Macroeconomics questions Free Essays

ATT it represents savings because the check wasn’t being spent on consumption goods. ) Your roommate earning $100 and depositing it into her bank account also represents saving because the money wasn’t spent on consumption goods. D) Borrowing $1000 from the bank to buy a car to use in your pizza delivery business represents Investment because the car Is a capital good. We will write a custom essay sample on Macroeconomics questions or any similar topic only for you Order Now Page 295 Question 2: a) People get the benefit from the market of insurance not to eliminate the risks but to spread them around more efficiently. ) Two problems that impede insurance companies from working perfectly and their ability to spread risk are adverse election and moral hazard. Adverse selection is when a high-risk person is more likely to apply for insurance than a low-risk person because a high-risk person would benefit more from insurance protection. Moral Hazard is how after people buy insurance, they have less incentive to be careful about their risky behavior because the insurance company will cover much of the resulting losses. Page 295 Question 5: Determine the companies sales revenue and number of stocks, and looking at the potential growth or weaknesses that may be facing the company. Health insurance could be an adverse selection because if it’s a person who has more health problems than the average healthy person they would benefit more from the insurance protection. A moral hazard for health insurance would be if after people got health insurance they stopped taking care of their health as well because they know they can fall back on the insurance. Car insurance could be an adverse selection if a person has an unsafe car or a record of bad driving they would be at higher-risk and benefit more from insurance protection. People who Just get car insurance could be a moral hazard because they know the insurance will cover a majority of their losses so they will stop driving as carefully. Chapter 1 5 Questions Page 318 Question 3: a) Frictional unemployment results because it takes time for workers to search for the jobs that best suit their tastes and skills. Frictional unemployment is inevitable because frictional employment is often the result of changes in the demand for labor among different firms. There could also be changes in the composition of demand among industries or regions called secular shifts that cause temporary employment while workers are in transition to search for Jobs in new sectors. Simply put, frictional unemployment is inevitable because the economy is always changing. People also leave there Jobs to search for Jobs that better suit their skills which also causes some frictional unemployment. ) If the government wanted to reduce frictional unemployment they could have skills development seminars in order to ease the transition of workers from declining to growing industries. They could also have employment agencies to match the unemployed labor to Jobs that match their skill set. Page 318 Question 7: A firm could increase its profits by raising the wages it pays because better paid workers are healthier and more pr oductive, worker turnover is reduced, the firm can attract higher quality workers and worker effort is increased. Age 319 Question 7: a) If manufacturing workers formed a union, I would predict that the wage would rise and the quantity of labor demanded would decrease. Because the wage is higher, the quantity of labor supplied would increase, so there are unemployed workers in the unionized manufacturing sector. B) When the workers become unemployed in the manufacturing sector they will seek employment in the service labor market. The result of a larger supply of labor results in a lower wage in the unionized service sector and an increase in employment. Chapter 16 Questions Page 345 question 2: Intrinsic value means that the item would have value even if it were not used as money such as gold. Fiat money is money without intrinsic value that is used as money because of government decree. The paper dollars that we use are fiat money, each dollar reads, â€Å"This note is legal tender for all debts, public and private. Page 345 Question 9: Reserve requirements are regulations on the minimum amount of reserves that banks must hold against deposit. When the Fed raises reserve requirements there are less loans mad and the overall money supply shrinks. Page 346 problem 7: You would use the money multiplier which is 1/. 05 so 20. The maximum expansion of the money supply that occurs when the deposit that is made is 20 times the initial deposit which means we get 40,000 in money supply for the $2000 in cookie Jar money. If one creates more it expands the supply by the money created. How to cite Macroeconomics questions, Papers Macroeconomics questions Free Essays If business cycles are inevitable, what is the purpose of keeping track of different stages? It has been said that an economist recognizes three certainties in life: death, taxes and the business cycle. Throughout mankind’s existence, the cycle manifested itself in periods of growth followed by phases of contraction. Understanding the various phases of the cycle is important to a business in order to avoid economic bubbles and also maximize returns. We will write a custom essay sample on Macroeconomics questions or any similar topic only for you Order Now History has proven many times that big and small businesses who do not take into account the business cycle usually get run over. Studying the different phases of the business cycle – recession, recovery, growth, and decline -is critical as each phase requires a different business strategy. Identifying the beginning and ending of each phase and what to expect in between can allow a company to align its strategies, tactics, and operations to reflect changing business conditions. While there is no definite formula that will apply to all companies, the general approach is to focus on a company’s strengths and core competencies and at the same time focus on stronger planning practices. Quick-thinking investors who recognize the different phases of the market cycle are able to take advantage of them to profit. They are also less likely to be deceived into trading at the worst possible time. The stock market crash of October 1987 reduced the wealth of the average American Household. How did this event impact the aggregate demand? The stock market mobilizes domestic resources and channels them to productive investment as such it is an important source for companies to raise money. The stock market has a significant relationship with the economy. On one hand it serves as the leading indicator of the economic activity in the country, on the other it has potential impact on aggregate demand, particularly through aggregate consumption and investment. The stock market crash of October 19, 1987 (known as Black Monday) recorded a US$1 trillion slash off the value of the stock market resulting in the reduction in American aggregate demand. Though not as catastrophic as the crash of 1929 because of the quick and decisive steps taken by the government, the 1987 crash affected consumer purchases of durable goods leading to a decline in business investment. As household income took a hit, consumer spending rattled. This led to a decline in overall demand. The crisis caused uncertainty about future income, which led consumers and firms to put off purchases of durable goods. What is the reason for the Aggregate Demand curve to have a downward shape? Aggregate demand is the economy-wide demand for goods and services. The aggregate demand curve slopes downward because of the following: Wealth Effect: A decrease in the price level encourages consumers to spend more. Thus the increase in spending causes an increase in the quantity of goods and services demanded. Interest-Rate Effect: A lower price level reduces the interest rate and encourages greater spending on investments, and increasing the quantity of goods and services demanded. If the price level falls, households may deposit excess money into an interest bearing savings account driving down the interest rate and encouraging firms to borrow and invest in equipment and factories, which leads to an increase in the quantity of goods and services demanded. Exchange Rate Effect: As price levels and interest rates fall, the real exchange rate depreciates. This depreciation impacts net export thus increasing the quantity of goods and services demanded. How can an economy eliminate cyclical unemployment? Cyclical unemployment is unemployment caused by the business cycle – that is a general downturn or lack of demand in the economy (a recession). The solution to eliminating or reducing cyclical unemployment is to increase aggregate demand through demand management policies which are designed to stabilize the economy by changing aggregate demand. The most noted demand-management policies are fiscal and monetary. What events in the economy can contribute to the change in the consumer confidence level? Consumer confidence levels are generally influenced by the following: Expectations of future income and employment The current level of interest rates and future interest rate expectations Trends in unemployment and changes in perceived job security Anticipated changes in government taxation Changes in household wealth What are the participants of the Aggregate Demand Curve? The participants are consumers or households; business firms; the government; and, the rest of the world. References Lutz G. (2002). Business Cycle Theory. Oxford University Press Boyes, W., Melvin M. (2007). Economics, 7th Edition.Houghton Mifflin Company Arnold, Lutz G. Business Cycle Theory. Oxford University Press, 2002. Remembering the Crash of 87 (2007). The CNBC Archives, Retrieved October 30, 2007 from the World Wide Web: http://www.cnbc.com/id/20910471 Bozzo, A. (2007). Tale of The Tape: The Crashes of 1987 And 1929. The CNBC Archives, Retrieved October 30, 2007 from the World Wide Web: http://www.cnbc.com/id/21191480 Macroeconomic Unemployment Explained (2007). EconGuru Economics Guide, Retrieved October 30, 2007 from the World Wide Web:   http://www.econguru.com/macroeconomic-unemployment-explained/    How to cite Macroeconomics questions, Essay examples