ECO100 Test 2 Jonathan Halim

1. 4 Main Goals of Macro Economics

a. The goal of faster growth may conflict with that of
greater equality.
Example: Goal of lower unemployment may conflict with
that of lower inflation (in the short run)
b. Opportunity Cost > Trade Of
In firms and industry, the cost of achieving one objective
may be achieving less of another. In national policies
term, it is known as Trade Of.
i. Policy makers must make choices (although most
of the times policies benefit a group of people
and hurt the other)
2. Injections is an expenditure on the production of domestic
firms coming from outside the inner flow of the circular flow of
income.
3. Circular flow-diagram a visual model of the economy,
shows how dollars flow through markets among
households and firms.
4. GDP 3 Methods of calculating
a. Product approach: the dollar amount of output
produced.
b. Income approach: the dollar incomes generated by
production.
c. Expenditure approach: the dollar amount spent by
purchasers.
i. GDP = C + I + G + (X- M)
C = Private consumption expenditure
I = Investment Expenditure
G= Government Consumption
Expenditure
X = Value of Exports
M = Value of Imports
5. Disequilibrium of labor
a. Disequilibrium Unemployment
i. Happens when there are externalities such as
the state of national economic, government
intervention, or shortage surplus in labor supply
b. Equilibrium Unemployment
i. Happens when a particular industry expand /
contract
ii.
People leaving jobs whether voluntary or
involuntary due to internal factors
6. Cyclical unemployment: unemployment caused by a
decline in economic activity.
a. The demand for products decreases and workers get laid
of.
b. Results in an excess supply of workers for the remaining
available jobs.
c. The economy must grow at least as fast as the labor
force to avoid cyclical unemployment

7. A monopoly is a firm that is the sole seller of a product

without close substitutes.
8. A market-clearing price is the price of a good or service at which
quantity supplied is equal to quantity demanded, also called the
equilibrium price.
9. Governments try to deal with the following 4 major issues in
macroeconomic:
a. High and stable economic growth
b. Low unemployment
c. Low inflation
d. Avoid balance of payments deficits and excessive
exchange rate fluctuations
10.
Societys Tradeofs between economic goals
11.
Know the cicular flow diagrams and label

12.
a.

b.

c.

13.
a.

3 Possible causes of disequilibrium of unemplyement

Real Wage (Classical) Unemployment
i. Disequilibrium unemployment caused by real
wages being driven up above the market
clearing level.
Demand Deficient / Cyclical Unemployment
i. When economy moves into recession, consumer
demand falls, thus firms are forced to cut back
on labor
Growth in the Labor Supply
i. Happens when labor supply rises with no
corresponding increase in the demand for labor,
the equilibrium real wage rate will fall
Types of Unemployement
Claimant unemployment

ECO100 Test 2 Jonathan Halim

i.

Refers to those in receipt of unemployment

related benefits
ii.
Occurs only in certain countries such as Australia
and UK
b. Standardized unemployment rate
i. Refers to those of working age who are without
work, available to start work within 2 weeks, and
actively seeking employment or waiting to take
up an appointment