Section 1:
1. Distinguish between real and nominal GDP. Which one is a better measure of the business cycle?
2. What are the determinants of investment spending?
3. Why do managers need to be aware of how the price level and the level of unemployment are changing?
4. Why is it important that managers be aware of Federal Reserve action and policy statements?
5. The macro environment will have an impact on the competitive strategies of a firm/industry. What should a manager do in anticipation of this?
Section 2:
1. Why is judging trends in economic indicators important to managers?
2. If the U.S. economy is experiencing a decrease in consumer wealth, a credit crisis in the financial markets, and declining consumer and business confidence what components of aggregate demand are affected and what are the policy options?
3. When the government increases spending to combat unemployment, why should it increase taxes to pay for the increased spending? why run a deficit instead?
4. Deficit spending for education and scientific research may impose less of a tax burden on future generations than deficit - financed increases in transfer payments. Do you agree or disagree? Explain your answer.
5. Some frictional and structural unemployment is probably a sign of a healthy economy. Why is that true? Your answer should include a definition of frictional and structural unemployment.
6. The Federal Reserve System is one of our government's key tools for regulating the economy.
a) What is the Federal Reserve and who is the current chairperson?
b) What are three tools the Federal Reserve has?
c) How are these three tools used to stimulate economic growth?
d) How are these three tools used to contain economic growth?
7. Explain how the aggregate expenditure function shifts, and why, in response to changes in each of the following variables:
a) The real interest rate increases.
b) Consumer confidence decreases.
c) Higher taxes are imposed on business profits.
d) The economies of many countries in the rest of the world go into recession.