For those who good at macro-economic, please help!?

1. In a market economy, NO ONE determines the allocation of resources, as it is allocated by the invisible hand as posited by Adam Smith. Governments minimally intervene by ensuring this market mechanism functions smoothly.

2. There are no change to GDP. Such work, or chores if you will, are non-monetised (do not contribute to GDP as they are done out of goodwill and involve no monetary transaction).

3. The expected rate of inflation is often determined or predicted by banks, and is used to determine the interest rate for the following year.

Assume the scenario 5% inflation rate, and the banks fix interest rate at 5%. The real value of money has fallen by 5%, and if someone were to park their money in the bank, it would rise by 5%, so it will cancel out.

If the interest rate is less than the inflation rate, the borrowers will gain.

Assuming scenario of 5% interest rate and 3% inflation rate. The lenders will gain. The borrowers will borrow at 5% higher, but the inflation rate of 3% means the real value of money only rises by 3%. Hence borrowers end up having to pay 2% more.

4. Price floor is a minimum price set above the equilibrium price. Considering the DD / SS graph at this price floor, the quantity supplied will be greater than the quantity demanded, and hence there will be a surplus. There is under investment in this activity as supply is greater than demand.

5. Capitalist economies can be considered as free economies, where the government intervenes very little, and the market is left to the price mechanism. You are correct to say that there is efficiency, both allocatively and productively, as there are price signals and dollar votes by the consumer which they sent out to the producers, who will supply an equivalent amount of good and services.

However, considering that there is very little government intervention, you will see that there might be market failure, for example externalities (positive: under consumption of a merit good, negative: over consumption of a demerit good), and no provision of a public good (street lighting cannot be provided by the free market because it is a public good: non excludable and non - rivalrous --> the marginal or extra cost to supply the good is zero, and for allocative efficiency P = MC = 0 --> no price can be set).

Monopolies will also lead to allocative inefficiency.

N. Vassily

Top Contributor in Science and Mathematics

1) Allocation of resources are made by the companies who receive signals from market participants, the buyers and sellers of the products and services sold in the marketplace. These signals tell companies what they can expect for future demand, which results in decisions about how much effort and resources to expend. Sellers provide additional signals in the market by their production, setting levels of quantity available in the marketplace that will affect price due to the aggregate demand curve of the consumers of the products. There is no role for central planning in a pure market economy.

2) GDP stands for Gross Domestic Product. Domestic means produced in the country for which the GDP is computed. In your example, assuming both Bob and Mary live in the same country, there will be no change in the GDP based on their actions unless the following were to occur: If one party has a much larger house AND the other party is much more efficient at doing housework AND one or both parties use the time saved to produce additional economic activity. since your question doesn't include those important provisos, I would respond that there is no change in GDP from what is described.

3) When expected inflation is higher than actual, the lender will benefit, having charged an interest rate that anticipated the loss of net yield to inflation. Since the loan is not indexed to inflation, but rather set at a fixed rate, the borrow indeed overpays and the lender benefits.

4) The price floor guarantees a price but does not guarantee buyers of the total quantity that would normally be consumed at that price if it were not due to a floor. So you are correct, there is a surplus of production. This means the market would over-invest in production of that product, assuming there would be buyers at the signal price. It's tempting to say that given the existence of a price floor, producers might reduce production in anticipation of that problem. Its possible that a stable and well monitored market might allow producers to anticipate the lower demand and scale back production, but they would have to believe that all producers would do likewise or the other producers would benefit at the expense of any producers who unilaterally reduce their production. Since there is no incentive for producers to act unilaterally, all producers would bear the cost of the surplus evenly in this hypothetical situation.

5) The efficiency of capitalism is on an aggregate basis. there are dramatic changes in the markets under unregulated capitalism with many firms going broke, and more pronounced boom and bust periods. This leads to a higher level of human misery than a managed or modified capitalist system. Another problem is inequality of income and wealth which will lead to revolutions and the forcible taking of resources from the wealthy by the less wealthy. This assumes the absence of physical control over the poor and middle classes by the wealthy. This is a safe assumption, as there are more advantageous systems than capitalism for the wealthy if the wealthy have physical control over the rest of the population.

1. price

2. if Bob and Mary did not get married,it will increase GDP,equal to the market value of both activities.

3. the lender, u r doing great. he has overcharged because of his high expectation.

4. shortage no matter what you think.

5.market failure, inequalities.

Microeconomics deals with the financial issues of the guy agencies, customer, industry, and so on.eg: customer behaviour, production function for an company, and so on. Macroeconomics deals with the financial issues of financial gadget as an entire. For eg: mixture call for, mixture furnish, funds furnish, earnings and employment decision and so on. Micro financial rules comprise production function for an company, intake function for a consumer and so on.