Non Specific topics - Essay Example

Discussion Question Question An increase in the sale of new houses is often a sign that an economic expansion is coming. Why would this be the case? An increase in the sale of houses indicates an economic growth. This is because buying of houses indicates investment. If there is an increase in the sale of new houses, then more people are able and willing to invest. This indicates that economic growth. Secondly, increase in sale of new houses indicates an increase in the purchasing power of the consumers.

Consequently, an increase in consumer’s purchasing ability indicates positive economic growth. The sale increase also indicates a decrease in unemployment. This is because the housing industry is a major employer, which provides both skilled and unskilled employment opportunities. Question 2: How is the U.S. national economy different from those of other nations?The U.S national economy is different from those of other nations in various ways. Firstly, the US has a liberalized economy. In this economy, the government has minimal control over the economy.

Private investors own most of the country’s infrastructure and businesses. Besides having a liberalized, the US has the most formal economy in the world. The US has a functional revenue collection system that provides the required finances. Lastly, the country has market-based economy. In this type of economy, individual/consumers make market decisions. Question 3: Why is it difficult to test macroeconomics theories?Testing microeconomic theories is a difficult undertaking. This is because an economic phenomenon depends on many valuables.

Some of these variables cannot be tested, hence the difficulty in testing microeconomic theories. Moreover, change in dependent variables after each change in independent variable takes a long time or is difficult to establish. In such case, it is difficult or impossible to study the underlying economic situation (Bade, & Michael, 2001). For example, improvement of people’s purchasing power because of infrastructural development might take decades. The Keynesian theory predicts that government’s intervention on an economy results in economic growth.

It would be difficult or impossible to test such theory since economic changes takes a long time. What impact did the Great Depression have on the way government set policy?The great depression had significant impacts on the US economy. Following these economic extremes, the US government had to restructure its policymaking process. Initially, the US had a rigid economy that was mainly controlled by the government. In addition, the government was the sole developer of economic policies. However, following the depression, the government started involving the private sector in the development of economic policies (McEachern, 2012).

The US economy was also based on short-term policies developed by the government. However, following the great depression the US government started to make long-term economic policies (Bade, & Michael, 2001). Why the aggregate demand curve slopes down?The aggregate demand (AD) curve relates a country GDP with different price levels. In general, the aggregate demand curve has a negative slope. This is due to interest rate, real balance effect, and foreign purchases effects. Increase in interest rates raises the cost of borrowing which in turn slows down investments and national spending.

On the other hand, real balance relates to people’s purchasing power because of price increase. Consumer’s purchasing power is dependent on prices of commodities. Thus, real GDP has an inverse dependency with prices of commodities. ReferencesBade, R. & Michael, P. (2001). Foundations of Microeconomics. New York: Addison Wesley McEachern, W.A. (2012). ECON Macro 3 (3rd ed.). Mason, OH: South-Western