Week 1

Question 1

What is macroeconomics?

Answer 1

It is the study of the behaviours of large collections of economic agents. It focuses on the aggregate behavior of consumer and firms, the behavior of governments, overall economic activity in individual countries. It deals with overall effects on economies by choices of all economic agents.

Question 2

What do economic models that macroeconomists use consist of?

Answer 2

• Description of consumers and firms
• Objectives and constraints of consumers and firms
• How interactions are built

Question 3

What does macroeconomic principals focus on?

Answer 3

It focuses on long run growth and business cycles. Long run growth is the increase in nations productive capacity. Business cycles are sort runs and downs.

Question 4

What are the 7 key economic growth facts?

Answer 4

• Prior to industrial revolution, living standards varied very little over time and across countries
• Post Industrial Revolution, per capita income growth has been sustained in the richest countries
• There is a positive correlation between rate of investment and output per worker across countries
• There is a negative correlation between population growth and output per workers across countries
• Differences in per capita incomes increased dramatically among countries of the world after industrialisation with the gap widening the countries of western Europe and offshoots to rest of the world
• No correlation across countries between level of output per capita in 1960 and average growth rate in output per capita in years 1960-2007
• Richer countries are much more alike in terms of rates of growth of real per capita income than poor countries.

Question 5

What is an aggregate production function and write it.

Answer 5

It specifies how current aggregate output Y is produced using current input X and current labour N

Y = z * F(X,N)

z is the factor of productivity

Question 6

What are the characteristics of the Neo-classical production function and show them algebraically.

Answer 6