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Principles of Macroeconomics

Please answer the following practice questions clearly and comprehensively.

1. Explain why economists focus on REAL GDP as opposed to NOMINAL GDP in tracking the business cycle?

2. What are the FOUR different types of unemployment? Why should you avoid being structurally unemployed?

3. What is the MOST used TOOL by the FED in manipulating interest rates and the money supply?

4. What type of Fiscal Policy is the current Obama administration implementing? Be specific

Solution Preview

Please answer the following practice questions clearly and comprehensively.

1. Explain why economists focus on REAL GDP as opposed to NOMINAL GDP in tracking the business cycle?
Economists focus on real GDP as opposed to nominal GDP as real GDP measures the value of output during a given year using the prices prevailing during that year reduced by inflation. The reason why real GDP is focused on is that if the prices increase by the same level as the increase in nominal GDP, the real GDP would remain the same. When tracking the business cycles, the economists are interested in the production and the real GDP is better indicator of production. In addition, as the economists are interested in production, the real GDP gives figures of goods and services that are produced rather than those that are consumed. Since, the economists are tracking the business cycle they are interested in the value of exports, the real GDP captures this value. Overall from the perspective of the economist the real GDP gives a more precise view of the economy.
2. What are the FOUR different types of unemployment? Why should you avoid being structurally unemployed?
The four types of unemployment are seasonal unemployment, structural unemployment, frictional unemployment and cyclical unemployment. Seasonal unemployment happens when the real ...

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