Part I: (a) The microeconomic model discussed in lecture describes the basic day-to-day economics portrayed in this world

by the regular working consumer and it can also help describe the structure of economic dynamics. In a basic look at this model, it involves the common household(s) and firm(s). In order for the firm to run and make money, they need to hire employees to carry out their duties, and the citizens need a job to obtain a salary to pay for any goods and services. This aspect of the model is part of the labor market. The model takes a circular approach because the firm pays a salary to the household in return for their labor. The households then take their salary and give money to firm for their goods and services. This aspect of the model is part of the production/goods market. However, in most cases all of the salary that the households obtain from their firm, they do not spend all of it. They then take their savings and invest their extra money into the firms. When the firms earns money they are able to pay dividends back to those who invested in their firm. Dividends are considered to be part of the capital market. Another aspect of this model that also falls into macroeconomics are the institutions that play a major role. One institution is government which give firms and households security and certain benefits in return for taxes. Banks give firms loans and these firms pay interest in return for the loans. Households give their savings to the banks who pay the households interest for the money they keep in the bank. This structure of economic dynamics is what keeps money flowing and gives incentive to the different parties. (b) Although macroeconomics and microeconomic both fall under the category of economics, they are very much different. Microeconomics is the study of a more individualistic aspect of consumerism and incentive to buy things. Microeconomics focuses primarily on single individuals or companies and the prices and decisions that go along with each. As we have seen in the microeconomic model, it relies on labor and production. It also focuses much on supply and demand Macroeconomics, however, is a more broad and aggregate level of such behaviors and decisions as they impact the entire economy, instead of just single people of firms. Some of the major points to macroeconomics are inflation, unemployment, and output growth. Because macroeconomics is so broad and looks at entire economies, it compares different nations and their GDP and other measures of national output and income.

Part II: (a) Economics can be looked at in two different ways: positive or normative approaches. Each approach has its use for economists. The positive approach is based on factual evidence and a more objective undertaking. It looks at things as they are and relies on evidence that can be tested and experimented on multiple times. Positive economics is what is mainly used to explain economic situations and describe certain theories. It is much more reliable compared to the normative approach. The normative approach is more opinion and observation based. It is explained as what ought to be or what you think it should be. Normative economics more often than not used to make decisions about the future of the economy based on judgement. It cannot be proved or tested so it is based more on personal views. Since this approach very much incorporates value judgements, it is the type of approach that you will often see and hear because of the openness and room for opinion. An example of each approach that does not have to do with economics is how a baby is born. According to the positive approach, babies are born after a male and a female reproduce and the males sperm and female eggs come together and what not. A normative approach to this would be that a stork came and delivered a new baby to the parents, something that many parents might tell their adolescent children. (b) It is true that theoretical and empirical physics are both science, but that does not necessarily mean that they are both positivism. Theoretical physics, according to Wikipedia, is a branch of physics which employs mathematical models and abstractions of physics to rationalize, explain and predict natural phenomena. This is in contrast to experimental physics, which uses experimental tools to probe these phenomena. Therefore, it would not be considered positivism because it predicts based theory and not experimental facts. Empirical physics on the other hand is based on raw data and facts which would characterize it as positivism. (c) Economics is extremely intertwined and can be positive and normative depending on the context. Macroeconomics seems to be more positive as it deals more with data at an aggregate level and between nations. Although microeconomics does use data as well, there is much normative aspect because it tries to predict the future of the economy at an individualistic level.

Part III: (a) GDP stands for Gross Domestic Product. Gross Domestic Product is value of all goods and services sold as final goods in a certain country. It is the final sales plus the change in business inventory. Technically it is the output growth of a nation with regards to many aspects. There are two approaches to measure GDP: income and expenditure. The expenditure approach is a more logical and better approach and is calculated through a certain formula. In order to formulate the Gross Domestic Product, you must take the sum of consumption, investment, government, and export, subtracted by import costs. Consumption is based on durable and non-durable goods, and services sold throughout the nation. Investment consists of residential and non-residential investments into companies in that nation. The government aspect of this formula consists of government spending which could consist of infrastructure, research, etc. This is the easiest way to calculate nation output and income. GDP is also used to calculate many other important sets of data such as Gross National Product (GNP), Net Nation Product (NNP), Nation Income (NI), Personal Income, Disposable Income, Gross National Income (GNI), and GDP per capita which is an important tool in calculating a country's standard of living. (b) More often than not, the expenditure approach to measuring GDP is used compared to income approach because it is more efficient and takes into account only the final sales of all goods and services sold within that nation. Basically it easily takes how much is spent into one easy formula and is able to measure GDP. The income approach seems to be more complicated because it requires much more information such as compensation of employees, proprietors' income, rental income, corporate profit, net interest, indirect tax (minus subsidies), net business transfer payment, and surplus of government enterprises. Even though both methods should yield the same GDP, the expenditure approach is more reliable and efficient, therefore the reason most economists prefer that measure.

Part IV: (a) Deflation and and disinflation may seen to be similar, but they are actually very much different. Deflation is when prices drop over a period of time. This price can be for any goods or services but at a general level. Deflation is normally a bad thing when prices continue to fall. Deflation causes money to be worth more because you can get more goods and services from a certain amount of money. Disinflation on the other hand is similar to inflation because prices are increasing, but it is the slow down or inflation. Because the inflation rate is dropping but is still positive, it causes lower interest rates which is good for the economy. Another way to show disinflation is a decrease in the percentage of inflation over multiple periods of time. (b) A treasury bond has many differences and similarities as corporate bonds. First of all, a treasury is form of capital issued by the United States government. Corporate bonds are similar but they are issued by firms in order to collect capital for business purposes. The main difference between the two is the risk taken. With United States treasury bonds, there is little risk and is backed up but there could be little return. Corporate bonds, on the other hand, have a great deal of risk but can have pretty good rewards. The risk comes if the corporation that you buy a corporate bond from goes bankrupt, then you could lose the money you invested in the bond. Many people prefer corporate bonds for the reason that there could be great rewards. Also, another difference is the maturity date of the bonds. With US treasury bonds, the maturity date can last anywhere from 10 to 30 years while corporate bonds do not have as long of a maturity date.