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Macroeconomics

1. What is the gross domestic product? Gross Domestic Product, or GDP, is the total market value of final goods and services produced within an economy in a given year. It is the most common measure of an economy’s total output. 2. When prices change, how do we measure real income?

When prices change we measure real income with 3. What is unemployment? Why can’t it be driven down to zero? Unemployment is when you don’t have a job. Unemployed people are those who don’t have a job but are actively looking for work. Unemployment cannot be driven down to zero because the lower the unemployment rate is, the harder it will be for businesses to hire new employees. The harder it is to find qualified employees, the more competitive businesses will be, causing wages to increase. When wages increase, prices will increase for the whole economy.

4. What is the Consumer Price Index and how is it related to the cost of living? The Consumer Price Index measures the cost of a fixed basket of goods chosen to represent the consumption pattern of a typical consumer. Economists use the Consumer Price Index when prices change to measure the cost of living. They will compare the price certain goods from one year to another, measuring the change in price to determine how much money you would need to uphold your previous standard of living.

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5. How does increased immigration affect wages and the level of output in the economy? Increased immigration actually increases wages for American workers with a high school education or higher because the labor supply increases, so business owners can afford to add on their business and employ the immigrant workers. Wages for high-school dropouts decrease because they compete with the immigrant workers for jobs at their level. The economy’s output increases because of the increase in supply and demand. 6. What are the benefits of increased investment?

When governments decrease spending, there are increased investments, which stimulate GDP. 7. Do trade deficits help or hinder economic growth? Explain. Trade deficits can be beneficial because it increases GDP and employment. There is an increased demand for domestic and foreign products and this promotes domestic investment as foreign and domestic businesses seek to benefit from on the growth in demand. As the rate of growth increases foreign credit sources have greater incentives to invest in a growing nation’s capital. The greater net inflows from abroad, the greater the trade deficit is. However, the excessive borrowing may artificially inflate GDP. 8. What factors determine technological progress?

Technological progress is determined by energy, information, new inventions, new ideas and new ways of doing things. 9. How do we define a recession? A recession is when there is a decline in the real gross domestic product for six consecutive months. 10. Why doesn’t the economy always operate a full employment? An economy doesn’t always operate at full employment because employers have to make changes when there are changes in the economy. When real GDP decreases they may have to fire or lay off workers. When real GDP increases businesses will need to hire more workers.

11. Why do governments cut taxes to increase economic output? Governments cut taxes to increase in the real income of those whose tax rate has been lowered. Tax cuts may provide individuals and corporations with an incentive for investments which stimulate so much economic activity that even at the lower rate more net tax revenue will be collected. 13. Why does investment spending depend on interest rates, among other factors? If interest rates are low on deposits, people won’t be as likely to deposit and save their money. But, if interest rates on loans are low, they would be more likely to borrow money. Banks have to offer decent rate for deposits in order to attract borrowers for loans, but at the same time be able to balance those rates.

14. Why would most investments in the economy fail to take place if there were no financial institutions? Most people don’t have large amounts of money to invest in something. Today, if you want to buy a house, a business, a car, or even go to college, you usually get a loan because you don’t have enough cash on hand to pay for it. If we didn’t have financial institutions it would be very difficult for some people to have these things, or it would take a very long time to save enough to buy it. 15. Why do all societies have some form of money?

Money is thought to encourage trade and the division of labor, in turn increasing productivity and wealth. The absence of money causes an economy to be inefficient because it requires a coincidence of wants between traders. The likelihood that you will find someone to trade with you is very small. 16. Why is the chairman of the Federal Reserve one of the most powerful people in the country? The chairman of the Federal Reserve is one of the most powerful people in the country because he is in control of the Board of Governors of the Federal Reserve. They govern or control the Federal Reserve System.

17. There are several attributes that would attract new economic developments to Springfield and the surrounding areas. Springfield is located in between two major cities, Dayton and Columbus. Many people that live in Springfield have to travel outside of Springfield to work because there aren’t many decent jobs here. There are plenty of residents that would love to have a job in Springfield, but they just can’t find work here. Also, many people in other cities pass through Springfield on the way to their jobs.

As new businesses come to Springfield, more jobs are created. The HUBZone Empowerment Contracting Program is one incentive that would attract new economic development to the Springfield area. HUBZone stands for Historically Underutilized Business Zone. It is for businesses that employ people who live in a HUBZone area.

Enterprise Zones are areas that need economic development. If you start a business, or repair or renovate one in and Enterprise Zone, you are eligible for decreased state and local tax as well as tax credits. These benefits are available for up to 10 years. This is done to attract businesses to the area and create new jobs.

There are also Community Reinvestment Areas designed to promote new development in different areas. Property owners in these areas are also eligible for a decrease in property tax. Normally Community Reinvestment Areas are in commercial, historic, or residential areas. Benefits for tax reduction can last up to eight years for this program.

There are also job credits available for businesses that create new or retain current jobs. Incentives like this are offered to keep current businesses in Springfield and to draw new businesses to the area.

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