Summary: Macro

Read the summary and the most important questions on Macro

• 1 A tour of the world

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• What are the economic advantages of a common currency (e.g. Euro)?

  1. symbolic importance
  2. No more changes in relative prices when travelling
  3. Large economic world zone

• What are the economic costs/disadvantages of a common currency (e.g. Euro)?

  1. common monetary policy 
  2. same interest rates

• What were the 4 reasons for the economic slowdown in 2007-2011?

  1. Increase oil price
  2. US house prices booming and afterwards plummeting
  3. Fall in the stock market
  4. A constraint of credit

• What are two reasons for china's enormous output growth rate?

  1. High accumulation of capital
  2. Fast technological progress due to foreign firms producing in China and joint ventures between China and foreign countries

• 2 A tour of the book

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• What are the 3 definitions of GDP, the measure of aggregate output?

  1. Value of final goods and services 
  2. The sum of value added (value of its production - value of intermediate goods)
  3. Sum of incomes

• Labour force (L)

  The sum of employment and unemployment
  L = N + U

• Why is constructing unemployment hard?

  Because people only register as unemployment when they have a benefit to do so

• Why do we care about unemployment?

  1. It directly effects the welfare of the unemployed (financially and psychologically) 
  2. Provides a signal that the economy isn't using its resources efficiently
  - recession (high U) or over-utilising and labor shortage (low U)

• Why do we care about inflation?

  - Inflation affects income distribution, because wages doesn't grow proportionally
  - Inflation leads to distortions and uncertainty in investment decisions 
  -> best rate between 1% and 4%

• What are 2 price indexes to measure the price level?

  1. GDP deflator (Pt) = Nominal GDP/Real GDP
  2. Consumer Price index = average price of the final goods consumed in the economy