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PART ONE: INTRODUCTION AND MEASUREMENT
CHAPTER 1: INTRODUCTION
Additional Questions
Chapter 1 is intended primarily to introduce the student to the subject matter of the book.
Multiple-choice questions do not seem appropriate to this chapter. Additional essay questions are:
1. Explain the difference between Microeconomics and Macroeconomics.
2. In general terms describe trends in the inflation rate, considering the period since 1953. How are
these trends related to movements in the inflation rate over this period?
3. Briefly discuss three macroeconomic issues that have been in the news recently. Find articles from
newspapers or the internet that discuss these issues.
4. What is meant by real Gross Domestic Product? How do you think that you calculate a real
statistic?
5. We measure economic growth by the percentage change in real GDP. In general terms
outline the course of the U.S. output growth rate in recent decades, both in terms of its trend
and its changes around trend. Pay particular attention to the stability of the growth rate.
6. In general terms describe how the federal budget deficit has changed since the early 1950s.
How has the U.S. trade balance changed since the 1950s? Does it appear that there is any
correlation between the two?
7. Both the trade and budget balance were in roughly zero until the 1980s when the budget
deficit increased dramatically and the U.S. trade deficit increased dramatically. However,
during the late 1990s the budget deficit shrank—in fact, moving to surplus—at the same
time that the U.S. trade deficit increased significantly. Since 2000, the budget deficit has
2 CHAPTER 1
increased significantly, particularly after 2008.What is the relationship between a country’s
trade balance and its stance as a borrower or lender? Historically, has the U.S. been a net
lender or net borrower? Why do you think that this is? Do you think that the U.S. budget
situation might have anything to do with this?
8. What are the four primary questions in macroeconomics? Which focus on short-run issues?
Which focus on long-run issues?
The four questions are:
1. What determines the cyclical behavior of output and employment? What causes
recessions?
2. What are the determinants of the rate of inflation? What role do macroeconomic
policies play in determining inflation?
3. What relationship exists between inflation and unemployment? Why were both the
unemployment rate and the inflation rate so high during much of the 1970s? What
became of the negative relationship that existed between these two variables in the
1950s and 1960s (see Figure 1-5a)?
4. What determines the rate of growth in output over periods of one or two decades? Over
longer periods such as a century?
9. Here is some data of real PC GDP in the US. Calculate the actual average growth rates for
each decade. Is there a significant difference between the two periods?
1970 $20,915
1980 $25,675
1990 $32,157
2000 $39,750
2010 $42,189
10. Explain the difference between macroeconomic variables that are in terms of levels and
growth rates. Which important macroeconomic variables are which? Which one is the
unemployment rate?
