Chapter 02 Homework- EC110-Principles of Macroeconomics
Determine whether each of the following topics would more likely be studied in microeconomics or macroeconomics.
|The effect of an increase in consumer income on demand for laptops
|The government’s decision on how much to spend on public projects
|The effect of an increase in the money supply on the rate of inflation
Answer and Explanation
Microeconomics is the study of how prices and quantities are determined through interactions between buyers and sellers (individuals and firms) in individual markets. Therefore, microeconomists are more likely to create models to analyze the decisions of firms (such as pricing) and those of consumers (such as shopping choices), as well as how government policies affect those decisions.
Macroeconomics is the study of factors that affect the entire economy. Therefore, macroeconomists tend to create models to analyze how aggregate phenomena such as growth, inflation, and unemployment respond to policy decisions of governments and central banks, changes in aggregate spending or savings, and supply or demand shocks.