part 1

Question 1

What is the definition of macroeconomy?

Answer 1

Macroeconomy focuses on the behaviour of the economy as a whole.

Question 2

Is it possible to compare to different national economies, if yes why?

Answer 2

It is possible. To compare national economies you use the value of their production.

Question 3

GDP is a measure of the….

Answer 3

overall value of goods and services produced, but also the most important measure to track the macroeconomy. The GDP quantify the movements in the overall level of outputs and prices.

Question 4

The definition of GDP.

Answer 4

Refers to the total value of all goods and services produced within a given period by a national economy.

Question 5

What does the measurement of GDP tell us?

Answer 5

The most important use of GDP is that it’s used to measure the economy. Providing us a scale against which to measure the economic of other years or to compare the economic performance of other countries.

Question 6

Why are fashion companies investing in some specific countries?

Answer 6

To understand where the best option to invest is, you should look at the GDP. In the example mentioned in the notes, China is a great choice since their increase of GDP is the biggest. But the size of GDP is also important regardless of the increase. A very small country with a high increase of GDP, will still not be as profitable as a bigger country with less increase the last year.

Question 7

What does the business cycle show?

Answer 7

It shows the major theme of the macroeconomy, which is the economy’s alternation between short-run downturns and upturns. The alternation from recession to expansion and so on.

Question 8

What is the nation experiencing if the GDP is going up, down and is stable?

Answer 8

Going up-economic expansion. Going down- economic recession. Stable- economic stability.

Question 9

What is the best condition for any company?

Answer 9

The best condition is to be where there is a pik in the expansion. Which means that many people are working, many people are gaining money, which means that people can consume.

Question 10

What is the result of being in a pik of a recession?

Answer 10

The unemployment rate is maximum, people doesn’t gain money, doesn’t consume and the company sales remain low.

Question 11

Which rule do may economists adopt?

Answer 11

The rule that a recession is a period of at least to consecutive quarters, when the total output of the economy shrinks.

Question 12

What is the most important effect of a recession?

Answer 12

It’s effect on the ability for people to find and hold jobs.

Question 13

Which are the four main groups in the economic system?

Answer 13

households
firms
government
rest of the world

Question 14

Which are the four main categories of expenditure?

Answer 14

• Personal consumption expenditure (C) household spendings on consumer goods.
• Gross private domestic investment (I) spended by households and firms on a new idea, equipment and inventory.
• Government’s consumption and gross investment (G)
• Net exports (EX-IM), net spendings by rest of the world or exports minus imports.

Question 15

What is the GDP equation form?

Answer 15

GDP=C+I+G+(EX-IN)

Question 16

Which is the largest actor of the GDP?

Answer 16

The personal consumption expenditures (C).

Question 17

What is the three main categories of personal consumption expenditure (C) + explain them?

Answer 17

• Durable goods. automobiles, furnitures and household appliances who last a relatively long time.
• Non durable goods. food, clothing, gasoline and cigarettes. Products who are used up fairly quickly.
• Services. Expenditures for doctors, lawyers, and educational institutions (non-physical items).

Question 18

What is included in the gross private domestic investment (I) + explain?

Answer 18

• Residential investments. Expenditures for new houses and apartment building constitute.
• Non residential investment. Expenditures by firms for machines, tools and plans.
• Inventories. the quantity of goods and services produced in year x, which will be sold in subsequent year.

Question 19

What is included in the government consumption and gross investment (G) + explain?

Answer 19

Include expenditure by federal, state and local governments for:
final goods (school buildings etc.)
services (military salaries, teacher salaries and congressional salaries)

Question 20

What is net exports (EX-IN)?

Answer 20

The value of net exports is the difference between:

exports. sales of produced goods and services to foreigners.
imports. purchased goods and services from abroad.

Question 21

Why is it important to measure the national income?

Answer 21

GDP/GDP per capita is a tool to measure the national income, which is important since all individuals, firms and government have an interest in raising the real (after inflation) national income.

Question 22

Describe the virtuous circle of expansion?

Answer 22

Expansion means that GDP raises, this means that everyone is happy, the government, the households and the society.

• Firms will be able to sell more so that they can raise revenues and profits.
• With an increase in profits, companies can invest more in machinery, research, development and new store openings..but also hiring new staff.
• Higher amount of people employed means higher income.
• Higher income means greater consumption.
• Greater consumption means more sales and company profits.

Question 23

Describe the virtuous circle of recession?

Answer 23

Recession means that GDP falls and as a result-everyone is panicked.

• A fewer amount of people employed means lower income.
• Lower income means lower consumption.
• And lower consumption means lower sales and profits for companies.
• Companies dismiss even more staff.