Macroeconomics
What are the three main goals of macroeconomics?
Economic Growth, Full Employment & Price Stability.
What does GDP stand for, and what does it measure?
GDP stands for Gross Domestic Product; it measures the total value of goods and services produced in a country.
What is considered full employment in terms of the unemployment rate?
Full employment typically corresponds to an unemployment rate of around 4-6%.
What does CPI stand for, and what does it measure?
CPI stands for Consumer Price Index, which measures changes in the price level of a market basket of goods and services.
What is the inflation rate?
The inflation rate is the percentage increase in the price level over a given period.
Define macroeconomics in your own words.
Macroeconomics is the study of the economy as a whole, including large-scale issues like growth, inflation, and unemployment.
Write the formula for calculating nominal GDP.
Nominal GDP = C + I + G + (X - M) (Consumption + Investment + Government Spending + Net Exports).
What is frictional unemployment?
Frictional unemployment occurs when people are temporarily between jobs or entering the workforce.
How do you calculate the CPI?
CPI = (Cost of market basket in current year / Cost of market basket in base year) × 100.
Describe how inflation is calculated using CPI.
Inflation rate = [(CPI in current year - CPI in previous year) / CPI in previous year] × 100.
Explain how new businesses contribute to steady economic growth.
New businesses create jobs, encourage innovation, and increase production, contributing to long-term economic growth.
How is consumer spending defined in terms of GDP?
Consumer spending is the total money households spend on goods and services within the economy.
How is the unemployment rate calculated?
Unemployment rate = (Number of unemployed / Labor force) × 100.
Why is the CPI important for understanding inflation?
CPI helps track inflation and shows how the cost of living changes over time.
What happens to the economy when inflation increases too quickly?
If inflation rises too quickly, it decreases purchasing power, increases costs, and destabilizes the economy.
What is the significance of having price stability in an economy?
Price stability ensures predictable costs, helping businesses and consumers plan spending and investments.
What is the difference between nominal GDP and real GDP?
Nominal GDP is measured using current prices, while real GDP adjusts for inflation to reflect actual production.
What criteria must one meet to be counted as unemployed?
To be counted as unemployed, one must be jobless, actively seeking work, and available to work.
What is a market basket in relation to CPI?
A market basket is a fixed list of goods and services used to track price changes for calculating CPI.
Explain the difference between anticipated and unanticipated inflation.
Anticipated inflation is expected and manageable, while unanticipated inflation disrupts contracts and financial planning.
Describe the relationship between full employment and economic contribution.
Full employment means maximum economic participation, increasing output and overall economic growth.
Explain how net exports are calculated within GDP.
Net exports = Exports (X) - Imports (M); it measures the difference between what a country sells abroad and buys from other countries.
What is the impact of high unemployment on the economy?
High unemployment reduces income, decreases consumer spending, and slows economic growth.
Explain how changes in CPI relate to purchasing power.
When CPI increases, purchasing power decreases, meaning each dollar buys fewer goods and services.
Discuss the effects of inflation on borrowers and lenders.
Inflation benefits borrowers because they repay loans with money worth less, but it harms lenders who lose purchasing power.