MODULE: MACROECONOMICS

BB106
Unit 1: Introduction to
Macroeconomics
TUTOR
IAL 1

Short-answer Problems

1) Macroeconomics is mainly concerned with two topics. What are these two topics and how are
they related to each other?

Answer:
Macroeconomic is concerned with long-ren economic growth and short-run changes in the levels of
employment and output. Historically, inflation and unemployment have maintained an inverse
relationship, as represented by the Philip curve.

2) Why is unemployment an economic problem? What are the non-economic

effects of unemployment?

Answer:
When unemployment rate increase, income will decrease, demand will also be going
down. Unemployment rate increase, it can create social issue/ problem. For example,
effects on mental and physical health, adverse effects on the family, higher rates of
alcoholism and drug abuse and higher crime and suicide rates.

3) Distinguish between demand-pull inflation and cost-push inflation. Which of the two types is
most likely to be associated with a (negative) GDP gap?

Answer:
Demand-pull inflation occurs when demand for a good or services increases but resources are near
full employment. Cost-pull inflation occurs when the cost of producing rises and the increase is
passed on to consumers. Cost-pull inflation is most likely to be associated with a negative GDP
gap.

4) A little bit of inflation is our friend, not our enemy. Do you agree?

Answer:
Agree. Because without inflation, the economic will become static.

5) Assume that a painter produces 20 paintings this year and 20 paintings next year. What is the
annual change in nominal GPD if the price of paintings rises from $1,000 this year to $1,500 next
year? Can you conclude that the economy grew from this year to next year based on your
answer? Why?

Answer:
 Nominal GDP for this year = (20 × 1,000) = $20,000
 Real GDP for this year = (20 × 1,000) = $20,000
 Nominal GDP for next year = (20 × 1,500) = $30,000
 Real GDP for next year = (20 × 1,000) = $20,000
 Yes, it is growing. You can conclude that the economy grew from this year to the next year
because the nominal GDP grew.
6) What is the difference between economic investment and financial investment? Give an example
for each type of investment.

Answer:
Financial investment refers to the purchase of assets fall financial gain; economic investment refers to
the purchase of newly created capital goods. The example of financial investment is stocks; example
of economy investment is machinery.

7) Describe the relationship between unemployment and inflation and whether the relationship
is stable.

Answer:
Historically, inflation and unemployment have maintained an inverse relationship, as
represented by the Phillip curve. Higher inflation is associated with lower unemployment and
vice versa.

True / False Questions (Students to complete this section in CN online Quizzes)

1) The business cycle is primarily concerned with changes in the level of overall prices over time.

Answer: True
2) Economists and policymakers are generally more concerned about nominal GDP than real GDP.

Answer: False
3) Real GDP per capita is found by subtracting population from real GDP.

Answer: False
4) Any person without a job is considered to be unemployed.

Answer: False
5) If the total population is 175 million, the labor force is 100 million, and 89 million
workers are employed, then the unemployment rate is 11 percent.

Answer: True
6) Inflation reduces the purchasing power of a person's income and savings.

Answer: True
7) Buying 100 shares of Google stock would be an example of economic investment.

Answer: False
8) A nation that wants to invest in more newly created capital in the present must be willing to
forgo present consumption.

Answer: True
9) The stable relationship between unemployment and inflation appeared to have broken
down in 1930s.
Answer: True
10) The long-run Phillips curve is vertical at the natural rate of unemployment.

Answer: True