Macroeconomics 21st Edition By McConnell – Test Bank

Macroeconomics 21st Edition By McConnell – Test Bank

CHAPTER 6
An Introduction to Macroeconomics

A. Short-Answer, Essays, and Problems

1. Classify the following questions as macroeconomics or microeconomics.
a) Why does a tax on soda increase consumption of ice tea?
b) Why are some countries rich while others are poor?
c) Why do some countries enjoy long-run increases in standards of living, while other countries have stagnate growth?
d) Why are the prices of name-brand products higher than the prices of generic?

2. Macroeconomics is mainly concerned with two topics. What are these two topics and how are they related to each other?

3. Contrast the economic growth and business cycles.

4. What is the difference between a slowdown in economic growth and a recession?

5. What are the three primary measures used in macroeconomics to assess the performance of an economy?

6. The three major indicators of the health and development of an economy include: real GDP, unemployment, and inflation. All other things equal, would an economy prefer these numbers to be increasing or decreasing? Why

7. Describe the difference between real GDP and nominal GDP. Which concept is more useful for measuring change in the economy over time? Why?

8. Assume that a painter produces 20 paintings this year and 20 paintings next year. What is the annual change in nominal GPD if the price of paintings rises from $1,000 this year to $1,500 next year? Can you conclude that the economy grew from this year to next year based on your answer? Why?

9. Assume that in year 1 an economy produces 1000 units of output and they sell for $100 a unit, on average. In year 2, the economy produces the same 1000 units of output, and sells it for $110 a unit, on average. Use year 1 prices to calculate real GDP in Year 1 and Year 2. What happened to real GDP between years 1 and 2? Why?

10. What is the opportunity cost of unemployment for an economy? What social problems have been linked to higher rates of unemployment?

11. Unemployment is not only bad for the economy due to the loss of goods and services. Describe some other reasons why unemployment has a negative effect on the economy.

12. How does inflation affect people’s standards of living and savings?

13. Identify at least four important policy questions about the powers and limits of government economic policy that macroeconomics models are able to answer.

14. Compare and contrast the characteristics of economic growth in ancient or pre-industrial times with modern economic growth today.

15. What accounts for differences in living standards between rich and poor countries today?