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13 Dec 2019

Macroeconomics Functions

List multiple (up to five) macro-economic functions. Show whatthey are a function of. An example would be the productionfunction; listed it as q = f(K,L) where K is capital and L is laborin microeconomics but these must be specific to macro.

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Related textbook solutions

Principles of Economics
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Related questions

There are many economic models to explain the macro-economies function. Adam Smith started the classic economic thinking with his laissez-faire theory. The classical foundation for the role of money supply in an economy started in the mid-1700s. In classic macroeconomics, money is used for transactions. If there is more money or less money in circulation then it means that the prices are higher or lower. The classic model dominated microeconomics and macroeconomics of 1800 and 1900. In the classic macroeconomic model, the role of money is that it is used for transactions. The classic role of money can be understood through the quantity theory of money. The quantity theory of money states that if there are changes in the price level, then there will be corresponding changes in the money supply. The equation for the quantity theory of money is: M * V = P * Q
 
In this equation,
M = Nominal money supply
V = Velocity of money
P = Average price level
Q = Quantity of goods and services sold
 
The average price times quantity of goods and services sold represents the nominal GDP. The velocity of money is the number of times a currency is spent during a year.
Say's Law states that supply creates its own demand. It means that the income that is derived from producing some goods by an individual, allows him to purchase goods produced by some other individual. Since everyone has a need to purchase goods, they will produce some goods to earn income and buy what they want. So, the product markets will always be in equilibrium.
 
Show an empirical study that tests the relative inflation and growth rates on the nominal exchange rates.

3. A firm has a long-run production function:   

(a) In the short run, K = 81 is fixed. Find the short-run production function. What is the marginal product of labor in the short-run? 

(b) If w = 10 and r = 15.24, find the short-run cost function. To do this, first, figure out how many workers are needed to produce Q units of output, and then add up the (fixed) SR cost of capital and the cost of labor as a function of Q. How many workers are needed to produce Q = 10?

(c) Write down equations for an average total cost (ATC) and average variable cost (AVC) as a function of Q. What is ATC when Q = 10? What as AVC when Q = 10?

(d) Write down the equation for the marginal cost (MC) as a function of Q. What is the marginal cost of producing Q = 10 in the short run?

(e) Verify that MC = w*MPL, evaluating the marginal product of labor from part (3a) at the number of workers needed to produce 10 units of output.

(f) In the long run, both capital and labor are variable. Find the marginal product of labor and the marginal product of capital. Find the marginal rate of technical substitution. On a properly-labeled graph, draw an isoquant for Q = 10.

(g) Does the production function exhibit increasing, decreasing, or constant returns to scale?

(h) Find the lowest cost method of producing Q = 10 (two unknowns: K and L). To do this, equate the MRTS with the input price ratio w r (one equation) and use the isoquant for Q = 10 as the second equation.

(i) Use the fact that the cost, in the long run, is wL + rK to find the LR cost of producing Q = 10. What is the long-run average cost (LRAC) at Q = 10?

(j) (Hard) More generally, use the MRTS and the production function to find the cost of producing any quantity Q. To do this, repeat the above exercise but keep Q as an (unknown) variable, and solve for K and L as functions of Q.

(k) On a properly labeled graph, depict ATC from part (3b) and LRAC from part (3j). Why is LRAC everywhere below ATC?

(l) What is the production level at which SRAC is minimized?

Microeconomics Multiple choice questions. Please answer all the questions.

1. Scarcity:
A. exists because resources are limited while human wants are unlimited.
B. means we are unable to have as much as we would like to have.
C. will likely be eliminated as technology continues to expand.
D. is not an issue addressed in economics.

2. People are forced to make choices because of:
A. unlimited wants and unlimited resources.
B. limited wants and unlimited resources.
C. unlimited wants and limited resources.
D. limited wants and limited resources.
E. irrational wants and limited resources.

3. Which of the following is closest to the definition of capital?
A. c and e.
B. c and d.
C. Tools, equipment, means of transportation
D. Factories and machinery.
E. Borrowed money.

4. Which one of the following is the most accurate definition of economics?
A. Economics is the study of stocks and bonds.
B. Economics is the study of how people allocate unlimited resources.
C. Economics is the study of how consumers choose to spend their income.
D. Economics is the study of how society chooses to allocate scarce resources.

5. The basic difference between macroeconomics and microeconomics is:
A. microeconomics concentrates on individual markets while macroeconomics focuses primarily on international trade.
B. microeconomics concentrates on the behavior of individual consumers while macroeconomics focuses on the behavior of firms.
C. microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.
D. microeconomics explores the causes of inflation while macroeconomics focuses on the causes of unemployment.

6. Which of the following is not a resource?
A. Land.
B. Labor.
C. Money.
D. Capital.

7. Which of the following would an economist classify as capital?
A. 100 shares of Microsoft stock.
B. $50 bill.
C. credit card.
D. lawyer's personal computer.

8. Economics, according to its definition, studies how people:
A. earn and spend money.
B. invest in the stock and bond markets.
C. make choices in the face of scarcity.
D. supply goods in response to demand.

9. Which of the following is the best example of a microeconomic topic?
A. The impact that the money supply has on inflation.
B. The reasons for increases in the price of soft drinks.
C. The effect that federal budget deficits have on the interest rate.
D. The tradeoff between inflation and unemployment.

10. Which of the following is a macroeconomics topic?
A. Wages of textile workers in the Northeast.
B. The cost of producing 10,000 bookcases.
C. The economy's annual growth rate.
D. National demand for fish.
E. Effects of farm subsidies on food prices.

11. An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, Ceteris paribus. The phrase "Ceteris paribus" means that:
A. other relevant factors like consumer incomes must be held constant.
B. the gasoline prices must first be adjusted for inflation.
C. the theory is widely accepted but cannot be accurately tested.
D. consumers' need for gasoline remains the same regardless of the price.

12. An economic model is:
A. a plastic scaled version of the economy.
B. a complete depiction of reality.
C. an abstraction from reality.
D. applicable to consumer behavior but not to producer behavior.
E. not an accepted tool of the economics profession.

13. Which of the following sayings best reflects the concept of opportunity cost?
A. "You can't teach an old dog new tricks."
B. "There is no such thing as a free lunch."
C. "I have a baker's dozen."
D. "There's no business like show business."

14. The opportunity cost of watching television is:
A. all of the alternative programs that appear on other stations.
B. zero because there is no money expenditure involved.
C. the alternative use of the time foregone by watching the program.
D. zero if it benefits you.

15. Which of the following does not illustrate opportunity cost?
A. If I study, I must give up going to the football game.
B. If I buy a computer, I must do without a 35" television.
C. More consumer spending now means more spending in the future.
D. If I spend more on clothes, I must spend less on food.

16. When deciding whether to buy a second car, marginal analysis indicates that the purchaser should compare the:
A. benefits expected from two cars with the cost of both.
B. additional benefits expected from a second car with the cost of the two cars.
C. dollar cost of the two cars with the potential income that the cars will generate.
D. additional benefits of the second car with the additional cost of the second car.

17. According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study:
A. is positive.
B. outweighs the extra cost.
C. exceeds the benefits of the previous hour of study.
D. will raise your exam score.

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