REVISED ECONOMIC 1002 EXAM QUESTIONS AND ANSWERS

REVISED ECONOMIC 1002 EXAM QUESTIONS AND ANSWERS What are the broad issues that macroeconomists study and the types of data they use and interpret? - CORRECT ANSWER -Macroeconomists study the performance of the national economy as well as the policies used to improve that performance as well as the aggregate impact of individual decisions. They study changes in economic output (GDP), inflation (CPI), interest and foreign exchange rates, and the balance of payments. Poverty reduction, social equity, and sustainable growth are only possible with sound monetary and fiscal policies. What determines interest rates and exchange rates? How are they linked? - CORRECT ANSWER -An increase in interest rates cause a country's currency to appreciate, as lenders are provided with higher rates and thereby attracting more foreign capital. This can cause a rise in the value of a currency and therefore the exchange rate. What determines a country's rate of economic growth and aggregate unemployment rate? - CORRECT ANSWER -Increases in capital goods, labour force, technology, and human capital can all contribute to economic growth. Economic growth is commonly measured in terms of the increase in aggregate market value of additional goods and services produced, using estimates such as GDP. How will global warming (and government policy responses to this issue) impact on the Australian economy? - CORRECT ANSWER -Already, severe droughts have reduced Australia's gross domestic product by about 1%. By 2061, it is projected that climate change impacts on pastoral and growing conditions could lead to annual average production losses of between $750 million and $1.5 billion. Define GDP - CORRECT ANSWER -The market value of final goods and services produced in a given time period. WHat is the inflation rate - CORRECT ANSWER -The inflation rate is the rate at which prices in general are increasing over time. Unemployent rate - CORRECT ANSWER -The unemployment rate is the fraction of people who would like to be employed but can't find work. Unemployment rises during recessions, but there are always unemployed people even during good times. What causes slowdowns and speedups in the rate of productivity growth? - CORRECT ANSWER -Natural disasters, wars, and major economic disruptions such as financial crises and deep recessions tend to be accompanied by declines in labor productivity. Technological advances. Improved worker skills. Improved management practices. Economies of scale in production. Increases in the amount of non-labor inputs used. POSITIVE VERSUS NORMATIVE ANALYSES OF MACROECONOMIC POLICY - CORRECT ANSWER -A positive analysis addresses the policy's likely economic consequences but not whether those consequences are desirable. A normative analysis addresses the question of whether a proposed policy should be used. Debates about normative conclusions inevitably involve personal values and thus generally cannot be resolved by objective economic analysis alone. Real vs Nominal GDP - CORRECT ANSWER -Nominal GDP measures the final value of goods and services at current market prices. Real GDP measures the final value of goods and services using current quantities but the prices that prevailed in some past period. The advantage of using real GDP is that, unlike nominal GDP, it does not change if only the price of output has changed. Changes in real GDP occur only if the actual quantity of goods and services produced in the economy changes. IS it logical to correlate GDP and economic wellbeing - CORRECT ANSWER -For a variety of reasons, it is a mistake to equate a nation's real GDP with the welfare of its citizens. These reasons essentially relate to