BMAL-590 MACROECONOMICS EXAM QUESTIONS AND ANSWERS
Macroeconomics - CORRECT ANSWER✅✅examines the economy as a whole. When all the individuals,
households, firms, governments and foreign countries act together and make decisions, the entire
economy is affected.
Thus, Macroeconomics explores the determinants of aggregate income, investment, consumption,
growth, interest rates, and overall level of prices.
Macroeconomics posits that the notion of perfect markets and equilibrium do not hold for all goods and
services, and certainly not at all times.
In fact, the impetus for the growth of Macroeconomics was the great depression as classical
macroeconomic theories could not explain why high levels of unemployment persisted.
Keynesian economics - CORRECT ANSWER✅✅The central theme is the role of government in the
economy.
Keynes argued that government intervention could be an effective toolin addressing the problems of
unemployment and sluggishness output. Thus, government becomes a facilitator in stimulating
aggregate demand and lifting the economy out of a recession. The definition of people not working
according to Keynes are those not able to find a job at the current wage rate.
Keynesian economics was deemed to be the answer until the events of the 1970s and 1980s
demonstrated the limitations of government intervention and led to considerable disillusionment.
Walter Heller - CORRECT ANSWER✅✅used the term "Fine-tuning" to explain the role of government in
regulating unemployment and inflation.
The law of demand states that - CORRECT ANSWER✅✅price and quantity demanded are inversely
related
The law of demand states that the quantity demanded of goods falls when the price of the goods rises,
and vice versa, provided all other factors that affect buyers' decisions are unchanged.
,The quantity demanded of a consumer good such as ice cream depends on:
- The price of ice cream
- The prices of related goods
- Consumers' incomes
- Consumers' tastes
- Consumers' expectations about future prices and incomes
- Number of buyers, etc.
The law of demand says that the quantity demanded of a good is inversely related to its price, provided
all other factors are unchanged.
Shifts in demand are caused by changes in the factors of demand:
- Economics (the economy, consumer income, GDP, xfc etc.)
- Prices of related goods
- Consumer tastes and preferences
- Legal/Government
- Expectations about future prices and prospects
- Technology
- Number of buyers
examples of how factors can shift an entire demand curve include: - CORRECT ANSWER✅✅Consumer
Income:
- As income increases, the demand for a normal good will increase.
- As income increases, the demand for an inferior good will decrease.
Prices of Related Goods:
- When a fall in the price of one good reduces the demand for another good, the two goods are called
substitutes.
,- When a fall in the price of one good increases the demand for another good, the two goods are called
complements.
When considering the factors involved one should be able to understand how changes in the factors
cause changes in demand, with an entire shift not a movement along the demand curve.
Quantity supplied - CORRECT ANSWER✅✅the amount of a good that sellers are willing and able to sell.
Supply - CORRECT ANSWER✅✅a full description of how the quantity supplied of a commodity responds
to changes in its price.
The law of supply states: - CORRECT ANSWER✅✅the quantity supplied of a good rises when the price
of the good rises, as long as all other factors that affect suppliers' decisions are unchanged
Market Supply - CORRECT ANSWER✅✅the combined supply of everyone willing and able to sell a good
in a market. Market supply is graphically represented by a positively-sloped market supply curve
(remember previous slide), which can be derived by combining, or adding, the individual supplies of
every seller in the market.
Stagflation - CORRECT ANSWER✅✅a period of slow economic growth and high unemployment
(stagnation) while prices rise (inflation)
a phenomenon that has baffled economists. Stagflation is often caused by a supply side shock. For
example, rising commodity prices, such as oil prices, will cause a rise in business costs (transport more
expensive) and short run aggregate supply will shift to the left. This causes a higher inflation rate and
lower GDP output.
An economy is said to be in stagflation when overall price levels increase rapidly (inflation) even as the
economy itself is in a recession or high levels of unemployment (stagnation).
This is precisely what happened in the U.S. during the 1970s. Oil prices increased dramatically. The
production costs of goods spiraled leading to an increase in unemployment. The stagnation that
followed inflamed the inflationary effects on the economy.
, Scholars have tried to explain this phenomenon in terms of an economy's productive capacity itself
declining or the failure of government policies. However there is no consensus on the solution, if any, to
the problem.
Macroeconomics attempts to address three major concerns: - CORRECT ANSWER✅✅Inflation
Growth
Unemployment
Inflation - CORRECT ANSWER✅✅refers to an increase in the overall price level. Inflation erodes the
purchasing power of consumers.
hyperinflation - CORRECT ANSWER✅✅When inflation reaches unmanageable levels (some countries
have experienced inflation rates of over 3% per day!)
Due to hyperinflation, the Zimbabwean dollar became worthless with one quadrillion (one hundred
trillion) Zimbabwe dollars being worth just US$1 in 2015. The country was forced to abandon its
currency in favor of the U.S. dollar.
Deflation - CORRECT ANSWER✅✅represents a decrease in the overall price level. Prolonged periods of
deflation are as catastrophic for the economy as inflation. As an example, the once mighty economic
superpower Japan has been facing deflation for almost two decades.
Aggregate Output - CORRECT ANSWER✅✅the economy's total production of goods and services for a
given time period
Aggregate output refers to the total quantity of final goods and services produced in an economy in a
given time period; usually measured quarterly.
recession - CORRECT ANSWER✅✅An economy is said to be in recession if aggregate output falls in two
consecutive quarters.
Macroeconomics - CORRECT ANSWER✅✅examines the economy as a whole. When all the individuals,
households, firms, governments and foreign countries act together and make decisions, the entire
economy is affected.
Thus, Macroeconomics explores the determinants of aggregate income, investment, consumption,
growth, interest rates, and overall level of prices.
Macroeconomics posits that the notion of perfect markets and equilibrium do not hold for all goods and
services, and certainly not at all times.
In fact, the impetus for the growth of Macroeconomics was the great depression as classical
macroeconomic theories could not explain why high levels of unemployment persisted.
Keynesian economics - CORRECT ANSWER✅✅The central theme is the role of government in the
economy.
Keynes argued that government intervention could be an effective toolin addressing the problems of
unemployment and sluggishness output. Thus, government becomes a facilitator in stimulating
aggregate demand and lifting the economy out of a recession. The definition of people not working
according to Keynes are those not able to find a job at the current wage rate.
Keynesian economics was deemed to be the answer until the events of the 1970s and 1980s
demonstrated the limitations of government intervention and led to considerable disillusionment.
Walter Heller - CORRECT ANSWER✅✅used the term "Fine-tuning" to explain the role of government in
regulating unemployment and inflation.
The law of demand states that - CORRECT ANSWER✅✅price and quantity demanded are inversely
related
The law of demand states that the quantity demanded of goods falls when the price of the goods rises,
and vice versa, provided all other factors that affect buyers' decisions are unchanged.
,The quantity demanded of a consumer good such as ice cream depends on:
- The price of ice cream
- The prices of related goods
- Consumers' incomes
- Consumers' tastes
- Consumers' expectations about future prices and incomes
- Number of buyers, etc.
The law of demand says that the quantity demanded of a good is inversely related to its price, provided
all other factors are unchanged.
Shifts in demand are caused by changes in the factors of demand:
- Economics (the economy, consumer income, GDP, xfc etc.)
- Prices of related goods
- Consumer tastes and preferences
- Legal/Government
- Expectations about future prices and prospects
- Technology
- Number of buyers
examples of how factors can shift an entire demand curve include: - CORRECT ANSWER✅✅Consumer
Income:
- As income increases, the demand for a normal good will increase.
- As income increases, the demand for an inferior good will decrease.
Prices of Related Goods:
- When a fall in the price of one good reduces the demand for another good, the two goods are called
substitutes.
,- When a fall in the price of one good increases the demand for another good, the two goods are called
complements.
When considering the factors involved one should be able to understand how changes in the factors
cause changes in demand, with an entire shift not a movement along the demand curve.
Quantity supplied - CORRECT ANSWER✅✅the amount of a good that sellers are willing and able to sell.
Supply - CORRECT ANSWER✅✅a full description of how the quantity supplied of a commodity responds
to changes in its price.
The law of supply states: - CORRECT ANSWER✅✅the quantity supplied of a good rises when the price
of the good rises, as long as all other factors that affect suppliers' decisions are unchanged
Market Supply - CORRECT ANSWER✅✅the combined supply of everyone willing and able to sell a good
in a market. Market supply is graphically represented by a positively-sloped market supply curve
(remember previous slide), which can be derived by combining, or adding, the individual supplies of
every seller in the market.
Stagflation - CORRECT ANSWER✅✅a period of slow economic growth and high unemployment
(stagnation) while prices rise (inflation)
a phenomenon that has baffled economists. Stagflation is often caused by a supply side shock. For
example, rising commodity prices, such as oil prices, will cause a rise in business costs (transport more
expensive) and short run aggregate supply will shift to the left. This causes a higher inflation rate and
lower GDP output.
An economy is said to be in stagflation when overall price levels increase rapidly (inflation) even as the
economy itself is in a recession or high levels of unemployment (stagnation).
This is precisely what happened in the U.S. during the 1970s. Oil prices increased dramatically. The
production costs of goods spiraled leading to an increase in unemployment. The stagnation that
followed inflamed the inflationary effects on the economy.
, Scholars have tried to explain this phenomenon in terms of an economy's productive capacity itself
declining or the failure of government policies. However there is no consensus on the solution, if any, to
the problem.
Macroeconomics attempts to address three major concerns: - CORRECT ANSWER✅✅Inflation
Growth
Unemployment
Inflation - CORRECT ANSWER✅✅refers to an increase in the overall price level. Inflation erodes the
purchasing power of consumers.
hyperinflation - CORRECT ANSWER✅✅When inflation reaches unmanageable levels (some countries
have experienced inflation rates of over 3% per day!)
Due to hyperinflation, the Zimbabwean dollar became worthless with one quadrillion (one hundred
trillion) Zimbabwe dollars being worth just US$1 in 2015. The country was forced to abandon its
currency in favor of the U.S. dollar.
Deflation - CORRECT ANSWER✅✅represents a decrease in the overall price level. Prolonged periods of
deflation are as catastrophic for the economy as inflation. As an example, the once mighty economic
superpower Japan has been facing deflation for almost two decades.
Aggregate Output - CORRECT ANSWER✅✅the economy's total production of goods and services for a
given time period
Aggregate output refers to the total quantity of final goods and services produced in an economy in a
given time period; usually measured quarterly.
recession - CORRECT ANSWER✅✅An economy is said to be in recession if aggregate output falls in two
consecutive quarters.
