macro

Question 1

circular flow of income model

Answer 1

draw the model

Question 2

define GDP

Answer 2

the total output of all goods and services produced within a country in a year

Question 3

define GNI

Answer 3

the total income received by residents of a country within a year

Question 4

define nominal and real GDP

Answer 4

nominal: including inflation
real: excluding inflation

Question 5

draw the business cycle

Answer 5

diagram

Question 6

what is the business cycle

Answer 6

the business cycle is short-term fluctuations (increases and decreases) in rGDP overtime, consisting of four phases

Question 7

explain the four phases of the business cycle

Answer 7

peak: temporary maximum of rGDP
trough: temporary minimum of rGDP
contraction: rGDP decreases, unemployment increases, rate of inflation decreases
expansion: rGDP increases, unemployment decreases

Question 8

potential output

Answer 8

level of rGDP produced when an economy is on its long-term growth trend, where cyclical unemployment is = 0, and unemployment = the natural rate (NRU) also known as full employment output

Question 9

measures of well-being

Answer 9

• happy planet index
• HDI
• OECD better life index
• happiness index

Question 10

AD

Answer 10

C + I + G + Xn
draw AD diagram

Question 11

micro vs macro demand

Answer 11

micro demand:
- the quantity of a single product that consumers are willing and able to purchase at different prices, over a specific period of time, ceteris paribus. The negative relationship between price and quantity is due to diminishing marginal benefits (the more you consume the less satisfaction one will receive).

macro AD:
- the amount of real output (goods and services) that all buys in an economy (consumers, firms, government, foreigners) are willing and able to buy at different possible price levels, in a year, ceteris paribus. The negative relationship between APL and real output is due the the factors: wealth effect, interest rate effect, and international trade effect

Question 12

ceteris paribus

Answer 12

“all other things being equal”

Question 13

wealth effect

Answer 13

wealth = the value of all assets owned such as stocks, bonds, property, savings, etc. If price levels increase then the real value of wealth decreases, people feel poorer, therefore spending on output decreases

Question 14

interest rate effect

Answer 14

if price levels increase then consumers and firms need more money for transactions, demand for money increases, cost of borrowing increases, consumer and firm spending decreases due to lower borrowing

Question 15

international trade effect

Answer 15

if price levels increase then exports become more expensive to foreigners, then quantity of exports demanded decreases, imports become relatively cheaper to domestic residents, quantity of imports increase, Xn decreases

Question 16

determinants of AD (what causes AD to shift to the right)

Answer 16

consumer spending increases
- consumer confidence increases (consumers become more optimistic about the future of the economy)
- interest rates decrease: consumer borrowing increases
- wealth increases; consumers feel wealthier
- personal income taxes decrease; disposable income increases
- household debt decreases; consumers feel more comfortable about their spending
investment spending increases
- business confidence increases; firms are more optimistic about the future of the economy
- interest rates fall; firm borrowing increases
- technological advancements occur; investment spending increases
- business taxes fall; after-tax profits increase
- corporate debt decreases; businesses feel more confident about their spending
government spending increases
- political priorities change; gov increases spending on various activities such as education, healthcare, infrastructure
- economic priorities increase; gov increases its spending on various activities (interventionist supply-side policies)
net export spending increases
- trade protection abroad decreases; fewer restrictions on imports in other countries), a country’s exports increases
- domestic trade protection increases; more restrictions on imports from other countries, imports fall, Xn increases
- income of trading partners increase; demand for a country’s exports increase
- a country’s exchange rates fall (depreciation); exports become cheaper and imports become more expensive domestically

Question 17

SRAS determinants

Answer 17

• resource prices
• actions by gov (taxes, subsidies)
• productivity (technological advancements)

Question 18

LRAS determinants

Answer 18

• change in quantity or quality of FOPs

Question 19

keynesian

Answer 19

keynesian and graph

Question 20

new classical

Answer 20

explain and graph