macro economics assignment

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Note that the Data Project Assignment is split into two parts and spans both module 6 and module 7. The Module 16 assignment presents two options, one that emphasizes topics from macroeconomics, and the other that emphasizes concepts from microeconomics.

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Macroeconomics: Key Topics

Managing Director, Sim Institute

Tim Rogmans is Managing Director at Sim Institute. He is the author of Sustainability Managment Simulation: Net Zero , Business Essentials Simulation: Coffee Shop Inc. , and Macroeconomics Simulation: Econland .

This module covers the fundamental topics of a macroeconomics course. Students will learn about critical economic concepts and how they interact with each other. 

6 Topics in This Module

Measuring a nation's output: gdp.

A nation’s output, as measured by its gross domestic product (GDP), is the start of most macroeconomics courses. This topic looks at GDP—how it is calculated, its individual components (consumption, government expenditure, Investment, and net exports), and the determinants of GDP. There are various challenges when calculating GDP, some of which are addressed by considering real GDP or GDP at purchasing power parity. Although GDP is a useful measure of a nation’s output, it has several shortcomings and can’t be used as the sole measure of economic health. 

GDP Explained

Assignments

Describe the main limitations of using GDP to measure an economy. How can these limitations be addressed?

Money, Prices, and Inflation

This topic introduces money as a means of exchange and facilitating trade. Money affects important macroeconomic variables, such as interest rates, exchange rates, and the aggregate price level (inflation). Several macroeconomic variables (GDP, exchange rates, or interest rates) can be considered in real terms rather than nominal terms (i.e., after adjusting for inflation).  

A country’s central bank and its banking system determine the supply of money. Governments can apply monetary and fiscal policy tools to avoid or minimize economic recessions. 

Inflation Explained

Using information from one or both case studies in this topic, what are the main costs of high inflation for companies? How can companies deal with the challenges posed by high inflation?

Production and Growth

Over the last few decades, the economies of many emerging markets have been catching up with developed countries. Identifying high growth economies is a challenge for international investors and can depend on nontraditional economic indicators and an assessment of government institutions.

Solow’s growth model is used to explain long-term economic growth. In this model, a country’s output or productive capacity depends on the amount of physical capital, the size of the labor force, and productivity. A combination of capital accumulation, population growth, and increasing productivity help to explain why emerging markets can grow more quickly than developed markets. However, effective government institutions are critical in facilitating economic development.

What indicators would you use to assess the economic growth potential of a country? Compare two countries of choice based on the indicators that you identified.

Apply Solow’s model to explain the economic growth and development of a country. You can use data from one of the case studies or publicly available data.

What are the main factors inhibiting South Africa’s economic development? 

Unemployment

Unemployment is a key topic for economists, and maintaining low levels of unemployment has become part of the mandate of central banks of the world’s major economies. The causes of unemployment, as well as the appropriate measures to reduce it, are hotly debated among economists.

Unemployment Explained

For a country of your choice, analyze the level and causes of unemployment. What would be appropriate policies to reduce the unemployment rate or maintain it at an acceptable level?

When you played Econland , which policies did you implement and why?

During the simulation, did your policy decisions lead to the results you expected in all areas? If not, can you determine why you obtained the results that you did?

How did expectations and the economic situations in other countries depicted in the simulation impact your country’s economy and your policy decisions? 

Open Economies

International trade can be explained through the theory of comparative advantage: countries specialize in the production of goods and services in which they hold a relative advantage. Although this theory is quite good at explaining trade between countries with very different factor endowments, it does not explain inter-sectoral trade between similar countries (for example, cars being traded in both directions between France and Germany). The “new trade theory” relaxes some of the assumptions of the theory of comparative advantage and describes trade between markets with imperfect competition and differentiated products.

Dealing with fluctuating and unpredictable exchange—which are determined by relative levels of inflation, interest rates, and the volume of international trade between countries—is an ongoing challenge for companies. 

Identify and describe an export of goods or services between two countries. Discuss to what extent the theory of comparative advantage helps to explain the existence of the trade flow.

Fiscal and Monetary Policy

Governments impact an economy in a range of ways, most importantly through their ability to tax and spend (fiscal policy) and the central bank’s ability to control the money supply (monetary policy). Common macroeconomic goals that governments aim to achieve through their policies include economic growth, low unemployment, and a manageable level of inflation. By implementing expansionary fiscal or monetary policies, aggregate demand can be stimulated. Risks associated with expansionary policies include unacceptable levels of government debt and high inflation. The case studies in this topic discuss the most important current fiscal and monetary policy debates, particularly in response to the COVID-19 pandemic.  

1369 word count

Fiscal Policy Explained

Monetary Policy Explained

4.5 minutes

For a country in which you work or operate, what are the main risks the economy is facing? How can managers prepare for the consequences of these risks materializing?

After playing the  Econland  base case scenario and at least one other scenario, how did you adapt your policy decisions compared to the first time you played? Were you able to improve on your score for the base case scenario?

Discuss some of the areas of impact of each of your decisions while playing the simulation and relate these to the macroeconomic data in the reports section. For example, what do you expect the difference in impact to be between changes in the corporate tax rate and the income tax rate?

How did the circumstances of the either rollercoaster or stagnation scenario impact the policy decisions that you made? 

About this module

The study of macroeconomics deals with the analysis of an entire economy, usually a country, but potentially also a group of countries or a region with a country. This module introduces learners to key topics in macroeconomics, including national income (GDP), productivity, inflation, unemployment, and international trade.  Macroeconomics Simulation: Econland  can be used throughout the module or as an integrative exercise towards the end, when the topics of fiscal and monetary policy are introduced. 

In this module, case studies apply macroeconomic concepts to national economies and discuss the managerial implications of macroeconomic developments. Instructors looking to link the topics of the module to current events can use the weekly economics newsletter,  Econland News .

Learning Objectives

Understand how an economy works and how it affects citizens and companies that operate in it.

Understand the key topics of macroeconomics, including GDP, productivity, inflation, unemployment, and international trade.

Understand how monetary and fiscal policy decisions impact different aspects of a country’s economy.

Analyze current economic developments and events in a systematic way.

Use macroeconomic data and forecasts in business decision-making. 

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• Prof. George-Marios Angeletos

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Intermediate macroeconomics, course description.

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Since $1.60 per gallon is above the equilibrium price, the quantity demanded would be lower at 550 gallons and the quantity supplied would be higher at 640 gallons. (These results are due to the laws of demand and supply, respectively.) The outcome of lower Qd and higher Qs would be a surplus in the gasoline market of 640 – 550 = 90 gallons.

To make it easier to analyze complex problems. Ceteris paribus allows you to look at the effect of one factor at a time on what it is you are trying to analyze. When you have analyzed all the factors individually, you add the results together to get the final answer.

• An improvement in technology that reduces the cost of production will cause an increase in supply. Alternatively, you can think of this as a reduction in price necessary for firms to supply any quantity. Either way, this can be shown as a rightward (or downward) shift in the supply curve.
• An improvement in product quality is treated as an increase in tastes or preferences, meaning consumers demand more paint at any price level, so demand increases or shifts to the right. If this seems counterintuitive, note that demand in the future for the longer-lasting paint will fall, since consumers are essentially shifting demand from the future to the present.
• An increase in need causes an increase in demand or a rightward shift in the demand curve.
• Factory damage means that firms are unable to supply as much in the present. Technically, this is an increase in the cost of production. Either way you look at it, the supply curve shifts to the left.
• More fuel-efficient cars means there is less need for gasoline. This causes a leftward shift in the demand for gasoline and thus oil. Since the demand curve is shifting down the supply curve, the equilibrium price and quantity both fall.
• Cold weather increases the need for heating oil. This causes a rightward shift in the demand for heating oil and thus oil. Since the demand curve is shifting up the supply curve, the equilibrium price and quantity both rise.
• A discovery of new oil will make oil more abundant. This can be shown as a rightward shift in the supply curve, which will cause a decrease in the equilibrium price along with an increase in the equilibrium quantity. (The supply curve shifts down the demand curve so price and quantity follow the law of demand. If price goes down, then the quantity goes up.)
• When an economy slows down, it produces less output and demands less input, including energy, which is used in the production of virtually everything. A decrease in demand for energy will be reflected as a decrease in the demand for oil, or a leftward shift in demand for oil. Since the demand curve is shifting down the supply curve, both the equilibrium price and quantity of oil will fall.
• Disruption of oil pumping will reduce the supply of oil. This leftward shift in the supply curve will show a movement up the demand curve, resulting in an increase in the equilibrium price of oil and a decrease in the equilibrium quantity.
• Increased insulation will decrease the demand for heating. This leftward shift in the demand for oil causes a movement down the supply curve, resulting in a decrease in the equilibrium price and quantity of oil.
• Solar energy is a substitute for oil-based energy. So if solar energy becomes cheaper, the demand for oil will decrease as consumers switch from oil to solar. The decrease in demand for oil will be shown as a leftward shift in the demand curve. As the demand curve shifts down the supply curve, both equilibrium price and quantity for oil will fall.
• A new, popular kind of plastic will increase the demand for oil. The increase in demand will be shown as a rightward shift in demand, raising the equilibrium price and quantity of oil.

Step 1. Draw the graph with the initial supply and demand curves. Label the initial equilibrium price and quantity.

Step 2. Did the economic event affect supply or demand? Jet fuel is a cost of producing air travel, so an increase in jet fuel price affects supply.

Step 3. An increase in the price of jet fuel caused an increase in the cost of air travel. We show this as an upward or leftward shift in supply.

Step 4. A leftward shift in supply causes a movement up the demand curve, increasing the equilibrium price of air travel and decreasing the equilibrium quantity.

Step 2. Did the economic event affect supply or demand? A tariff is treated like a cost of production, so this affects supply.

Step 3. A tariff reduction is equivalent to a decrease in the cost of production, which we can show as a rightward (or downward) shift in supply.

Step 4. A rightward shift in supply causes a movement down the demand curve, lowering the equilibrium price and raising the equilibrium quantity.

A price ceiling (which is below the equilibrium price) will cause the quantity demanded to rise and the quantity supplied to fall. This is why a price ceiling creates a shortage.

A price ceiling is just a legal restriction. Equilibrium is an economic condition. People may or may not obey the price ceiling, so the actual price may be at or above the price ceiling, but the price ceiling does not change the equilibrium price.

A price ceiling is a legal maximum price, but a price floor is a legal minimum price and, consequently, it would leave room for the price to rise to its equilibrium level. In other words, a price floor below equilibrium will not be binding and will have no effect.

Assuming that people obey the price ceiling, the market price will be below equilibrium, which means that Qd will be more than Qs. Buyers can only buy what is offered for sale, so the number of transactions will fall to Qs. This is easy to see graphically. By analogous reasoning, with a price floor the market price will be above the equilibrium price, so Qd will be less than Qs. Since the limit on transactions here is demand, the number of transactions will fall to Qd. Note that because both price floors and price ceilings reduce the number of transactions, social surplus is less.

Because the losses to consumers are greater than the benefits to producers, so the net effect is negative. Since the lost consumer surplus is greater than the additional producer surplus, social surplus falls.

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• Authors: David Shapiro, Daniel MacDonald, Steven A. Greenlaw
• Publisher/website: OpenStax
• Book title: Principles of Macroeconomics 3e
• Publication date: Dec 14, 2022
• Location: Houston, Texas
• Book URL: https://openstax.org/books/principles-macroeconomics-3e/pages/1-introduction
• Section URL: https://openstax.org/books/principles-macroeconomics-3e/pages/chapter-3

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