Macroeconomics For Final PDF
Macroeconomics For Final PDF
Macroeconomics For Final PDF
Sample questions
Short questions:
1. Define Microeconomics and Macroeconomics
2. What are the basic macroeconomic question?
3. Define GDP and distinguish between Nominal and Real GDP.
4. Write a short note on the circular flow of income for three sector
economy.
5. Write a short note on the circular flow of income for two sector
economy.
6. Define the terms NNP, NDP, GDP, GNP and Depreciation.
Broad Questions:
1. Describe the major macroeconomic goals or objectives.
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Short question
Question 1 :
Define Microeconomics and Macroeconomics.
Answer :
Microeconomics and Macroeconomics are two approaches to
economic problems and analysis.
Rangner Frich as the first to use the terms ‘micro’ and ‘macro’ in
economics in 1933.
Microeconomics :
Microeconomics relates to the study of individual economic units.
Microeconomics is called price theory.
Price Theory explains the composition, or allocation, of total production
why more and some things are produced than of others.
Macroeconomics :
Macroeconomics is a study of the economy as a whole.
Macroeconomics is called Income Theory.
Income theory explains the level of total production and why the level
rises and falls.
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Question 2 :
What are basic macroeconomics questions?
Answer :
a) Why do output and employment sometimes fall, and how can
unemployment be reduced?
All market economics show patterns of expansion and contraction
known as business cycle. During the business cycle downturn , such as
the recession of 1990—1991 , production of goods and services fall,
and millions of people lose their jobs. For much of the postwar period,
one key goal of macroeconomic policy has been to use monetary
Employed: Persons who are employed in a paid job.
Working Age population: 15-64 years old.
Unemployed: Persons who are seeking job but unable to find.
b) What are the sources of price inflation, and how can it be kept under
control?
Inflation: Inflation is the consistent increase in average price level.
Inflation rate = ( Price t year— price t-1 year / price t-1 year ) * 100
Economists have learned that high rates of price inflation have a
corrosive effect on market economics. A market economy uses prices
as a yardstick to measure economic values and as a way to conduct
business. During periods of rapidly rising prices, the yardstick loses its
value: People become confused, make mistakes, and spend much of
their time warring about inflation eating away at their time worrying
about inflation eating away at their incomes. Rapid price changes lead
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Labor Force: Number of people who are willing and able to work.
(Employed + Unemployed)
Question 3 :
Define GDP and distinguish between Nominal and Real GDP.
Answer :
Gross Domestic Product (GDP): The most comprehensive measure of
the total output in an economy is the GDP. GDP is the measure of the
market value of all final goods and services – food, shelter, cars,
airplane rides, health care and so on – produced in a country during a
year.
There are two ways to measure GDP.
Nominal GDP : It is measured in actual market prices; it is the market
value of final goods. Quantitatively it is the product of the quantity of
goods and services produced times their respective prices.
Real GDP : It is calculated in constant or invariant prices (say for the
year 2005).When current year prices are used in measuring output,
nominal (current dollar) GNP includes the effect of price changes during
the current year. To eliminate the effect of price changes, prices in a
selected year can be used to measure output in preceding and
proceeding years; this provides a measure of real (constant dollar) GNP.
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Question 4 :
Write a short note on the circular flow of income for three sector
economy.
Answer :
Question 5 :
Write a short note on the circular flow of income for two sector
economy.
Answer :
Measuring Output in a Three-sector Model :
1. Household consumption (C)
2. Investment (I)
3. Government (G)
Income from the production of goods and services is paid to
households or received by government as direct or indirect taxes. The
household sector pays direct taxes to the government sector. Indirect
taxes are imposed at the production level upon goods produced.
Household income is allocated to (direct) taxes, consumption spending
and saving. When the federal budget is balanced, tax revenue equals
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Question 6 :
Define the terms NNP, NDP, GDP, GNP and Depreciation.
Answer :
Net National Product (NNP): It is the measure of net output available
for consumption by the society.
NNP = Gross National Product – Depreciation
Gross National Product (GNP): GNP is the total market value of all final
goods and services produced by the residents of the economy in a
particular fiscal year.
GNP = GDP + Factor income from abroad - Factor payment to abroad
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Broad Question
Question 1:
Describe the major macroeconomic goals or objectives of an
economy.
Answer :
Output growth: The ultimate objective of economic activity is to
provide the goods and services that the population desire. What could
be more important for an economy than to produce ample shelter,
food, education, and recreation for its people?
Market Value = Price x Quantity
Potential GDP: It is the long-run trend in GDP. It represents the long-
run productive capacity of the economy or the maximum amount the
economy can produce while maintaining stable prices.
High Employment, Low Unemployment: The next major objective of
macroeconomic policy is high employment, which is the counterpart of
low unemployment. A person is considered employed if he or she spent
most of the previous week working at a paid job. A person is
unemployed if he is on temporary lay off, is looking for a job, or is
waiting for the start date of a new job. A person who fits neither of the
first two categories, such as a full-time student, homemaker, or retiree,
is not in the labor force.
Unemployment Rate = (Number of unemployed/ Labor force) x 100
People want to be able to find high-employing and stable job without
searching or waiting too long. The unemployment rate tends to move
with the business cycle. When output is depressed, the demand for
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UNEMPLOYMENT
Short Questions
means that a person has left his job willingly in search of other
employment.
b)Involuntary Unemployment : When it is involuntary, it means that a
person has been fired or laid off and now must look for another job.
problem, there are often increased calls for protectionism and severe
restrictions on immigration. Protectionism can not only lead to
destructive tit-for-tat retaliation among countries, but reductions in
trade harm the economic well-being of all trading partners.
Other social costs include how people interact with each other. Studies
have shown that times of elevated unemployment often correlate both
with less volunteerism and higher crime.
Broad Questions
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