1. Macroeconomics
macro economics discussion question and need an explanation and answer to help me
learn.
Please see the attachment
Requirements: 600 | .doc file
Market Equilibrium and Price Controls
Markets seek equilibrium, and the demand for goods and services will come to an
equilibrium with supply of goods and services. When markets are not in equilibrium,
surpluses and shortages, as well as underground markets, can exist. Sometimes, the
government may want to intervene in markets to try to help reduce economic
hardships.
What is the difference between a price floor and price ceiling? According to the laws of
demand and supply and how market equilibrium, efficiency, and equity are reached, do
attempts to repeal those laws and market results with price floors and price ceilings justify
legislative bodies to implement price controls?
Review the mechanics of supply and demand. Disequilibrium between supply and demand
will occur if price is above (surpluses) or below (shortages). Why does a price floor lead to
surpluses? Why does a price ceiling lead to shortages? Review consumer and producer
surplus. A price floor will lead to a transfer of consumer surplus to producer surplus; a
price ceiling will lead to a transfer of producer surplus to consumer surplus; both price
regulations lead to deadweight losses, which is a loss of surplus to society. Why? MUST BE
75 WORDS
Politicians and Economic Thinking
Politicians have a strong incentive to follow a strategy that will enhance their chances of
getting elected and re-elected. Political competition more or less forces them to focus on
how their actions influence their support among voters and political contributors.
Are voters likely to be well informed on issues and the positions of candidates? Why or why
not?
Review concepts like shortsightedness and rent seeking. What are the effects of
government intervention in markets with some of the price regulations like price floors and
price ceilings. MUST BE 75 WORDS
GDP Deflator
Gross domestic product (GDP) is a measure of the market value of final goods and services
2. produced within the borders of a country during a specific time period, usually a year.
What is the GDP deflator? How does the GDP deflator relate to real GDP?
Review GDP and nominal versus real. Real adjusts for inflation, so how do we arrive at the
real GDP number from nominal GDP? Review the GDP deflator formula, where GDP deflator
= (Nominal GDP/Real GDP) X 100. MUST BE 75 WORDS
Short-Run and Long-Run Economics
It is important to distinguish between changes that are anticipated and unanticipated
because the impact on the economy will differ between the two. The economy is in long-run
equilibrium when the short-run aggregate supply curve, aggregate demand curve, and long-
run aggregate supply curve are in equilibrium.
What are the major factors causing a shift in aggregate demand (inward or outward)? What
are the major factors that will affect short-run aggregate supply? Long-run aggregate
supply? MUST BE 75 WORDS
Review what factors will lead to a shift in the AD, SAS, and LRAS. An increase in output due
to economic growth will increase both short-run and long-run aggregate
supply. Unanticipated changes in either aggregate demand or aggregate supply will disrupt
long-run equilibrium and cause current output to differ from the economy's long-run
potential.
Fiscal Policy
When the economy is in a recessionary mode, aggregate demand shifting inward is often the
culprit. Deflationary pressures on prices ensue, and output falls, causing problems like
higher unemployment and contraction of the economy.
When the economy is in a recessionary mode, what will likely be the actions by government
using fiscal policy? Is it better to concentrate on aggregate demand or aggregate
supply? Why?
Review how and why aggregate demand and aggregate supply shift inward and
outward. English economist John Maynard Keynes developed a model that provides an
explanation for the high and prolonged rate of unemployment of the Great
Depression. According to Keynes, what are the major sources of economic
instability? Fiscal policy is spending and taxation of the executive branch of the federal
government; in recessionary times, what initiatives in spending and/or taxation are going
to help the economy? MUST BE 75 WORDS
The Federal Reserve System
The Federal Reserve System was established to provide a stable monetary system for the
entire economy. The Federal Reserve Bank (the Fed) has three major tools to control the
money supply: 1) reserve requirements, 2) discount window for loans to member banks,
and 3) open market operations.
When the economy is in a recessionary mode, what will likely be the actions by the Federal
Reserve using monetary policy? Suppose the Federal Reserve purchases a $100,000 bond
from John Doe, who deposits the proceeds in the Manufacturer's National Bank; what will
be the impact of this transaction on the supply of money?
How do each of the Fed's tools work? What is the fractional reserve system, and how does it
work in relation to the Fed? Review the Federal Reserve System and how the Fed alters the
3. monetary base to achieve the levels of money supply in the economy. MUST BE 75 WORDS
U.S. and China Free Trade
Imports increase the domestic supply and lead to lower prices for consumers. Exports
reduce the domestic supply and push price upward. The net effect of international trade is
an expansion in total output and higher income levels for both trading partners (law of
comparative advantages).
"The United States is suffering from an excess of imports. Cheap foreign products are
driving American firms out of business and leaving the U.S. economy in shambles." Evaluate
this view.
Review absolute and comparative advantages. Personal private property protection allows
for greater entrepreneurial ventures, and thus an expanding economy and job growth; can
import tariffs and quotas reduce the benefits of trade? Review the mechanics of import
tariffs and quotas and world price. MUST BE 75 WORDS
