Author Question: Which of the following headlines would be more closely related to what macroeconomists study than ... (Read 34 times)

Charlie · **on:** Jun 29, 2018

Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study?

A) The United Auto Workers sign a contract raising wages and benefits 7 over the next 3 years.
B) Real GDP grows by 2.3 in the second quarter.
C) Avocado prices rise due to a late frost in California.
D) Airlines raise ticket prices in response to rising fuel costs.

Question 2

Your friend Harry has quit his 20,000-a-year job to start a business that rents fishing boats. He asks you to lend him 50,000 and agrees to pay you a 10 return on your 50,000 if he earns a profit.

During the first year Harry's total revenue is 120,000 and his total cost for equipment and supplies are 100,000 . Harry tells you that he cannot pay you any interest this year because he did not earn a profit. Is your friend Harry trying to cheat you?

bdobbins · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

B

Answer to Question 2

The problem here is that profits are not strictly defined. Harry has made an accounting profit of 20,000, but an economic profit of zero. The 20,000 represents the opportunity cost of Harry's time running the business.