Midterm: Macroeconomics and Government Essays

1989 Words Oct 11th, 2013 8 Pages
EC301 Open-Book Midterm Exam (Weight 110 points)

1. (7 points) How are presidential election outcomes related to the performance of the economy?
2. (7 points) Discuss the difference between Microeconomics and Macroeconomics.
3. (10 points) Use the concepts of gross and net investment to distinguish between an economy that has a rising stock of capital and one that has a falling stock of capital. “In 1933 net private domestic investment was minus $6 billion. This means that in that particular year the economy produced no capital goods at all.” Do you agree? Why or why not? Explain: “Though net investment can be positive, negative, or zero, it is quite impossible for gross investment to be less than zero.”
4. (7 points) What
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This includes national, regional, and global economies.

Question 3.
Depreciation + Net Investment = Gross Investment if I rearrange it, it will say;
Depreciation – Gross Investment = Net Investment

Since capital stock of an economy only rises when net investment is positive, that is when gross investment exceeds depreciation. So naturally the capital stock falls when net investment is negative, that is when gross investment is less than depreciation. In 1933 net private domestic investment was minus $6 billion. This does NOT mean the country produced no capital goods: what it means is that the production of capital goods was less than what was lost due to wear and tear, thus the net impact was an overall loss in capital stock.
Gross private investment in most cases cannot be negative, since you can decide not to invest in new factories, but how do you decide to make a negative investment on an economy wide scale.

Question 4.
Household consumption has been diminishing or is flat to be honest. Income and employment rates have slowly been declining or stays in one particular place. Energy producers have increased the percentage of household budgets for fuel and electricity. According to economics, it shows minimal growth since 2001.

Question 5.
The IS function is the investment-saving function. A shift to the right implies that for any given level of
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