Macroeconomics

Question 1

Macroeconomics

Answer 1

The branch of economics that studies large-scale economic factors, such as national productivity, interest rates, and inflation.

Question 2

6 Key Economic Indicators

Answer 2

GDP, unemployment rate, inflation rate, consumer confidence, interest rates, and stock market performance.

Question 3

Gross Domestic Product (GDP)

Answer 3

The total dollar value of all final goods and services produced within a country’s borders in a specific time period.

Question 4

Included in GDP

Answer 4

Final goods and services, government spending, consumer spending, investment, and net exports (exports – imports).

Question 5

Not Factored into GDP

Answer 5

Black market transactions
Goods produced outside a country’s borders
Under-the-table payments
Service swaps (barter transactions)

Question 6

Double Counting

Answer 6

Avoided by only including final goods (not intermediate goods).

Question 7

Expenditure Approach:

Answer 7

A way of calculating GDP using the formula: GDP=C+I+G+(X-M)
Where: C = Consumer Spending
I = Investment
G = Government Spending
X = Exports
M = Imports

Question 8

Government Purchases

Answer 8

Includes spending on goods/services by all levels of government, but excludes transfer payments (like social security).

Question 9

Nominal GDP

Answer 9

Measured using current prices.

Question 10

Real GDP

Answer 10

Adjusted for inflation to reflect the true value.

Question 11

Four Phases

Answer 11

Expansion, Peak, Contraction (Recession), Trough

Question 12

Trends

Answer 12

Overall long-term growth with short-term fluctuations.

Question 13

Recession

Answer 13

A period of declining GDP and economic activity lasting two quarters or more.

Question 14

Depression

Answer 14

A prolonged, severe recession.

Question 15

Leading Indicators

Answer 15

Predict future economic activity (e.g., stock market performance).

Question 16

Lagging Indicators

Answer 16

Confirm patterns that are already happening (e.g., unemployment rate).

Question 17

Coincident Indicators

Answer 17

Move with the economy (e.g., GDP).

Question 18

Inflation

Answer 18

A general rise in the price level of goods and services.

Question 19

Hyperinflation

Answer 19

Extremely high and typically accelerating inflation.

Question 20

Deflation

Answer 20

A general decline in prices.

Question 21

Causes of Inflation

Answer 21

Cost-Push: Rising production costs push prices up.
Demand-Pull: Demand exceeds supply, pulling prices up.

Question 22

Types of Inflation

Answer 22

Creeping: Slow, manageable inflation
Galloping: Fast and potentially harmful inflation
Hyperinflation: Uncontrollable inflation

Question 23

Consumer Price Index (CPI)

Answer 23

Measures changes in the price level of a market basket of consumer goods/services.

Question 24

Types of Unemployment

Answer 24

Frictional: Between jobs or entering the workforce
Structural: Mismatch of skills or location
Seasonal: Jobs that depend on season/timing
Cyclical: Caused by downturns in the business cycle

Question 25

Underemployment

Answer 25

Working below skill level or part-time when full-time is desired.

Question 26

Underemployment Rate

Answer 26

= (Unemployed / Labor Force) x 100

Question 27

Labor Force

Answer 27

Includes people 16+ who are working or actively seeking work.

Question 28

Unemployment Compensation

Answer 28

Payments made to unemployed individuals.

Question 29

Social Security Act of 1935

Answer 29

Created unemployment insurance and welfare programs.

Question 30

Natural Rate of Unemployment

Answer 30

The normal rate when the economy is healthy (includes frictional and structural).

Question 31

Cyclical Unemployment

Answer 31

Actual rate minus natural rate.

Question 32

Keynesian Economics

Answer 32

Advocates for active government intervention to manage economic fluctuations.

Question 33

Adam Smith

Answer 33

The "father of capitalism"; promoted laissez-faire economics (minimal government interference).

Question 34

Stagflation

Answer 34

A combination of high inflation and high unemployment.

Question 35

Relationship Between Education and Poverty

Answer 35

Higher education generally reduces poverty risk.

Question 36

Leading Causes of Poverty

Answer 36

Lack of education, unemployment, systemic inequality, poor health, etc.

Question 37

Fiscal Policy Goals

Answer 37

Economic growth, low unemployment, and stable prices.

Question 38

Expansionary Policy

Answer 38

Increases spending or decreases taxes to stimulate growth.

Question 39

Contractionary Policy

Answer 39

Decreases spending or increases taxes to slow inflation.

Question 40

Fiscal Policy Authority

Answer 40

Congress and the President.

Question 41

Fiscal Policy Debt and Interest Rates

Answer 41

Government borrowing can influence national interest rates.

Question 42

Demand-Side Economics

Answer 42

Focus on boosting consumer demand (e.g., tax cuts for consumers).

Question 43

Supply-Side Economics

Answer 43

Focus on boosting production (e.g., tax cuts for businesses).

Question 44

The Federal Reserve (The Fed)

Answer 44

U.S. central bank; controls money supply and interest rates.

Question 45

Central Banks

Answer 45

Institutions that manage a nation’s currency and monetary policy.

Question 46

Why are Monetary Policy appointed?

Answer 46

To ensure independence from political influence.

Question 47

Goals of Monetary Policy

Answer 47

Get out of recession → increase money supply (Easy Money) Limit inflation → reduce money supply (Tight Money)

Question 48

Monetary Policy Tools

Answer 48

Reserve Requirement: % of deposits banks must hold Discount Rate: Interest rate Fed charges banks Open Market Operations: Buying/selling government securities

Question 49

Deficit

Answer 49

Spending > Revenue in a given year

Question 50

Debt

Answer 50

Total of all deficits over time

Question 51

Surplus

Answer 51

Revenue > Spending

Question 52

Federal Budget

Answer 52

Discretionary Spending: Optional, voted on yearly (e.g., defense, education) Mandatory Spending: Required by law (e.g., Social Security, Medicare)

Question 53

Taxes

Answer 53

Corporate Tax: On business profits Payroll Tax: Funds Social Security and Medicare Income Tax: Based on individual earnings