1.What macroeconomic issues have been in the news lately? 1.The many recent macroeconomic issues that have been in the news lately(early 2002)include the recession that began in March 2001,sharp reductions in the Federal Reserve's target interest rate(the so-called Federal Funds rate)in 2001, whether the government should implement tax cuts or spending increases to stimulate the economy,and a financial crisis in Argentina. 2.What do you think are the defining characteristics of a science?Does the study of the economy have these characteristics?Do you think macroeconomics should be called a science?Why or why not? 2.Many phil sophers of science believe that the defining characteristic of a science is the use of the scientific method of inquiry to establish stable relationships.Scientists examine data,often provided by controlled experiments,to support or disprove a hypothesis. Economists are more limited in their use of experiments.They cannot conduct controlled experiments on the economy;they must rely on the natura course of developments in the economy to collect data.To the extent that economists use the scientific method of inquiry,that is,developing hypotheses and testing them,economies has the characteristics of a science. 4.How often does the price you pay for a haircut cha nge?What c does yo ur answe imply about the usefulness of market-clearing modek s for analyzing the marke for haircuts? 4.The price of haircuts changes rather infrequently.From casual observation, hairstylists nd to cha rge the sam one-or eriod demand irrespe of the for haircuts 01 the supply cutter A market-clearing model for analyzing the market for haircuts has the unrealistic assumption of flexible prices.Such an assumption is unrealistic in the short run when we observe that prices are inflexible.Over the long-run,however,the price of haircuts does tend to adjust;a market-clearing model is therefore appropriate. C HA PT E R 2 The Data of Macroeconomics Questions for Review 1.List the two things that GDP measures.How can GDP measure two things at once? 1GDP measures both the total income of evervone in the economy and the total expenditure on the economy's output of goods and services.GDP can measure1.What macroeconomic issues have been in the news lately? 1.The many recent macroeconomic issues that have been in the news lately(early 2002) include the recession that began in March 2001,sharp reductions in the Federal Reserve’s target interest rate (the so-called Federal Funds rate) in 2001, whether the government should implement tax cuts or spending increases to stimulate the economy, and a financial crisis in Argentina. 2.What do you think are the defining characteristics of a science? Does the study of the economy have these characteristics? Do you think macroeconomics should be called a science? Why or why not? 2.Many philosophers of science believe that the defining characteristic of a science is the use of the scientific method of inquiry to establish stable relationships.Scientists examine data,often provided by controlled experiments,to support or disprove a hypothesis. Economists are more limited in their use of experiments. They cannot conduct controlled experiments on the economy;they must rely on the natural course of developments in the economy to collect data.To the extent that economists use the scientific method of inquiry,that is,developing hypotheses and testing them,economics has the characteristics of a science. 4.How often does the price you pay for a haircut change?What does your answer imply about the usefulness of market-clearing models for analyzing the market for haircuts? 4.The price of haircuts changes rather infrequently. From casual observation, hairstylists tend to charge the same price over a one-or two-year period irrespective of the demand for haircuts or the supply of cutters. A market-clearing model for analyzing the market for haircuts has the unrealistic assumption of flexible prices.Such an assumption is unrealistic in the short run when we observe that prices are inflexible.Over the long-run, however, the price of haircuts does tend to adjust; a market-clearing model is therefore appropriate. C H A P T E R 2 The Data of Macroeconomics Questions for Review 1.List the two things that GDP measures. How can GDP measure two things at once? 1.GDP measures both the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services. GDP can measure