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Exam 3.docx - Exam 3 Macroeconomics Macroeconomics is a...

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Exam 3MacroeconomicsMacroeconomics is a branch of economics that focuses on the behavior and decision-making of an economy as a whole. In this manner it differs from the field ofmicroeconomics, which evaluates the motivations of and relationships betweenindividual economic agents.Understanding MacroeconomicsMacroeconomics is a field of economics that studies broader economictrends, such as inflation, economic growth rates, price levels,grossdomestic product (GDP), national income, and changes in levels ofunemployment.InflationInflation is a progressive increase in the average cost of goods andservices in the economy over time.Economic Growth RateThe economic growth rate is the percent change in the cost of the outputof goods and services in a country across a specific period of time, relativeto a previous period.Price LevelA price level is the variation of existing prices for economically producedgoods and services. In broader terms, the level of prices refers to the costsof a good, service, or security.Gross Domestic Product (GDP)The gross domestic product (GDP) is a quantitative measure of the marketvalue of all finished goods and services produced over a given timeperiod.
National IncomeNational income is the aggregate amount of money generated within anation.Unemployment LevelThe level or rate of unemployment is the unemployed share of the laborforce in a given country, calculated and stated as a percentage.Issue # 1. Employment and Unemployment:Unemployment refers to involuntary idleness of resourcesincluding manpower. If this problem exists, society’s actualoutput (or GNP) will be less than its potential output. So oneof the objectives of Government policy is to ensure fullemployment which implies absence of involuntaryunemployment of any type.Issue # 2. Inflation:It refers to a situation of constantly rising prices ofcommodities and factors of production. The oppositesituation is known as deflation. During inflation some peoplegain and most people lose. So there is a change in thepattern of income distribution. Therefore, one of theobjectives of government policy is to ensure price levelstability which implies the absence of inflation and deflation.Issue # 3. The Trade Cycle:It refers to periodic fluctuations in the levels of economic orbusiness activities, i.e., the tendency for output (GNP) andemployment to fluctuate over time in a recurring sequenceof ups and downs. The periods of good trade alternate withperiods of bad trade, or, boom periods of high output and
high employment alternate with slump periods of low outputand low employment.In boom periods, employment is low but the rate of inflationis high. In periods of depression (or recession)unemployment is high and the rate of inflation is moderate.

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