EC301_Midterm_Exam - EC301 Open-Book Midterm Exam (Weight...

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EC301 Open-Book Midterm Exam (Weight 110 points) NAME: ____________ Submit your answers in the Dropbox or fax them. You may discuss concepts in the Q&A thread and where to find answers but do not give specific answers to specific questions . 1. (7 points) How are presidential election outcomes related to the performance of the economy? Studies have shown that presidential election outcomes are definitely related to the performance of the economy. The winning presidential party retains the office of presidency while personal income grows at a faster, higher rate than the long-term rate. The incumbent presidential party will be voted out of office when income grows at a rate lower than the long term rate. The second main reason is that the winning presidential party will more than likely behave in a manner that will keep the elected party in power, which leads to change in policies that keep income rates high. Policy changes would also work to keep the unemployment rate as low as possible. 2. (7 points) Discuss the difference between Microeconomics and Macroeconomics. Microeconomics is generally the study of individuals and business decisions; macroeconomics looks at higher up country and government decisions. Macroeconomics and microeconomics, and their wide array of underlying concepts, have been the subject of a great deal of writings. The field of study is vast; here is a brief summary of what each covers: Microeconomics is the study of decisions that people and businesses make regarding the allocation of resources and prices of goods and services. This means also taking into account taxes and regulations created by governments. Microeconomics focuses on supply and demand and other forces that determine the price levels seen in the economy. For example, microeconomics would look at how a specific company could maximize its production and capacity so it could lower prices and better compete in its industry. Macroeconomics, on the other hand, is the field of economics that studies the behavior of the economy as a whole and not just on specific companies, but entire industries and economies. This looks at economy-wide phenomena, such as Gross National Product (GDP) and how it is affected by changes in unemployment, national income, rate of growth, and price levels. For example, macroeconomics would look at how an increase/decrease in net exports would affect a nation's capital account or how GDP would be affected by unemployment rate. While these two studies of economics appear to be different, they are actually interdependent and complement one another since there are many overlapping issues between the two fields. For example, increased inflation (macro effect) would cause the price of raw materials to increase for companies and in turn affect the end product's price charged to the public. Both micro- and macroeconomics provide fundamental tools for any finance professional and
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EC301_Midterm_Exam - EC301 Open-Book Midterm Exam (Weight...

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