Admas University

Macroeconomics Assignment ONE

Submission deadline: Nov22/2020
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1. Macroeconomics Assignment (One)

1.1. What Macroeconomics is about?
 Macroeconomics is the branch of economics that studies the behavior
and performance of an economy as a whole. It focuses on the aggregate
changes in the economy such as unemployment, growth rate, gross
domestic product and inflation.
1.2. What are the objectives of macroeconomics?
 Sustainability - a rate of growth which allows an increase in living
standards without undue structural and environmental difficulties.
'Economic growth' will be studied later on in this book.
 Full employment - where those who are able and willing to have a job
can get one, given that there will be a certain amount of frictional,
seasonal and structural unemployment (referred to as the natural rate of
unemployment).
 Price stability - when prices remain largely stable, and there is not rapid
inflation or deflation. Price stability is not necessarily the same as zero
inflation, but instead steady levels of low-moderate inflation is often
regarded as ideal. It is worth noting that prices of some goods and
services often fall as a result of productivity improvements during
periods of inflation, as inflation is only a measure of general price
levels. However, inflation is a good measure of 'price stability'. Zero
inflation is often undesirable in an economy. ("Internal Balance" is
used to describe a level of economic activity that results in full
employment with no inflation.)
 External Balance - equilibrium in the Balance of payments without the
use of artificial constraints. That is, the value of exports being roughly
equal to the value of imports over the long run.
 Equitable distribution of income and wealth - a fair share of the national
'cake', more equitable than would be in the case of an entirely free
market. Like the other economic objectives, the distribution of income
is a partly subjective or normative issue
  Increasing Productivity - more output per unit of labour per hour. Also,
since labor is but one of many inputs to produce goods and services, it
could also be described as output per unit of factor inputs per hour.
 Thermal Equilibrium - equilibrium in the Balance of payments without
the use of artificial constraints. That is, exports roughly equal to
imports over the long run.
1.3. Explain the difference between microeconomics and macroeconomics?
Micro economics involves

 Supply and demand in individual markets.

 Individual consumer behaviour. e.g. Consumer choice theory
 Individual labour markets – e.g. demand for labour, wage determination.
 Externalities arising from production and consumption. e.g. Externalities
Macroeconomics involves
 Monetary / fiscal policy. E.g. what effect does interest rates have on the whole
economy?
 Reasons for inflation and unemployment.
 Economic growth
 International trade and globalization
 Reasons for differences in living standards and economic growth between
countries.
 Government borrowing
1.4. Briefly explain the basic macroeconomic ideas of:
a. Mercantilists was an economic system of trade that spanned from
the 16th century to the 18th century. Mercantilism is based on the principle
that the world's wealth was static, and consequently, many European nations
attempted to accumulate the largest possible share of that wealth by
maximizing their exports and by limiting their imports via tariffs.
b. Physiocracy (French: physiocratie; from the Greek for "government of nature") is
an economic theory developed by a group of 18th-century Age of Enlightenment French
economists who believed that the wealth of nations derived solely from the value of "land
agriculture" or "land development" and that agricultural products
c. Classical economic theory was developed shortly after the birth of western capitalism. It
refers to the dominant school of thought for economics in the 18th and 19th
centuries. Classical economic theory helped countries to migrate from monarchic rule to
capitalistic democracies with self-regulation.
 d. Neoclassical economics is a broad theory that focuses on supply and demand as the
driving forces behind the production, pricing, and consumption of goods and services. It
emerged in around 1900 to compete with the earlier theories of classical economics.
e. Keynesian economics is a macroeconomic economic theory of total
spending in the economy and its effects on output, employment,
and inflation.
f. Which macroeconomic school of thought did you support? Keynesian
economics Why? Because this economic theory involve of total spending in the
economy and its effects on output, employment, and inflation.  
1.5. What is GDP? It is the monetary value of all finished goods and services made within a
country during a specific period.  Explain the difference between RGDP and NGDP?
Nominal GDP is the measure of the annual production of goods or services at the current
price whereas Real GDP is the measure of the annual production of goods or services
calculated at actual price without considering the effect of Inflation and hence Nominal
Gross Domestic Product is considered a more apt measure of GDP. Which one is more
important in explaining the economic performance of a nation? Real GDP why? Because it
measures the value of the goods and services produced by an economy in a specific period,
adjusted for inflation. Essentially, it measures a country's total economic output, adjusted for
price changes.
1.6. Define the following concepts?
i. Total labor force, or currently active population, comprises all persons who
fulfil the requirements for inclusion among the employed or the unemployed
during a specified brief reference period.
ii. Unemployment is a term referring to individuals who are employable and
seeking a job but are unable to find a job. Furthermore, it is those people in the
workforce or pool of people who are available for work that does not have an
appropriate job. Usually measured by the unemployment rate, which is dividing
the number of unemployed people by the total number of people in the
workforce, unemployment serves as one of the indicators of an economy’s status
iii. Employment is a relationship between two parties, usually based
on contract where work is paid for, where one party, which may be
a corporation, for profit, not-for-profit organization, co-operative or other entity
is the employer and the other is the employee
iv. Unemployment rate is the percent of the labor force that is jobless
v. Employment rate are defined as a measure of the extent to which available labor
resources (people available to work) are being used