Reconciling Macroeconomics and Microeconomics

These flashcards cover key concepts in macroeconomics and microeconomics including definitions, fundamental questions, and the roles of different players in the economy.

What does macroeconomics analyze?

The performance of the whole Canadian economy and global economy.

What does microeconomics focus on?

The choices made by individuals in households, businesses, and governments, and how these choices interact in markets.

What is the fallacy of composition?

What is true for one is not necessarily true for all.

Define the paradox of thrift.

Attempts to increase saving cause total savings to decrease because of falling employment and incomes.

What are the three players in the circular flow model?

Households, businesses, and governments.

What do input markets determine?

Incomes.

What do output markets determine?

The value of all products and services sold.

What is the fundamental macroeconomic question?

How quickly do market economies adjust to maintain steady growth, full employment, and stable prices?

What is Say's Law?

Supply creates its own demand.

Who is J. M. Keynes?

The founder of macroeconomics in the 1930s.

What is market failure?

Market outcomes are inefficient or inequitable and fail to serve the public interest.

What is government failure?

Government policy fails to serve the public interest.

Which camp believes markets self-adjust?

Government Hands-Off.

What does the Hands-Off camp argue?

There is no fallacy of composition; macroeconomic and microeconomic outcomes are the same.

How do markets adjust according to the Hands-On camp?

Markets can adjust slowly.

Who aligns with the Markets Self-Adjust belief?

Conservative politicians.

Who aligns with the Markets Fail Often belief?

Liberal politicians.

What do economists generally agree on regarding government?

Some role for government in setting the rules of the game.

What defines macroeconomic outcomes?

Higher GDP, lower unemployment, and low predictable inflation.

What is fiscal policy?

Government purchases, taxes, and transfers to achieve macroeconomic outcomes.

What does monetary policy typically refer to?

Changes in interest rates or the money supply by the Bank of Canada.

What influences consumer choices?

Spending income or saving, and buying domestic products or imports.

What influences business choices?

Investment spending, hiring decisions, and where to buy and sell products.

What determines choices of the Rest of World (R.O.W.)?

Buying Canadian exports, selling imports, and investing in Canada.

How does GDP affect individual economic success?

Higher GDP allows for higher living standards.

What effect does unemployment have?

Affects the odds of finding a job.

How can inflation impact living standards?

Inflation reduces living standards if income does not rise as fast as prices.

What significance do interest rates and taxes have?

They influence economic performance and individual economic success.

How can understanding macroeconomics help individuals?

Makes smart choices and informs voting for politicians whose economic policies matter.

What model helps in understanding the connections in the economy?

The circular flow model.