Econ 203 quiz - 203 quiz PDF

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Macroeconomics is the study of the economy as a whole, while microeconomics deals with the individual decision-making units. Macroeconomists use microeconomic theory to guide them in their work since macroeconomics studies the aggregate versions of microeconomic topics therefore the conclusion from microeconomic theory serves as an important reference for macroeconomists. Macroeconomists tend to combine many markets into one. Aggregate Behavior: the behavior of all households and firms together During a Recession Output falls Unemployment increases Employment falls Business Cycle short run fluctuations of the economy Deflation decrease in overall price level. John Maynard Keynes *first to show that government policy could be used to change aggregate output and prevent recessions by stabilizing the economy. *At the time Keynes was writing, the economy in the U.S. was going through a prolonged and deep depression. *During the 2008 election period the United States was going through a period of deep recession and the Presidential candidates were proposing various tax cuts and/or spending increases to stimulate the economy. ** Keynes *believed that the government's role is to stimulate aggregate demand and to lift the economy out of recession. argued that wages may not adjust right away. Unemployed those who are searching for work but cannot find a job diagram of labor supply and labor demand curves, Horizontal Axis — Units of Labor Vertical Axis — Wage Rate Labor Demand Curve shows the number of workers that the firms want to hire at each wage rate. The Classical Model based on the critical assumption that markets always clear The Labor Supply Curve shows the number of workers that want to work at each wage rate.

Opportunity cost of holding a job is the leisure time given up to work Transfer Payments are not included in GDP because these are income received, but not as payments for providing current goods and services. How the government funds its budget deficit borrow by selling treasury bills to the public. The Circular Flow Diagram shows the income received and payments made by each sector of the economy: firms, households, government, and the rest of the world. Fiscal Policy Government policies that deal with taxes and spending are called fiscal policies. Fiscal policy is conducted by the federal government. while other policies dealing with the control of the nation's short-term interest rates are called monetary policy In macroeconomics we study the interactions of 3 markets goods-and-services market labor market money market. The Classical Belief markets are resilient and that wages and prices are flexible. increase in the demand for flight attendants should result in higher wages. >This will cause additional flight attendants to start looking for work and will serve as an incentive for firms to decrease the number of workers demanded. >What would otherwise be a shortage in the labor market results in the market clearing, or no additional employment. Thus the increase in the demand for labor is not met by a commensurate increase in the wage rate. This means that there will be fewer flight attendants actively seeking employment but more being hired in the market, so unemployment will decrease. *In 1974, the price of a first-class postage stamp was 10 cents, a loaf of bread averaged 28 cents, gasoline was 53 cents per gallon, and the average price of a new car was $3,500. In 2014, the postage stamp cost 49 cents, a loaf of bread was $2.46, gasoline averaged $3.36 per gallon, and the average new car cost $32,531. Based on this information, can we conclude that consumers today are worse off than consumers in 1974? No, we need to compare the purchasing power of consumers in 1974 with the purchasing power of people in 2014. *Assume that the demand for flight attendants increases significantly as a result of an increase in demand for air travel. Using classical reasoning, this should result in higher wages and more incentives for firms to decrease the number of workers demanded., therefore unemployment will persist without government intervention to spur aggregate demand.

Classical Economists believed that unemployment would not persist because prices and wages are flexible while Keynesians believe that they are sticky Stagflation 1970's to describe an economy experiencing both inflation and economic stagnation Fine Tuning the Macroeconomy During the 1960's, many economists believed that the government could regulate both unemployment and inflation at the same time.

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