borrow at relatively low interest rates prior to inflation benefit from inflation.

Economic Growth - Economic growth takes place when real output increases more rapidly than the increase in population, thus with economic growth the society has more goods and services at its disposal and a correspondingly higher standard of living.

External balance - If a country has a favorable balance of payment (BOP), its foreign exchange reserves will increase, hence can import the much needed capital for investment. Unfavorable BOP would lead to an outflow of foreign exchange to finance the trade deficit

Fair distribution between individuals and regions

Question 9

Major concerns of Macroeconomics

Answer 9

Output growth
Unemployment
Inflation and deflation