MACROECONOMICS COMPREHENSIVE QUESTIONS AND
ANSWER REVISED EDITION 2024
Microeconomics - (ANSWER)The study of individual household and firm behavior,
individual markets and industries
Macroeconomics - (ANSWER)The study of aggregate behavior at the country or
world level income must equal
expenditure because - (ANSWER)- Every transaction has a buyer and a seller.
- Every dollar of spending by some buyer is a dollar of
income for some seller.
Circular flow diagram - (ANSWER)
Gross domestic product (GDP) - (ANSWER)is a measure of
the income and expenditures of an economy; it is the total market value of all final goods and
services produced within a country in a given time
period
Six important features of GDP - (ANSWER)• Market prices.
• Final goods, not intermediate goods.
• Goods and services.
• Only goods and services currently produced.
• Production within the geographic confines of a country.
• Production within a specific interval of time.
GDP formula - (ANSWER)Y=C+I+G+NX
Y - (ANSWER)output/GDP
C - (ANSWER)consumption; the spending by households
on goods and services.
Ig - (ANSWER)investment; the spending on capital
equipment, structures and inventories
G - (ANSWER)government purchases; the spending on
goods and services by local and central
governments (excluding transfer payments).
, NX (or Xn) - (ANSWER)net exports; exports minus imports
Nominal GDP - (ANSWER)production of goods and services
at current prices.
Σ(price per good x quantity of good)
Real GDP - (ANSWER)production of goods and services at
constant prices. Σ(base year price per good x quantity of good)
Higher GDP per person indicates - (ANSWER)a higher
standard of living.
Factors that contribute to well-being that are not included in GDP - (ANSWER)The value
of leisure
The value of the environment
The value of home production
The effects of unequal income distribution
The consumer price index (CPI) - (ANSWER)measure of the overall cost of the goods and
services in a fixed basket bought by a typical consumer; used to monitor changes in the cost
of
living over time; used to correct for inflation for comparing cost of living over time
(base year basket quantities x current year prices/base year basket quantities x base year
prices)x 100
Inflation equation - (ANSWER)100% x (CPI2-CPI1)/CPI1
Factors that contribute to cost of living that are not taken into account in the CPI -
(ANSWER)Substitution bias
Introduction of new goods
Unmeasured quality change
Interest - (ANSWER)represents a payment in the future
for a transfer of money from the past.
Nominal interest rate - (ANSWER)the interest
rate not corrected for inflation (i)
Real interest rate - (ANSWER)the nominal
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