4. Macroeconomics & Statistics
A. Knowledge & Comprehension
1. What is the difference between microeconomics and macroeconomics? How would you
define the latter? Use content from both Krugman & Wells (2015) and the lecture in your
answer.
In microeconomics, economists look at individuals; households and firms, their
decisions/decision making and the consequences of those. However, in macroeconomics,
economists focus on the whole economy. Macroeconomics doesn’t focus on one business but
on a sector or the whole economy and is mainly used in setting up policies for governments.
Microeconomics uses deductive methods for analysis, while macroeconomics uses inductive,
the (exact) opposite.
2. What kind of phenomenon set the stage for the creation of macroeconomics as a new field of
economic analysis?
The Great Depression in the 1930’s, the ‘invisible hand’ made up by Adam Smith didn’t work
it out and the economy kept failing; intervening from government was needed.
3. What do Krugman & Wells (2015) call ‘the pain of recession’?
Mostly, it is the increasing unemployment in a country; people lose their jobs and can’t find a
new one; their living standards lower because a lower (or stay out of) income. Poverty
increases, and small businesses fail.
4. What are the main policies that macroeconomists study? Name a specific example for each
one.
Monetary policy: which contents the quantity of money and effects the interest rates
If more money is available, loans get less scarce and by that interest rates will decrease. The
other way around, if less money is available, it is demanded more (loans are demanded more
and more scarce) which will lead to higher interest rates. This policy is carried out by the
Central Bank. Example: The FED (American Bank) buys or borrows Treasury bills from
commercial banks; the banks ‘get’ more money and the supply increased.
Fiscal policy: contents the taxes rates and government spending, by which the total
spendings are effected. This policy has more effect on the supply-side of the economy than
the monetary policy; it has direct influence on the value of spendings in the economy and
apart from that, the hight of the taxes rates influences how stimulated people are to work; if
you have to pay a high rate of your salary to the government, you’re not that eager to work
(more than you do). Example: the government lowers the taxes rates, so people can keep
more of their money and can spend it, or the government itself will spend more, to increase
demand.
Trade Policy: this concerns matters related to international trade flows. Like a government
enacting a policy (like import tariffs) that can affect the number of goods
5. Is a trade deficit or a trade surplus better for an open economy?
Open economy: one that trades goods and services with other countries.
It is not necessarily decided, but with a trade surplus, the outgoing of inland goods and
services is bigger than the income of outland goods and services (which could mean the
economy is blooming more).
6. What is inductive reasoning? Does the World Development Report (2009) use this form of
reasoning?
A. Knowledge & Comprehension
1. What is the difference between microeconomics and macroeconomics? How would you
define the latter? Use content from both Krugman & Wells (2015) and the lecture in your
answer.
In microeconomics, economists look at individuals; households and firms, their
decisions/decision making and the consequences of those. However, in macroeconomics,
economists focus on the whole economy. Macroeconomics doesn’t focus on one business but
on a sector or the whole economy and is mainly used in setting up policies for governments.
Microeconomics uses deductive methods for analysis, while macroeconomics uses inductive,
the (exact) opposite.
2. What kind of phenomenon set the stage for the creation of macroeconomics as a new field of
economic analysis?
The Great Depression in the 1930’s, the ‘invisible hand’ made up by Adam Smith didn’t work
it out and the economy kept failing; intervening from government was needed.
3. What do Krugman & Wells (2015) call ‘the pain of recession’?
Mostly, it is the increasing unemployment in a country; people lose their jobs and can’t find a
new one; their living standards lower because a lower (or stay out of) income. Poverty
increases, and small businesses fail.
4. What are the main policies that macroeconomists study? Name a specific example for each
one.
Monetary policy: which contents the quantity of money and effects the interest rates
If more money is available, loans get less scarce and by that interest rates will decrease. The
other way around, if less money is available, it is demanded more (loans are demanded more
and more scarce) which will lead to higher interest rates. This policy is carried out by the
Central Bank. Example: The FED (American Bank) buys or borrows Treasury bills from
commercial banks; the banks ‘get’ more money and the supply increased.
Fiscal policy: contents the taxes rates and government spending, by which the total
spendings are effected. This policy has more effect on the supply-side of the economy than
the monetary policy; it has direct influence on the value of spendings in the economy and
apart from that, the hight of the taxes rates influences how stimulated people are to work; if
you have to pay a high rate of your salary to the government, you’re not that eager to work
(more than you do). Example: the government lowers the taxes rates, so people can keep
more of their money and can spend it, or the government itself will spend more, to increase
demand.
Trade Policy: this concerns matters related to international trade flows. Like a government
enacting a policy (like import tariffs) that can affect the number of goods
5. Is a trade deficit or a trade surplus better for an open economy?
Open economy: one that trades goods and services with other countries.
It is not necessarily decided, but with a trade surplus, the outgoing of inland goods and
services is bigger than the income of outland goods and services (which could mean the
economy is blooming more).
6. What is inductive reasoning? Does the World Development Report (2009) use this form of
reasoning?
