Macroeconomics (Fourth Edition)
Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 4, Problem 1RQ
To determine

Describe the macroeconomic model.

Expert Solution & Answer
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Explanation of Solution

Macroeconomic models are also toy versions of the real world that contain the key moving parts to give us an idea about how the real world really works.

In order to generate real insights, a model of ice cream production only needs a few key features in common with the real economy. For example, the more the workers, more ice cream can be produced, and if there are more machines, then more ice cream can be produced. If one gets a new idea for developing machines, then even more ice cream can be made with less number of workers.

In this case, the model can easily capture positive and diminishing returns to a factor, constant returns to scale, and increasing returns to ideas, but it is extremely simple. It helps one to forget unnecessary details about real life such as human emotions, the need for health care and nutrition, the distribution of income, natural resources, and so forth. Economics has progressed as a science when it has left things out.

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An increase of 20 million bicycles demand as a result of a lower p
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. What the heck is this GDP thingy? It is Thursday afternoon, just a few days before the holiday season starts in your region, and you decided to visit your uncle Chao who owns a local delivery company. While sitting in the living room watching the evening news with your uncle, you heard the news reporter stating the following with an optimistic tone: "According to recent studies, gross domestic product (GDP) is rising due to an increase in consumer spending. The increase in spending was due to an increase in consumer confidence because the job market has shown a positive increase in both employment and income." Immediately, your uncle Chao looked at you with some confusion on his face and asked: What the heck is GDP, and why does the news dude seem excited about its increase? Does this “good” change in this GDP thingy have any effect on my delivery business? How? Do I need to do something different to prepare for the rise in GDP? How?
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