Deck 6: An Introduction to Macroeconomics

Question 1

Suppose that we are in a condition of fully flexible prices,but production of nails will not go above 6,000 kg/week.What price will nails sell for if market demand is characterized by: (a)P = 5 - 0.5Q, (b)P = 6 - 0.5Q,and (c)P = 4 - 0.5Q,where P is in $/kg and Q is in thousands of kg/week?

Answer 1

(a)P = 5 - 0.5(6),P = 5 - 3,P = $2/kg; (b)P = 6 - 0.5(6),P = 6 - 3,P = $3/kg; (c)P = 4 - 0.5(6),P = 4 - 3,P = $1/kg.

Question 2

Which are the richest and poorest countries listed in Global Perspective 4.1 (page 92).How does Canada compare to these two countries?

Answer 2

In 2011,the United States was the richest country while Zimbabwe was the poorest as measured by adjusted GDP per capita.Canada was the second richest country.

Question 3

Suppose that we are in a condition of fully flexible prices,but production of nails will not go above 200 chairs/month.What price will chairs sell for if market demand is characterized by: (a)P = 425 - 1.5Q, (b)P = 530 - 1.5Q,and (c)P = 400 - 0.5Q,where P is in $/chair and Q is in chairs/month?

Answer 3

(a)P = 425 - 1.5(200),P = 425 - 300,P = $125/chair; (b)P = 530 - 1.5(200),P = 530 - 300,P = $230/chair; (c)P = 400 - 1.5(200),P = 400 - 300,P = $100/chair.

Question 4

In this list,identify those investments which are financial (F)and those that are economic (E): Canada Savings Bonds,stock in Potash Corporation of Saskatchewan,an old house you plan on fixing and reselling,new machinery for a factory you own,land that you plan to develop,an old window factory,your university education.

Question 5

In order to grow,what must a country do?

Question 6

What roles do expectations play in macroeconomics?

Question 7

Why do economists worry about unemployment?

Question 8

What three key statistics do macroeconomists study to assess the health of the economy? Give a short explanation of each.

Question 9

In order to compare GDP across nations,economists typically make 3 adjustments.What are these adjustments and why are they carried out?

Question 10

What is modern economic growth?

Question 11

Suppose that we are in a condition of "stuck" prices so that the price of nails will not go above or below $2/kg.Further suppose that nail factories have been built on a business plan designed to deliver 6,000 kg/week.How many nails will be sold in a market in which demand (which includes a modest amount of inventory)is characterized by: (a)P = 5 - 0.5Q, (b)P = 6 - 0.5Q,and (c)P = 4 - 0.5Q,where P is in $/kg and Q is in thousands of kg/week? In each case,what happens to inventory.

Question 12

List two concerns with inflation.

Question 13

What is the difference between financial investment and economic investment?

Question 14

What is the difference between nominal and real GDP?

Question 15

Why do economists measure growth in an economy using real GDP rather than nominal GDP?

Question 16

If households are typically the source of savings and businesses the source of investments,how then are savings and investments coordinated?

Question 17

Suppose that we are in a condition of "stuck" prices so that the price of wooden chairs will not go above or below $125/unit.Further suppose that chair factories have been built on a business plan designed to deliver 200/month.How many chairs will be sold in a market in which demand (which includes a modest amount of inventory)is characterized by: (a)P = 425 - 1.5Q, (b)P = 530 - 1.5Q,and (c)P = 400 - 0.5Q,where P is in $/chair and Q is in chairs/month? In each case,what happens to planned inventory.

Question 18

What is GDP per capita?

Question 19

Define macroeconomics and provide two key concerns it studies.

Question 20

What are two broad categories of macroeconomic shocks?

Question 21

What are two reasons why prices might be sticky?

Question 22

If prices are "stuck" and there is an unexpected demand decrease,describe what happens in the economy.

Question 23

What are inventories and what role do they play in an economy with sticky prices?

Question 24

Why do economists use the term "sticky" prices rather than "stuck" prices?

Question 25

What will happen to prices and output levels if there is an unexpected demand increase and prices are fully flexible?

Question 26

If prices are "stuck" and there is an unexpected demand increase,describe what happens in the economy.

Question 27

What is the Great Recession? Describe its causes and also its impact on the Canadian Economy.

Question 28

"Most prices are not that sticky." Evaluate this claim.

Question 29

What will happen to prices and output levels if there is an unexpected decrease in demand and prices are fully flexible?