Economics Macroeconomics Answers

Economics/Macroeconomics Answers
School affiliation
Economics/Macroeconomics Answers
Macro Sample Exam Questions Topic 8 Bubbles and Crashes
What is a bubble?
It is an economic cycle in which there is an increase in the price of assets and then
followed by a decrease in their prices.
How does herding contribute to a bubble?
The bubble caused by the market behavior in which investors are willing to buy an asset
and increase prices and later when to try to sell decreases the prices thus deflating the bubble.
The majority invest in this investment as most are investing due to lack of individual decision-
making decision.
What is leverage and how can it contribute to bubbles and crashes?
Leverage is investing borrowed fund to increase potential return on the investment.
Leverage is related to liquidity and with deflation of bubble causes lack of liquidity. Thus
borrowed cash is invested on the overpriced item due to increased demand causing a crash which
is a significant drop in the asset price.
What are CDO's, and how did they encourage reckless lending, heightened risk and then
the recent crash?
It's a financial instrument that pays who investing form the fixed income assets pool
income. The design of CDO is risky in nature and decrease of the asset value resulted in losses
during the bubble period. With the perception of increased income the lending institutions
increased interest rate and in as many could not afford deflated the bubble.
What are sub-prime loans, why did they increase to hugely before the crash?
They are loans designed to assist borrowers to build equity and be prime borrowers. In
the crisis, there were low defaults for those who borrowed loan for asset financing, and this
convinced the lending companies to believe that these riskier assets (subprime borrowers) were
not so risky after all. This lends to lending company carelessly lending as the subprime
borrowers kept borrowing from other banks to repay the bank they borrowed from before thus
leading to the crisis as lending companies were not getting their money back.
How do bubbles and crashes undermine theories that insist on the intrinsic 'rationality'
and 'efficiency' of markets?
When there is a speculation that there is an increase in income or price of an investment,
it attracts the public attention, and this heightens the expected success hence leading to asset
price increase. It creates the speculation bubble that is deflated by falling prices.
Macro sample exam questions T 9 Inflation
What is the Phillips Curve?
It’s a curve that is used to show the relationship in the trade-off in the short run a between
inflation and unemployment rate
How does the Quantity Theory of Money explain inflation?
When using the quantity theory of money, when the Federal Reserve increases the supply
of money thus causing the value of money to fall and increasing the price level thus inflation as
inflation is an increase in price level.
Prices of different goods may not rise or fall together, so how do we arrive at a measure
of the general level of inflation?
Some items are sampled and put together; these are termed as the market basket and
prices are compared over time resulting in the price index and compared over the years.
Why do we say that debtors often benefit from inflation?
The reason is that the debtors benefit due to that the amount paid is worthless regarding
the present purchasing power.
The economic conditions of the 1970's seemed to contradict the implied claims of the
Phillips curve, why?
It occurred a stagflation which is the presence of increased levels of inflation, and there
was an increased level of unemployment. It was due to short-run graph between inflation and
unemployment rather than long-run graph
Why is deflation bad, macro-economically?
In a bad deflation, it means that it will decrease the output and productivity that will
cause unemployment as few workers will be needed due to low demand.
If productivity rises in proportion to wages, does this mean the wage increase does, or
that it does not, contribute to inflation? Why?
Yes, increases in wage cause inflation, increase in wages increases the flow of money in
the economy and thus increases the price of the item thus overall effect of the market hence
causing inflation in the market.
Given a simple supply curve, how would we depict an increase in inflation--as a
movement along the curve, a shift of the curve downwards, or a shift upwards?
It causes the supply curve to shift upwards and to the left as inflation causes to the price
increase that is in conflict to the demand.
Macro Sample Exam Questions T10 Deficits and Debt
Explain the difference between a government's fiscal deficit and its debt
The deficit is the difference between the government income through taxes and other
receipts and the actual money spent. Debts are accumulation of all deficits and other money
borrowed to keep running the country.
What is the difference between a structural deficit and a cyclical deficit?
A Structural deficit is a deficit in the budget that exists even if the country's economy is
beyond the potential level that is above output while cyclical deficit the part of the deficit that
exists because the economy is operating below its potential output that is below output.
When might a government fiscal deficit be good (or at least necessary)?
It's good as during the deficit spending through tax breaks, or the buy of products and
ventures by the administration can stop the descending winding and help to turn the economy
back around.
Why does debt need to be judged about assets (including income)?
It assists in evaluating whether the organization has enough supports to meet its present
obligation commitments, however to likewise evaluate whether the organization can pay an
arrival on their speculation.
What ratio is commonly used to give a sense of the burden of a government's debt?
It’s the Debt/GDP ratio which is the Interest paid on the government debt paid on the
How does a recession impact on a government's fiscal position?
Recession causes the government spends more money, and this makes the government
have fiscal policies that enable the government cuts taxes, giving people more money to spend
Macro Sample Exam Questions T 12 Fiscal Policy
The Ricardian Equivalence Theorem says that deficit stimuli don't work. Why?
Many individuals are liquidity constrained, and not very many individuals have the
information or slant to gauge the effectiveness of current government spending plans on their
lifetime tax liability since individuals know their taxes must ascent later on
What does it mean to say Keynesians argue for countercyclical fiscal policy?
Counter-cyclical fiscal policy should be used to offset fluctuations in aggregate demand.
What is crowding out?
Argument against the Keynesian view that expansionary fiscal policy works during a
What are automatic stabilizers?
They are financial strategies and projects intended to balance fluctuations in a country's
monetary action without intercession by the administration or policymakers on an individual
Explain what it means to say fiscal policy aims to 'stabilize' an economy.
Its mean that the measures to avoiding a boom and bust economic cycle. The policies are
taken to move the economy closer to potential output.
Macro Sample Exam Questions T13 Unemployment
Explain the difference between cyclical and structural unemployment.
STRUCTURAL Unemployment is unemployment due to economic structure changes of
the economy. Cyclical is unemployment is due to slow development in the economy of a country
such recession, depression
Which type of unemployment is less likely to be affected by demand stimulus? (One
word will do)
Structural Unemployment of workers whose skills are not demanded by employers or not willing
to relocate to areas with the job.
What is the 'non-tradable sector'? Unemployment due to 'globalization' is less likely in
this sector than the 'tradable' sector. Why?
The tradable sector of a nation's economy is comprised of the business sectors whose
yield as far as products and enterprises are exchanged globally, or could be exchanged
universally given a conceivable variety in relative costs. Globalization increases import and
export thus reduced unemployment
What is a 'reservation wage'?
It’s the lowest wage offer that an unemployed worker is willing to accept
Macro Sample Exam Questions T14 Structural Stagnation
How is a structural stagnation different to a normal recession?
A recession is a brief time of declining yield while a structural stagnation is a time of
extended moderate development and high level of unemployment. What's more, Unemployment
is because of brief cutbacks in a recession yet longer-term changes in a structural stagnation.
According to Colander, how has globalization and the reduction in 'the world price'
(depicted in his 'globalized AS-AD model') impacted on the US economy? (Hint, there are two
major impacts which he cites).
Greater free trade.
Greater movement of labor.
In an open economy, expansionary policies might not result in inflation, but rather, have
another (different) effect to do with trade. What is it?
The Higher interest rates cause the currency to appreciate and thus reducing net exports
The 'globalized AD-AS model' depicted in Colander draws a World Aggregate Supply
(WAS) curve alongside the American SAS curve. He says adjustments needed to deal with
structural stagnation are either a move down of the SAS or up of the WAS. Explain what these
moves would signify.
Assumptions about future wage, future inflation, and future benefits change total request.
the increment in expected future salary, builds wage utilization today, and expands total request
and the expansion in the expected inflation rate, makes purchasing merchandise less expensive
today, and builds total aggregated demand as per the AD curve - increment in expected benefits
help company's venture, which builds total aggregate demand

Place new order. It's free, fast and safe

550 words

Our customers say

Customer Avatar
Jeff Curtis
USA, Student

"I'm fully satisfied with the essay I've just received. When I read it, I felt like it was exactly what I wanted to say, but couldn’t find the necessary words. Thank you!"

Customer Avatar
Ian McGregor
UK, Student

"I don’t know what I would do without your assistance! With your help, I met my deadline just in time and the work was very professional. I will be back in several days with another assignment!"

Customer Avatar
Shannon Williams
Canada, Student

"It was the perfect experience! I enjoyed working with my writer, he delivered my work on time and followed all the guidelines about the referencing and contents."

  • 5-paragraph Essay
  • Admission Essay
  • Annotated Bibliography
  • Argumentative Essay
  • Article Review
  • Assignment
  • Biography
  • Book/Movie Review
  • Business Plan
  • Case Study
  • Cause and Effect Essay
  • Classification Essay
  • Comparison Essay
  • Coursework
  • Creative Writing
  • Critical Thinking/Review
  • Deductive Essay
  • Definition Essay
  • Essay (Any Type)
  • Exploratory Essay
  • Expository Essay
  • Informal Essay
  • Literature Essay
  • Multiple Choice Question
  • Narrative Essay
  • Personal Essay
  • Persuasive Essay
  • Powerpoint Presentation
  • Reflective Writing
  • Research Essay
  • Response Essay
  • Scholarship Essay
  • Term Paper
We use cookies to provide you with the best possible experience. By using this website you are accepting the use of cookies mentioned in our Privacy Policy.