Topic 1,2

Macroeconomists study

• decisions of households and firms.

• the interaction of households and firms.

• economy-wide phenomena.

• regulations on firms and unions.

Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?

• Why do prices in general rise by more in some countries than in others?

• Why do wages differ across industries?

• Why do production and income increase in some periods and not in others?

• How rapidly is GDP currently increasing?

Which of the following statistics is usually regarded as the best single measure of a society’s economic well-being?

• the unemployment rate

• the inflation rate

• gross domestic product

• the trade deficit

For an economy as a whole,

• income is greater than expenditure

• expenditure is greater than income.

• income is equal to expenditure.

• GDP measures income more precisely than it measures expenditure.

Which of the following statements about GDP is correct?

• GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services.

• Money continuously flows from households to firms and then back to households, and GDP measures this flow of money.

• GDP is generally regarded as the best single measure of a society’s economic well-being.

• All of the above are correct.

If a nation’s GDP rises, then it must be the case that the nation’s

• income and expenditure both rise.

• income and saving both rise.

• income rises, but expenditure may rise or fall.

• saving rises, but income may rise or fall.

Because every transaction has a buyer and a seller,

• GDP is more closely associated with a nation’s income than it is with a nation’s expenditure.

• every transaction contributes equally to an economy’s income and to its expenditure.

• the number of firms must be equal to the number of households in a simple circular-flow diagram.

• firms’ profits are necessarily zero in a simple circular-flow diagram.

When a firm sells a good or a service, the sale contributes to the nation’s income

• only if the buyer of the good or service is a household.

• only if the buyer of the good or service is a household or another firm.

• whether the buyer of the good or a service is a household, another firm, or the government.

• We have to know whether the item being sold is a good or a service in order to answer the question.

GDP is defined as the market value of all final goods and services produced

• by the citizens of a country, regardless of where they live, in a given period of time; this definition focuses on GDP as a measure of total income.

• by the citizens of a country, regardless of where they live, in a given period of time; this definition focuses on GDP as a measure of total expenditure.

• within a country in a given period of time; this definition focuses on GDP as a measure of total income.

• within a country in a given period of time; this definition focuses on GDP as a measure of total expenditure.

To compute GDP, we

• add up the wages paid to all workers.

• add up the costs of producing all final goods and services.

• add up the market values of all final goods and services.

• take the difference between the market value of all final goods and services and the cost of producing those final goods and services.