Exam 5: Introduction to Macroeconomics

Which are the four components of the macroeconomy?

Why do economists look to microeconomics to explain macroeconomic events?

Define the terms recession and depression.

What is the difference between a corporate bond and a share of stock?

What is the circular flow diagram and why is it useful?

Define hyperinflation

Define an expansion or boom.

Under which condition does stagflation occur?

Identify the following topics as either predominantly macroeconomic or microeconomic. (a) Provision by firms of medical benefits for employees (b) The demand for coffee (c) Unemployment (d) The price of a government bond relative to the price of IBM stock (e) Unemployment among economics professors (f) The business cycle (g) Consumption spending by the household sector (h) Rent controls in New York (i) Inflation (j) The money supply

Lay people often define unemployment as when there are people out of work. How do economists define unemployment?

Microeconomists generally do not expect to see excess supplies in most markets. However, macroeconomists will often observe that during recessions the quantity of labor supplied can exceed the quantity of labor demanded. Explain what macroeconomists are referring to and explain why the wage rate may not adjust right away.

How is issuing stock different from issuing a corporate bond? Explain.

Assume that the demand for construction workers declines because of a slump in the housing market. Explain using Classical reasoning why this will not cause unemployment.

For many decades it was common in Japan for workers to be granted lifetime employment, at least in the manufacturing sector. What impact do you think this had on the unemployment rate in Japan had this unwritten policy rule by corporations not been in effect? Is this necessarily an efficient economic policy?

List the three debt instruments that the federal government issues and explain how they work.

Define the business cycle.

In the late 19^th century the price level in the United States fell for more than two decades yet real incomes actually rose. What explanation can you offer to explain how this could have happened?

In which of the three basic markets (goods-and-services, labor, money) is each of the following items traded? (a) Rory McIlroy's golf skills (b) A pack of cigarettes (c) A government bond (d) A share of IBM stock (e) An IBM computer (f) The abilities of IBM's CEO

Identify the following as either fiscal or monetary policy. a. The government increases spending on roads and bridges. b. The Federal Reserve lowers interest rates. c. The government increases the income tax rate. d. The government buys bonds in the open market.

Explain what the money market is. Make sure to discuss the three players in the money market.