Macro Chapter 13

Question 1

What is Macro economics?

Answer 1

Macro econ analyzes the performance of the whole Canadian economy and global economy.

Question 2

Fallacy of Composition

Answer 2

What is true for one is not true for all; the whole is greater than the sum of the individual parts

Question 3

Paradox of thrift

Answer 3

Attempts to increase savings cause total savings to decrease because of falling employment and incomes.

Question 4

How does the circular flow model work?

Answer 4

There are three players: households, businesses, and governments. Input markets determine incomes. Output markets determine the value of all products and services sold. Macro focuses on the connections between input and output markets.

Question 5

What defines the yes (left alone markets self adjust) camp?

Answer 5

It is based on Say’s Law(supply creates it’s own demand). It believes micro and macro outcomes are the same, external events or government policies cause business cycles, government failure is more likely than market failure, and governments should be hands off.

Question 6

What does the no (Left alone markets fail often, so governments need to be hands on) camp believe:

Answer 6

Created by John Keynes who founded macroeconomics in the 1930’s. The camp believes in fallacy of composition (micro and macro outcomes are different), markets cause business cycles through connection failures between input and output markets, roles of money, banking, and expectations, market failure is more likely than government failure, and government should be hands on.

Question 7

Government policy decisions to purposefully leave the economy alone or influence it can take the form of changes in ________?

Answer 7

Transfers-payments from the government to an individual for which no good or service is exchanged, rather the income is redistributed from one group to another.

Question 8

Government failure can occur because:

Answer 8

Policymakers lack adequate and timely information for making good decisions.

Question 9

As GDP goes up, unemployment goes:

Answer 9

down and workers have an advantage when bargaining for higher wages.

Question 10

What are the main ways in which the camps differ?

Answer 10

They differ on the fallacy of composition, causes of business cycles, risk of government failure vs market failure, role of the government, and political positions.

Question 11

What is market failure?

Answer 11

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

Question 12

What is government failure?

Answer 12

When government policies fail to serve the public interest.

Question 13

Politicians on the right tend to believe?

Answer 13

Yes, market self adjust, no need for governments.

Question 14

Politicians on the left tend to believe?

Answer 14

No, markets fail often without government intervention.

Question 15

The 3 key performance outcomes of the Canadian economy are:

Answer 15

GDP, unemployment, and inflation, produced by the choices of the 5 macro players

Question 16

Who are the 5 macro players?

Answer 16

Governments, the bank of Canada/ banking system, ROW, consumers, and businesses

Question 17

What are consumer choices?

Answer 17

Spend income or save it, buy canadian products/services or imported goods form other countries

Question 18

What are businesses choices?

Answer 18

Investment spending(whether or not to purchase new factories or equipment), hiring workers or not, buying inputs domestically or importing them, selling outputs domestically or exporting them.

Question 19

What are governments choices?

Answer 19

Buying products and services and fiscal policy(includes government purchases, taxes/transfers to help achieves the macro outcomes of steady growth, full employment and stable prices)

Question 20

What is fiscal policy?

Answer 20

The use of government spending and taxation to influence the economy, through the use of government purchases, taxes/transfers, full employment, and stable prices.

Question 21

What is the Bank of Canada/ Banking System Choices?

Answer 21

Making loans or not and monetary policy(when the bank of canadian carnage’s interest rates and the supply of money to achieve the macro outcomes of steady growth, full employment, and stable prices).

Question 22

What is monetary policy?

Answer 22

Adjusting the supply of money and interest rates to achieve steady growth, full employment, and stable prices.

Question 23

What are the rest of the worlds choices?

Answer 23

They can choose whether or not to buy Canadian exports, whether or not to sell imports to canada, whether it not to invest money in canada, or whether or not to accept Canadian investments or not.

Question 24

How does Macroeconomics affect your future?

Answer 24

GDP affects my living standards(the higher the GDP per person allows a higher living standard), unemployment affects my odds of finding a job, and inflation can reduce my living standards (if income does not rise as fast as the prices of what you buy).