To what extent do you think normative economic analysis, as opposed to positive economic analysis determines our nation's public policy decisions made by government? Why? Is that "good" or "bad?" Why?
> How does each of the following affect the aggregate demand curve? a. Government spending increases. b. The amount of taxes collected decreases.
> Suppose Congress enacts a tax reform law and the average federal tax rate drops from 30 percent to 20 percent. Researchers investigate the impact of the tax cut and find that the income subject to the tax increases from $600 billion to $800 billion. The
> In the first quarter of 2001, real GDP was $9.88 trillion, and the price level measured by the GDP chain price index was 101. Real GDP was approximately equal to potential GDP. In the third quarter, aggregate demand decreased to $9.83 trillion, and the p
> Based on the assumptions of Question 3, explain verbally the impact of an increase of $4 trillion in aggregate demand on short-run equilibrium.
> Using the graph from Question 1 and assuming long run equilibrium at $12 trillion, explain the impact of a 10 percent increase in workers’ income.
> Assume an economy operates in the intermediate range of its aggregate supply curve. State the direction of shift for the aggregate demand or aggregate supply curve for each of the following changes in conditions. What is the effect on the price level? On
> Assume the aggregate demand and aggregate supply curves intersect at a price level of 100. Explain the effect of a shift in the price level to 120 and to 50.
> Identify the three ranges of the aggregate supply curve. Explain the impact of an increase in the aggregate demand curve in each segment.
> Explain the theory of the classical economists that flexible prices and wages ensure that the economy operates at full employment.
> Explain cost-push inflation verbally and graphically, using aggregate demand and aggregate supply analysis. Assess the impact on the price level, real GDP, and employment.
> Which of the following decisions has the greater opportunity cost? Why? a. A decision to use an undeveloped lot in Tokyo’s financial district for an apartment building. b. A decision to use a square mile in the desert for a gas station.
> Suppose the annual nominal rate of interest on a bank certificate of deposit is 12 percent. What would be the effect of an inflation rate of 13 percent?
> Who loses from inflation? Who wins from inflation?
> Suppose you earned $100,000 in a given year. Calculate your real income, assuming the CPI is 200 for this year.
> Suppose, in the base year, a typical market basket purchased by an urban family cost $250. In Year 1, the same market basket cost $950. What is the consumer price index (CPI) for Year 1? If the same market basket cost $1,000 in Year 2, what is the CPI fo
> How does demand-pull inflation differ from cost-push inflation?
> Explain why the market price may not be the same as the equilibrium price.
> Is it reasonable to expect the unemployment rate to fall to zero for an economy? What is the relationship of frictional, structural, and cyclical unemployment to the full-employment rate of unemployment, or natural rate of unemployment?
> Predict the direction of change for either supply or demand in the following situations: a. Several new companies enter the cell phone industry. b. Consumers suddenly decide SUVs are unfashionable. c. The U.S. surgeon general issues a report stating that
> Why is frictional unemployment inevitable in an economy characterized by imperfect job information?
> Draw graphs to illustrate the difference between a decrease in quantity supplied and a decrease in supply for condominiums. Give a possible reason for change in each graph.
> Explain the importance of the ceteris paribus assumption for an economic model.
> Describe the relevant criteria that government statisticians use to determine whether a person is “unemployed.”
> Draw graphs to illustrate the difference between a decrease in the quantity demanded and a decrease in demand for Mickey Mantle baseball cards. Give a possible reason for change in each graph.
> Following are real GDP figures for 10 quarters: Plot these data points, and identify the four phases of the business cycle. Give a theory that may explain the cause of the observed business cycle. What are some of the consequences of a prolonged declin
> Consider Exhibit 12, which shows the graph of a perfectly competitive firm in the short run. a. If the firm’s demand curve is MR3, does the firm earn an economic profit or loss? b. Which demand curve(s) indicate(s) the firm incurs a loss? c. Which demand
> Consider this statement: “A firm should increase output when it makes a profit.” Do you agree or disagree? Explain.
> Assuming the market equilibrium price for wheat is $5 per bushel, draw the total revenue and the marginal revenue curves for the typical wheat farmer in the same graph. Explain how marginal revenue and price are related to the total revenue curve.
> Does a Kansas wheat farmer operate in a perfectly competitive market structure? Explain.
> Suppose independent truckers operate in a perfectly competitive constant-cost industry. If these firms are earning positive economic profits, what happens in the long run to the following: the price of trucking services, the industry quantity of output,
> Suppose a perfectly competitive firm’s demand curve is below its average total cost curve. Explain the conditions under which a firm continues to produce in the short run.
> Explain the statement “People respond to incentives and disincentives” in relation to the demand curve and supply curve for good X.
> Suppose a retailer promotes its store by advertising a drawing for a “free car.” Is this car free because the winner pays zero for it?
> The U.S. Postal Service is facing increased competition from firms providing overnight delivery of packages and letters. Additional competition has emerged because communications can be sent by emails, fax machine, and text messaging. What will be the ef
> Speculate on why teenage unemployment rates exceed those for the overall labor force.
> Suppose U.S. nominal GDP increases from one year to the next year. Can you conclude that these figures present a misleading measure of economic growth?What alternative method would provide a more accurate measure of the rate of growth?
> Explain why the government spending (G) component of GDP falls short of actual government expenditures.
> An economy produces final goods and services with a market value of $5,000 billion in a given year, but only $4,500 billion worth of goods and services is sold to domestic or foreign buyers. Is this nation’s GDP $5,000 billion or $4,500 billion? Explain
> Using the basic circular flow model, explain why the value of businesses’ output of goods and services equals the income of households.
> Explain why comparing the GDPs of various nations might not tell you which nations are better off.
> Suppose states pass laws requiring public school teachers to have a master’s degree in order to retain their teaching certificates. What effect would this legislation have on the labor market for teachers?
> Assume the labor market for loggers is perfectly competitive. How would each of the following events influence the wage rate loggers are paid? a. Consumers boycott products made with wood. b. Loggers form a union that requires longer apprenticeships, cha
> What is the relationship between the marginal revenue product (MRP) and the demand curve for labor?
> Which of the following are microeconomic issues? Which are macroeconomic issues? a. How will an increase in the price of Coca-Cola affect the quantity of Pepsi Cola sold? b. What will cause the nation’s inflation rate to fall? c. How does a quota on text
> The Zippy Paper Company has no control over either the price of paper or the wage it pays its workers. The following table shows the relationship between the number of workers Zippy hires and total output: Assuming the selling price is $10 per box, ans
> List the major government cash assistance and in-kind transfer programs to assist the poor. Which of the programs are not exclusively for the poor?
> Would free health care reduce poverty, as measured by the government? Would free public housing, day care, and job training for the poor reduce the poverty rate? Explain.
> Calculate the official poverty threshold annual income for a family of four. Assume the minimally acceptable diet is estimated to be $5 per person per day and the minimum wage is $5 per hour. Will a head of a family of four earn the poverty threshold you
> What are our nation's major macroeconomic goals? Are they in conflict with each other?
> Does economics help to teach us how to approach problems, or does it provide us with a set of answers to problems?
> Some economists argue that the American Medical Association and the American Bar Association create an effect on labor markets similar to that of a labor union. Do you agree?
> Respond to the following statement: "Theories are of no use to me because they are not very practical. All I need are the facts because they speak for themselves."
> Why isn't money a resource?
> What is the classical approach to inflation?
> What is the Keynesian approach to a recession?
> What is the classical approach to a recession?
> Why are Monetarists sometimes called new or neo-Classicalists?
> Why would a Monetarist advocate a balanced budget amendment to the constitution?
> If the quantity of money supplied exceeds the quantity of money demanded then what can you say about the current rate of interest and what bankers will likely do with the interest rates they charge? Why?
> When the Fed buys government bonds what happens to the price of these bonds and the interest rate?
> If the GDP increases what is expected to happen to the interest rate?
> Why is mutual interdependence important under oligopoly, but not so important under perfect competition, monopoly, or monopolistic competition?
> Assume velocity is constant and we are at full employment. In order to increase the real GDP level 3%, then how much would we have to change the money supply?
> What should the Fed do with the money supply today? Why?
> When would it be most appropriate for the Fed to increase the money supply: during a recession or when the economy is expanding? Why?
> Briefly summarize what the Fed could do with its policy tools if it wished to increase the money supply?
> Which of the three monetary policy tools is the one which is most used? Why?
> Which of the three monetary policy tools mainly has is impact felt primarily on altering expectations? Why?
> Which of the three monetary policy tools is the least powerful? Why?
> Which of the three monetary policy tools is the most powerful? Why?
> How can the loan decisions of individuals and private bankers contribute to the instability in the macroeconomy (the business cycle)? Otherwise stated, how can an uncontrolled banking system destabilize the economy?
> What are the arguments for and against deposit insurance such as that provided by the FDIC?
> Draw a graph that shows a monopolistically competitive firm with a short-run profit. Explain what will happen to its demand curve as additional firms enter the industry.
> What are the advantages of an economy using money as opposed to a barter system of exchange?
> Why do Americans (and people around the world) continue to use the dollar as money considering that it is not backed by gold or anything else tangible?
> What is the major argument in favor of an independent Fed?
> Why isn’t credit cards money?
> What would you do to reduce the deficit?
> How does government debt create a socially more inequitable distribution of income---redistribute income away from those with relatively lower incomes to those with relatively high income?
> How could a greater fiscal deficit create a greater trade deficit?
> How could deficit spending help offset the otherwise lower rates of economic growth associated with a crowding-out effect?
> How could time lags associated with the implementation of fiscal policy destabilize the business cycle?
> In practice do we have progressive, proportional, or regressive personal income tax rate system?
> Consider this statement: “Because price equals longrun average cost and profits are zero, a monopolistically competitive firm is efficient.” Do you agree or disagree? Explain.
> How politically popular is it for government to reduce spending and/or to raise taxes?
> If federal government wished to reduce the deficit to any significant degree without raising taxes, where would the reduced spending likely to have to come from?
> What are the general purposes of taxes?
> What are some examples of payments people must make for government goods or services based on the ability-to-pay principle?
> According to Public Choice Theory, how could government regulation be doomed to failure?
> What is the opportunity cost of government spending on servicing the interest on the debt?
> Is the tax imposed on cigarettes progressive, proportional or regressive?
> When is the most appropriate time to reduce the deficit?
> What would likely happen to the level of economic activity if the government took the necessary steps to reduce the deficit significantly in a relatively short period of time?
> What happens to the multiplier if there is an increase in the marginal propensity to consume?
> Suppose the minimum point on the LRAC curve of a soft-drink firm’s cola is $1 per liter. Under conditions of monopolistic competition, will the price of a liter bottle of cola in the long run be above $1, equal to $1, less than $1, or impossible to deter
> How could a greater budget deficit increase the trade deficit?
> According to Keynesians, when should the federal government run a deficit and when should it run a surplus?
> Which portion of the Laffer curve did the supply-siders argue we were located when they recommended tax cuts and predicted a rise in tax revenues? Where on the Laffer curve were we in fact located?
> According to Keynesian economics, what impact would a balanced budget amendment to the constitution requiring the federal government to balance its budget annually have on the economy?
> If your answer to #1 above was yes, what do you think would happen to your taxes? What would happen to your private health insurance premiums? Would you come out ahead or not?
