1

TOEFL? Reading
Economics

Microeconomics and
Macroeconomics

©
> Within the field of economics, the social science concerned
with how goods and services
are produced, distributed and consumed, there exists an
interdependent pair of branches-
Mmicroeconomics and macroeconomics. The former focuses on the
human aspect, studying
the decisions that individuals and businesses make regarding
the allocation of their
resources, while the latter concentrates on the bigger
picture; that is, the behavior of the
national economy as a whole. Because of this, there is a
significant amount of overlap
between the two branches.

> Some of the issues of interest to microeconomists include

wages and commodities as
well as rates and prices, which is why one of microeconomics'
most important principles is
"price theory," the study of how prices relate to supply and
demand. This can be a complex
equation-the decisions made by businesses and consumers
determine the levels of supply
and demand of goods and services, which in turn influence
prices and rates, which then
exert their own influence back upon the decision-making
processes of individuals and
business. This model of supply and demand requires the
presence of many buyers and
sellers, in order to ensure that no single consumer or
organization has the capacity to
control prices and rates. While this criterion, which is known
as "perfect competition," is a
requisite of an ideal economic system, it is not consistently
present in real-world situations.
As a result, "market failure" sometimes occurs-this is a
situation in which all of the
participants in a market make proper, logical decisions, but
they still suffer losses due to
some sort of unwelcome anomaly in the market preventing perfect
competition, such as a
monopoly or small special interest groups wielding too much
political power.
116 PART 2, Theme-based Practice

2
TOEFL? Reading
Economics

> Unlike microeconomics, which relies on the application of formal rules based
on general

laws and theorems, macroeconomics largely involves the analysis of empirical

evidence

unique to a specific national economy. A It has the potential to be even more

complicated

than microeconomics, as it covers a wider range of situations and factors. B

Interestingly,

until the 1930s, neither of these two branches was clearly defined as a separate
entity-the

terms microeconomics and macroeconomics were coined by Norwegian economist

Ragnar

Frisch in 1933. C It was, in fact, the Great Depression that led to the
development of

modern macroeconomic concepts-at that time, economists were struggling to

understand

why the markets were not behaving as intended. D Macroeconomics attempts to

determine the health of an economy by analyzing the factors and trends that
affect it, and

by scrutinizing various measures of the national income, such as the gross

national product

{GNP) and gross domestic product (GDP), unemployment and aggregate output,
Inflation

rates, investment, and international trade. This enables macroeconomists to

make forecasts
 that will ideally allow consumers, businesses and even the government to make
informed

decisions. These decisions, in turn, will contribute to the strength of the

economy.

It is here, within these decision-making processes, that macroeconomics

and

microeconomics most clearly intersect. Business entities might use

macroeconomic

forecasts to determine the wisdom of expanding into new markets, for example,
or to verify
whether consumers are financially capable of purchasing an item they produce.

Consumers, on the other hand, may use them to find out what the real cost of
borrowing

money for a house will be, in the interest of avoiding a default. And, finally,
governments

utilize macroeconomic forecasts to set budgets, make spending decisions,

determine what

taxes to impose, set bank interest rates, and make innumerable policy
decisions.

theorem a formal statement that can be shown to be true by logic

Great Depression the period of economic depression which began in 1929 and
lasted through
most of the 1930s
default a failure to pay a debt

Practice 02 117

3
TOEFI? Reading

Questions 1-4 of 12
 1. According to paragraph 1, which of the following
statements best describes
microeconomics and macroeconomics?
& They are closely connected subfields of
economics.
B They are socially conscious alternatives to
economics.
(© They are conflicting theories on the purpose of
economics.
D They are potential pathways for the evolution
of economics.

Paragraph 1 is marked with an arrow [].

2. The phrase the latter in the passage refers to

& social science
B services
c macroeconomics
(D) businesses

3. The word commodities in the passage is closest in

meaning to
& accommodation
B merchandise
(©) collections
OD properties

4. Which of the sentences below best expresses the

essential information in the
highlighted sentence? Incorrect answer choices
change the meaning in important
ways or leave out essential nformation.
& Due to perfect competition, economic conditions
in the real world are not stable.

& B Economic systems require perfect competition

to satisfy real-world requirements
Of all the requirements of an ideal
economy, perfect competition is the least
common.
(D) Perfect competition is necessary in models but
does not always exist in reality.
118 PART 2 Theme-based Practice

4
TOEFI? Reading
Questions 5-7of12

5. What can be inferred about small special interest groups from paragraph
2?
& They are very likely to benefit from illegal monopolies.
B They have the potential to prevent perfect competition.
c They try to disseminate vital knowledge to consumers.

D They form in the interest of discouraging market failure.

Paragraph 2 is marked with an arrow [>].

6. According to paragraph 3, macroeconomics can be more intricate than

microeconomics because
& it is an older discipline.
B it exists on a smaller scale.

it is governed by more laws.

D it covers a broader scope.

Paragraph 3 is marked with an arrow [=].

7. Look at the four squares [m] that indicate where the following sentence
could be

added to the passage.

British economist John Maynard Keynes offered a theory explaining

the situation,

which eventually evolved into modern macroeconomics.

Where would the sentence best fit?

Practice 02 119

5
TOEFL? Reading
Questions 8-11 of 12

8. According to paragraph 3, all of the following

are true about macroeconomics
EXCEPT that

A it was developed prior to the onset of the

Great Depression.
B it was given its name by an economist named
Ragnar Frisch.
c its primary goal is to assess the general
strength of an economy.
D it did not become a distinct branch of
economics until the 19305.

9. Macroeconomics tries to develop an overall

comprehension of an economy by
& investigating prominent economies from past
generations
B comparing similar economic structures from
across the world
(© looking at a number of important trends and
indicators
D reviewing how buyers and sellers affect
unemployment and Inflation
 10. Which of the following does the author mention
about macroeconomic forecasts?

A They are necessary when the government must

regulate business expansions.
B They are particularly helpful in making
decisions involving international relations
They are most useful to the government
and related agencies.
(D They are used by different entities within an
economy to make decisions.

11. The word they in the passage refers to

& business entities

B macroeconomic forecasts
(OÖ new markets
(DD consumers

120 PART2 Theme-based Practice

u
TOEFL' Reading
Question 12 of 12 >zu

12. Directions: Select the appropriate phrases from the answer choices and
match them to

®
the branch of economics to which they relate. TWO of the answer
choices will NOT be o
used. This question is worth 4 points.
o

Drag your answer choices to the spaces where they belong. To remove
an answer choice, click on it.
To review the passage,
click View Text.

Microeconomics
Macroeconomics

Answer
Choices
& Looks at the economy from a national perspective

Assesses the factors influencing supply and demand

Examines how buyers and sellers affect prices

Focuses on unemployment and inflation trends

Finds ways to protect resources from being exploited

haphazardly

Observes the buying behavior of individuals and business

entities

Pays attention to a country's GNP and GDP

Reconciles the two branches of economics

Provides information that helps governments, organizations

and individuals make
decisions

To review the passage, turn to pages

116 and 117.

Practice 02 121

7
VOCABULARY

Write the meaning of each word in Korean.

abbreviated adj. shorter because some parts have been

removed

inaugural adj. the first in a planned series of

something

venue n. the location of any action or

event

syn. locale

cramped adi. lacking room or space

dilapidated adj. old and in poor condition

predecessor n. something that came before and was

replaced

syn. antecedent

demolish V. to tear down or raze a structure

syn. wreck

opt V. to make a choice from a range

of possibilities

syn. choose

relentless adi. continuing in a severe or extreme

way
 sublime adj. very good or beautiful

resplendent adi. beautiful and impressive

syn. radiant

integral adj. being an essential part of the

whole

subdue to defeat something by using

force

syn. conquer

indigenous adj. naturalty existing in a place

catastrophic adj extremely harmful and disastrous

calamity an event causing extreme harm

or suffering

122 PART 2 Theme-based Practice

8
persevere v. to continue steadfastly in a task

syn. persist

allocation n. the act or process of giving out parts of a whole

anomaly n. something different from what normally happens

empirical adj. based on experience or experiment

scrutinize v. to examine something very carefully

syn. investigate

aggregate adj. added up, combined, or considered as a whole

syn. total
Circle the closest meaning for each underlined word.

1 Everyone in the room admired the princess, who was resplendent in a red dress.

a. radiant b. elated
c. placid d. remorseful

2 The aggregate revenue deficit decreased from 1.5% to 0.2% over the past year.

a. unexpected b. total
c. imminent d. biased

3 The young couple informed the landlord that they would opt to extend their lease.

a. deliberate b. forsake
c. choose d. vanish

4 The candidate will scrutinize the feasibility of the project before presenting it
as a campaign
pledge.

a. insert b. agonize
c. dissipate d. investigate

5 The principal persevered in her attempts to obtain additional funding for

extracurricular activities.

a. slackened b. estimated
c. persisted d. reconciled

Practice 02 123