Macroeconomics (5)

Question 1

Refresher – what’s macroeconomics?

Answer 1

The study of the economy as a whole … the big stuff.

Question 2

What 3 economic goals to policy makers usually have?

Answer 2

1. Keep the economy growing over time
2. Limit unemployment
3. Keep prices stable

Question 3

What 3 things do economists measure to make sure the economy is still healthy?

Answer 3

1. Gross Domestic Product
2. Unemployment Rate
3. Inflation Rate

Question 4

What is the GROSS DOMESTIC PRODUCT (or GDP)?

Answer 4

The money value of all final GOODS (stuff) and SERVICES (paid work) a country produces within its border during a given period of time (usually a year).

Question 5

What’s INFLATION?

Answer 5

• When the same amount of money can buy fewer goods and services than before.
• EXAMPLE: Back in the 1950’s, 25 cents could buy the same amount of food that we pay $5 for now. So 25 cents from the 1950s = $5 today. The amount went UP (inflated) because the value went DOWN.

Question 6

What happens if Greece and America have the same GDP of $1,000,000,000 – but Greece has higher inflation than America?

Answer 6

Greece’s GDP is worth (can buy) less than America’s. We have to adjust for inflation.

Question 7

What is NOMINAL GDP?

Answer 7

A country’s gross domestic product BEFORE we adjust for inflation.

Question 8

What is REAL GDP?

Answer 8

A country’s gross domestic product AFTER we adjust for inflation.

Question 9

What’s the true definition of a RECESSION?

Answer 9

When TWO successive quarters of the year (6 months) show a decrease in Real GDP.

Question 10

True or false: a country only gets out of a recession if the economy stops struggling.

Answer 10

FALSE! If the GDP rises instead of decreases, it’s no longer considered a recession, even if the economy is still bad.

Question 11

What’s a DEPRESSION?

Answer 11

There’s no technical definition, but it’s basically when the economy is really, really bad.

Question 12

True or false: GDP always provides a complete picture of a country’s economy.

Answer 12

FALSE! It might miss some data, like illegal trade or incomes that weren’t reported on tax returns. But it’s kinda the best we have right now…

Question 13

When we calculate UNEMPLOYMENT, who counts?

Answer 13

People legally allowed to work, actively looking for a job, who cannot find it.

Question 14

True or false: someone who finally gives up looking for a job is no longer considered unemployed.

Answer 14

True! They aren’t counted in unemployment. They’re called Discouraged Workers.

Question 15

What is the term for what we use to calculate the level of unemployment in the country?

Answer 15

The UNEMPLOYMENT RATE

Question 16

Why is the Unemployment Rate limited in its ability to give us a good picture of the labor market?

Answer 16

It misses some data: people who have only a part-time job but need more work, or people working illegally.

Question 17

What are the 3 types of Unemployment?

Answer 17

1. Frictional Unemployment (when you’re transitioning between your old job and a new one)
2. Structural Unemployment (can’t find work because there’s no demand for what you do)
3. Cyclical Unemployment (can’t find work because of a recession)

Question 18

We can only totally eliminate one type of unemployment. Which one?

Answer 18

Cyclical. The others will always be around at least some…that’s called Natural Unemployment.

Question 19

When GDP rises, what happens to unemployment?

Answer 19

It drops! They are “inversely related”.

Question 20

If Inflation is rising prices, what is Deflation? Why are both bad if they get out of hand?

Answer 20

• Deflation is falling prices.
• Both are bad because they discourage spending…inflation makes it harder to afford stuff, and deflation makes people stingy about spending because they think stuff will be cheaper tomorrow.

Question 21

What’s the BUSINESS CYCLE?

Answer 21

The natural process of expanding and contracting all economies go through. Some have it worse than others, though!

Question 22

What’s a CONTRACTION?

Answer 22

When the economy is running too slow…not enough being produced or bought, not enough people working.

Question 23

What’s an EXPANSION?

Answer 23

When the economy starts to speed up again…more being bought, so more being produced and more people working.

Question 24

What are the four parts that keep an economy going smoothly when they work together?

Answer 24

1. Consumer Spending
2. Business Spending
3. Government Spending
4. Net Exports