introduction to macro
what is the difference between microeconomics and macroeconomics?
microeconomics: the study of how individual households and firms make decisions + interact w/ each other in a market
macroeconomics: the study of the economy as a whole
- economy wide phenomena (inflation, unemployment, economic growth)
what is the difference between GDP and GNP?
GDP - the market value of all final goods and services produced within a country in a given period of time
GNP - the total value of all final goods and services produced within a country over a time period, produced by residents of that country
what is the classical dichotomy?
the separation of variables into real and nominal
why is the SRAS upward sloping?
sticky wage theory: P >Pe -> higher revenue, labor costs stay the same -> more profitable production -> output and employment increases
sticky price theory: firms with menu costs wait to raise prices -> prices remain low -> increase demand for their products -> increase output and employment
misperceptions theory: P rises above Pe -> firms see their prices rise before realizing all prices are rising -> might believe that relative prices are rising -> increase output and employment
how old is lana del rey?
40 yrs old
why cant all 4 macroeconomics objectives exist in the same economy?
4 macro objectives:
- stable economic growth
- low inflation
- low unemployment
- fair income distribution
tradeoff between unemployment and inflation - increasing demand of wages during periods of low unemployment drives up wages -> inflation
which of the following would be considered as a part of Canada's GDP?
1 - wheat produced for a bakery in Saskatchewan
2 - Tate McRae's concert in LA
3 - maple syrup exported to China
3 only
what does the neutrality of money mean?
changes in the money supply affect nominal but not real variables
what do all three theories have in common?
Y deviates from Yn when P deviates from Pe
what is edwin's fav food?
steven :)
draw a fully labelled business cycle graph
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determine how much GDP and each of its components is affective (if it is)
Edwin spends $200 to buy his friend lobster rolls at the finest restaurant in Boston
Miya spends $1200 on a computer to use in her business. She got last year's model on sale for a great price from a local manufacturer
1) consumption and GDP increase by $200
2) GDP and investment do not change because the computer was built last year
why is the AD curve downward sloping?
wealth effect: P rises -> the dollars ppl hold buy fewer G&S -> lowers real wealth -> people feel poorer -> C falls
interest rate effect: P rises -> buying G&S requires more dollars -> sell bonds or assets to get dollars -> drives up interest rates -> I falls
exchange rate effect: P rises -> U.S. interest rates rise -> foreign investors desire more U.S. bonds -> higher demand for $ in the foreign exchange market -> U.S. exchange rates appreciates -> U.S. exports become more expensive to people abroad -> E decreases (X decreases)
how might the crash of a stock market affect the AD-AS curve?
1. Affects C, AD curve
2. C falls, so AD shifts left
3. SR eq’m at B -> P and Y lower, unemp higher
4. Over time, Pe falls, SRAS shifts right, until LR eq’m at C.
- Y and unemp back at initial levels.
what does the trump-sanae relationship show between global powers?
Power shapes global outcomes
- The U.S. can pressure allies like Japan - Stronger countries have greater influence over global decisions
- Security dominates global priorities
- Much of the relationship revolves around military and stability concerns
- Global interest is often defined by security, not humanitarian goals
what is a business cycle?
fluctuations in business activity (employment and production)
- major changes in real GDP above or below normal levels
why isnt GDP an inaccurate measure of an economy's wellbeing?
it does not value
- non market activities
- underground markets
- quality improvements
- quality of life
etc.
the amount of output the economy produces when unemployment is at its natural rate (full employment output)
explain the term stagflation
an economy experiences inflation with no economic growth
(falling output + rising prices)
what is Harvard's color?
crimson
draw the circular flow diagram (macroeconomics) and label the injections and leakages
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In the country of Econland, the following data (in billions of dollars) is recorded for 2025:
(a) Calculate GDP using the expenditure approach.
(b) If imports suddenly increase to 250 (with everything else unchanged), calculate the new GDP.
(c) Explain why an increase in imports reduces GDP in this calculation, even though imports may benefit consumers.
a) 1290
b) 1220
c) Imports are subtracted in the GDP formula because GDP measures the value of domestically produced goods and services.
However, imports can still benefit consumers by:
why might the LRAS curve shift?
- investment in factories, equipment
- more ppl get college degrees
- immigration
how is the keynesian theory different from the classical theory?
"in the long run, we are all dead" :)
- argues that policy makers could shift AD to solve recessions and depressions
how might the wars between iran and usa + israel impact ad-as?