Download Study questions for Macroeconomics: Let these questions direct

Study guide for final exam
Some questions may be altered as we discuss them in class.
1.
2.
Name Smith's most famous book. When was it published?
Explain the law of comparative advantage and its implications. Who
developed this law? When? What are the main forms that protectionism
has traditionally taken? What new types of "protectionism" are being
debated today?
3.
Graphically illustrate the gains, losses, and net gain to an importing
country if it allows free trade. Label everything very clearly and
completely.
Pertaining to the LR model of the economy:
4.
What determines the output level?
5.
Why is the level of investment critical?
6.
What is the effect of changing the size of the money supply?
Pertaining to the SR model of the economy:
7.
What determines the output level?
8.
Why is the level of investment critical?
9.
What is the effect of changing the size of the money supply?
10. Explain the Phillip's curve tradeoff. What is monetary policy? Name and
define each of the Fed's three tools and explain how each is used to
combat inflation and to combat unemployment. What is fiscal policy?
Theoretically, how can it be used to combat inflation and to combat
unemployment?
11. Who were the classical economists? In what ways is the Mankiw text a
classical text? Who was Keynes and how did he disagree with the
classical economists?
12. What are the similarities and differences in the problems addressed by
Mankiw and Korten? What are the policy approaches of each?
13. For each of the articles that were distributed in class: In what ways,
if any, does the article support Korten's perspective? In what ways, if
any, does it contradict Korten?
8:00 class exam is on Tuesday at 1:30.
9:00 class exam in on Wednesday at 6 PM.
Macroeconomics Final Exam
Name:
There are so few questions that all of them weigh pretty heavily.
MAKE SURE YOU ANSWER ALL PARTS!!!
Please answer the questions in order.
1.
2.
3.
4.
5.
6.
7.
A. Name Smith's most famous book.
B. When was it published?
A. Explain the law of comparative advantage and its implications.
B. Who developed this law? When?
Graphically illustrate the gains, losses, and net gain to an importing
country if it allows free trade. Label everything very clearly and
completely.
A. What are the main forms that protectionism can take?
B. Briefly explain the usual arguments for protectionism.
Pertaining to Mankiw's LR model of the economy:
What determines the output level?
Why is the level of investment critical?
What is the effect of changing the size of the money supply?
Pertaining to Mankiw's SR model of the economy:
8.
What determines the output level?
9.
Why is the level of investment critical?
10. What is the effect of changing the size of the money supply?
11. What are the similarities and differences in the problems addressed by
Mankiw, Brouwer, and the "Surviving the Bottom Line" video series? What
are the similarities and differences in the solutions and policy
proposals provided by these three sources? (20 pts.)
Remember your pledge.
Have a good, safe summer!!
Please answer the questions in order.
Name:
Use the backs of answer pages. Put your name on answers sheets also.
Pencils are fine; complete sentences are not required.
BE SURE TO ANSWER ALL PARTS!!!
1. A. Explain the Pigou effect.
B. What is its relevance to our study, i.e., why did Mankiw discuss it?
(10)
2. Explain why the SRAS is sloped as it is.
(10)
3. A. Graph an economy that is simultaneously in LR and SR equilibrium.
B. Re-draw your graph. Assume that society's attitude toward retirement
changes and that people start saving more. Illustrate this on your
second graph.
C. What problem(s) are evident?
D. Simply list government's policy options. (19)
4. A. Construct the MS and MD graph appropriate to our SR model.
B. Assume that the money market is above its equilibrium, and explain the
process of moving to the equilibrium. (12)
5. A. Brouwer provides three indicators of wealth inequality. By which is
wealth most unequally distributed?
B. Briefly, why is this particularly troublesome for Brouwer? (7)
6. Very briefly, distinguish between the main source(s) of income for the
"sinking majority" and those at the top. (8)
7. Brouwer explained and assessed meritocracy arguments for the increasing
inequality. Explain one of them and relate Brouwer's view on it. (10)
8. For Brouwer, in what way is the federal government's budget deficit a
"real" problem? (5)
9. A. Explain the "S&L Robbery."
B. What was Brouwer's point in relating this history? (11)
Please answer the questions in order.
Name:
Use the backs of answer pages. Put your name on answers sheets also.
Pencils are fine; complete sentences are not required.
BE SURE TO ANSWER ALL PARTS!!!
4. Name and define two of the Fed's tools of monetary policy, and briefly
explain how each can be used to increase the supply of money (12 pts).
5. A. What does "money neutrality" mean?
B. Is money neutral in the long run?
C. Why, or why not?
D. Draw the supply and demand for money applicable to the long-run model,
and then show an increase in the money supply. Clearly indicate the
consequences; no explanation is required.
E. In an open economy, what is the other potential effect of an increase
in the money supply? (No explanation is required; 23 pts.)
3. Simply list the determinants of the nation's output level in the long
run? (8)
4. A. What does it mean to be officially "unemployed"?
B. Mankiw presents "four explanations for the economy's natural rate of
unemployment." According to each, simply indicate who is responsible for
the unemployment, and in each instance briefly state what they doing to
cause it.
C. Is the following statement true or false? All unemployed U.S.
citizens are eligible to receive unemployment compensation.
If true, how might eliminating this program make the nation WORSE off?
If false, who IS eligible for unemployment insurance? (16 pts)
5. A. As defined by macroeconomists, what is "savings"?
B. As defined by macroeconomists, what is "investment"?
C. What is a "mutual fund"?
D. As defined by macroeconomists, are the people who put money into a
mutual fund "savers" or "investors"? (11 pts)
6. A. Construct and fully label the three-graph model of the open economy.
B. What are the "twin deficits" and how are they related?
C. Define "capital flight."
D. Redraw your three graphs and shift the lines (being sure to indicate
the directions of the shifts) to indicate all of the effects of capital
flight. (No explanation is necessary.) (30 pts. total.)
PLEDGE
Please bring Sharing the Pie to class on Monday.
HAVE A MARVELOUS BREAK!
MACROECONOMICS - REMAINING STUDY QUESTIONS FOR SECOND TEST
Chapter 29
6. Meaning of NX>0 and NX<0; meaning of NFI>0 and NFI<0; illustrate that
NX must equal NFI; why does NFI matters in our model?
7. According to Mankiw, is our large trade deficit a problem? Explain
his argument. What alternative perspective was presented in class?
8. Define nominal exchange rate, appreciation, depreciation, real
exchange rate. Question for review #3.
9. How will trade work to equate the price of jeans in Iowa and Texas?
Explain the purchasing power parity theory of exchange rate
determination, including the role that trade plays. (You need not go
into further detail than we did in class, but do understand our
numeric example.)
10.
Why does the purchasing power parity theory not always hold?
11.
The principle lesson from the theory is to predict the effect of a
large increase in a nation's money supply. What is the prediction?
Chapter 30 - Complete your worksheet!
BEFORE PROCEEDING TO SHORT-RUN ECONOMIC FLUCTUATIONS, REVIEW THE LONG
RUN MODEL BY ANSWERING THESE QUESTIONS PERTAINING TO THE LR:
1. What determines the output level?
2. Why is the level of investment critical?
3. What determines the level of unemployment, and why is this important?
4. Why is money neutral?
5. What IS the effect of changing the size of the money supply?
Chapter 31
1. Graph aggregate demand. What are the categories of spending
represented by the curve? Explain two reasons for its downward
slope. Provide reasons that could cause it to shift.
2. Graph LRAS and explain its slope. What causes it to shift rightward?
What are the various names sometimes given to the long-run output
level?
3. Use Keynes's thoughts on sticky wages to explain how the output level
may deviate from its "natural" level. What does this imply for the
slope of the SRAS? Continue with the sticky wage story and explain
how the economy is expected to end up back on the LRAS curve.
4. Explain how the expectation of a lower price level can shift the
SRAS.
5. Assume the economy is at a LR and SR equilibrium and that then AD
declines. Illustrate graphically where the economy was and what
consequences result. What policies can move the economy back to the
equilibrium?
6. According to our model, the decline in AD will "self-correct in the
long run." What is the process of this self-correction? What was
Keynes's response to the practice of waiting for the self-correction,
and what was his point? The belief in waiting on the economy to fix
itself is consistent with which early economist?
7. Begin at a point of LR and SR equilibrium. Graph the impact of a
rise in oil prices. What problem results? Explain and graphically
illustrate the consequences of expansionary fiscal policy,
expansionary monetary policy, and waiting for the economy to self
correct.
8. Define: recession, depression; Problems and applications #1,3
9. Summarize the conclusion to the chapter.
Chapter 32
1. Why does the level of AD matter?
2. Why is MD a downward sloping function of the interest rate? How do MS
and MD interact to determine the interest rate, i.e., if the interest
rate is above (or below) the equilibrium rate, what is the adjustment
process? Graph.
3. Graph an increase in the MS and show the effect on the interest rate.
How does the interest rate affect the level of AD?
4. What is meant by "expansionary monetary policy" and "tight monetary
policy"?
5. How do increases in taxes and government spending affect AD? What is
meant by "expansionary fiscal policy" and "tight fiscal policy"?
6. Explain the multiplier effect.
7. How does Mankiw present the cases for and against economic
stabilization?
8. Contrast the MD in Figure 32-3 with MD in Figure 28.1 What variable
is being determined in each graph?
Chapter 33
1. Explain the Phillip's curve tradeoff. What's the implication for
policy?
2. How well does this theoretical tradeoff mess with recent US levels of
unemployment and inflation?
NOW ANSWER THE FOLLOWING QUESTIONS BASED ON OUR SHORT-RUN MODEL, AND
CONTRAST TO YOUR PREVIOUS ANSWERS THAT PERTAINED TO THE LONG-RUN MODEL:
6. What determines the output level?
7. Why is the level of investment critical? (See page 684.)
8. What determines the level of unemployment, and why is this important?
9. Why is money NOT neutral?
10.
What is the effect of changing the size of the money supply?
Finally, what is the LR effect of changes in the level of AD?
Dear 10:00 AM Macro class,
I am (generally speaking) very pleased with your hard work and positive
results on the first exam. Preparing for the second exam is going to take
another big (even bigger?) effort! Even though it is more than two weeks away,
most of you need to get serious NOW about your preparations.
I am going to an Economics conference in Boston on the Thursday morning
before your exam and will not be available for any last minute help. However,
until then I will have office hours on MWF from 1:30 to 2:30, and if some of you
want a group session at that or at another time, we can plan one.
I recommend that you write answers to each of the questions, and then compare
your answers with those of a classmate. Come and see me if you are struggling.
If you missed class, get notes from a classmate. If you can't figure them out,
come and see me about that, too.
With sincere hopes for your success!
Emily
STUDY QUESTIONS
Look on pages 513, 589, 635, and 679. Clearly and precisely distinguish among
the broad topics of these four Parts of your text. What economic variables are
being modeled/determined in each Part?
Chapter 24
11.
Why does the long-run level and growth of GDP matter? How much did GDP
grow in 1996, 1997, and 1998? (See handout.) Is this high or low by
historic standards?
12.
What is "productivity" and why does it matter? Identify the determinants
of a country's productivity level.
13.
Identify seven policies governments may undertake to enhance their
productivity growth. How does each enhance productivity?
14.
T or F? Productivity declined in the US from 1973 to 1994. (False!)
Concerning productivity, what did diminish and why?
Questions for review: 3,4,7,8
Problems and applications: 1,2,5,6,8,9,10,11,12
Chapter 25
9. Contrast "financial markets" with "financial intermediaries" and provide
examples of each. Contrast the meanings of "stock" and "bond."
10.
Graph the market for loanable funds. Whose activities are represented in
your D and S curves? Explain the process of adjusting to the equilibrium
from an initial interest rate above the equilibrium, and repeat for below the
equilibrium.
11.
Explain Mankiw's three policies for increasing savings and investment.
Graph each.
12.
How big is the government's debt in historic context? Why measure it as a
percentage of GDP?
Key concepts: second and third columns
Questions for review: 2,5
Problems and applications: 1,3,4,5,6,8,9,12
Chapter 26
3. On pages 565-6 Mankiw distinguishes between "the long-run and the short-run
problem" of unemployment. What name does he give to each?
4. What is the labor force participation rate of all adults, of all teenagers,
of all men, and of all women? Does any of these surprise you?
5. Graph the supply and demand for labor and indicate the existence of
unemployment. In terms of your graph, what causes this excess supply of
labor?
6. Mankiw presents "four explanations for the economy's natural rate of
unemployment." According to each, who is responsible for the unemployment,
what are they doing to cause it, and what is the basis for their action?
7. How did Henry Ford fit into this chapter?
8. What was the rate of unemployment for 1998? (See handout.) What is the
natural rate of unemployment? Does this imply that Mankiw has overstated the
natural rate? Explain.
9. Who is, and is not, eligible for unemployment insurance? How might
eliminating this program make the nation better off? Worse off?
Key concepts: all
Questions for review: 1,2,3,4
Problems and applications: 1,2,3,4,6,
Chapter 27
1. Explain the three functions of money. What makes up M1? How much U.S.
currency was outstanding in 1996? Who may be holding large portions of this
currency?
2. What was the size of M1 in 1996? So, about what percentage of M1 was
currency?
3. Define/explain/identify: liquidity, demand deposits, Federal Reserve,
central bank, Board of Governors, Alan Greenspan, FOMC, reserves, required
reserves, excess reserves, reserve ratio, how the money supply increases, how
the money multiplier works, three tools of Fed and how each is used to effect
size of money supply.
Question for review: 7
Problems and applications: 3,7,8
Chapter 28
1. Graph the supply and demand for money and the slope of each. Who supplies?
Who demands? Explain the adjustment to the equilibrium from above and below
the equilibrium. (What crucial assumption is made concerning the economy's
ability to increase production to meet the extra demand for goods and
services?)
2. Graphically illustrate an increase in the money supply and its effect.
Repeat for decrease.
3. What is "money neutrality"? Is money neutral?
4. State the quantity theory of money, define each of its terms, and explain its
implications.
5. Explain the costs of inflation.
Questions for review: 1,2,3,4,5
Problems and applications: 6,9,10
More to come … expect to cover through chapter 33
MACROECONOMICS – TEST ONE
Be sure and answer ALL parts!
Name:
Please answer the questions IN ORDER.
You may use the backs of your answer pages.
If you get stuck, move on to the next question and come back.
1. a. What is the name of Adam Smith’s most famous book?
b. What year was it published?
c. Simply list (do not explain) four mercantilist practices opposed by Smith.
(10 pts. total)
2. a.
b.
c.
d.
e.
Simply state the Law of Demand.
Graph a demand curve, and label the axes.
What could cause movement along a single demand curve? (No explanation.)
What could cause a shift of a demand curve? (No explanation.)
Graph and briefly explain the concept of consumer surplus. (19 pts. total)
3. Define Gross Domestic Product.
4. a.
b.
c.
d.
(6 pts.)
What is the formula for the GDP deflator?
If the value of the GDP deflator is 154, what information do we gain?
Define “nominal.”
Briefly explain one reason that some economists argue that the CPI
overstates actual inflation.
e. Social Security benefits are increased each year in proportion to the
increase in the CPI. If the CPI does overstate actual inflation (and
ignoring the information provided in next part of this question), does
Social Security maintain a constant level of purchasing power for the
elderly? Briefly explain.
15.
In fact, the elderly consume more health care than the typical family, and
health care costs have risen faster than overall inflation. But they also
spend LESS on housing (because they are more likely to own their own homes),
and housing costs have also gone up more than prices in general. So, how can
we determine whether Social Security is providing the elderly with constant,
increasing, or decreasing overall purchasing power?
(18 pts. total)
5. Assume the following:
Jamaica
UK
1.
2.
3.
4.
5.
f.
Output per worker per hour
Baseballs
Footballs
3
3
2
1
Which nation has the absolute advantage in producing baseballs?
How do you know?
Which nation has the comparative advantage in producing baseballs?
How do you know?
If the nations engaged in trade, which would export baseballs?
Name the economist who originally developed this theory. (17 pts. total)
6. Make your graph VERY LARGE!
12.
Graph the effects of a tariff on the importing country and
indicate/label the following:
Price without the tariff
Price with the tariff
Equilibrium without trade
Imports without tariff
Imports with tariff
In addition, illustrate the following with a “table” as in your text, OR you may
illustrate with dots, lines, stars, etc. as suggested:
Change (if any) in consumer surplus – indicate with
Change (if any) in producer surplus – indicate with
Change (if any) in government revenue – indicate with
Net change in total surplus – boldly outline, for example
13.
Does the tariff (as compared with free trade) cause a positive or negative
net change in the surplus?
14.
What is the unit in which the net change is measured?
15.
What is the main point of this analysis?
16.
With “protectionism,” who/what is protected?
total)
Pledge:
From whom/what?
(30 pts.
Study questions for Macroeconomics: Let these questions direct your study
energies, but don't be narrowly focused ONLY on the questions. Let them point
you to related issues.
• Write out answers to every question!
• Work with and/or compare notes with classmates.
• Bring your answers to the Q/A session.
1.
Enclosure movement: When? What? Where? Why? What did the serfs do? Why do
economists tend to favor markets? Explain the controversy as discussed in
class.
2.
How was “order” provided under feudalism? Under mercantilism?
3.
What was the overarching goal of government policies under mercantilism?
Adam Smith criticized four specific mercantilist practices. What were
they? Who did they help, and how? Who did they hurt, and how?
4.
According to Smith, how would “order” be provided by the emerging market?
Include the “invisible hand” and the “harmony of interests.” Provide a
specific example that supports Smith's perspective concerning "the
invisible hand" and one that does not.
5.
Name Smith's most famous work. When was it published?
6.
For Smith what were the appropriate roles of government?
16.
What was Smith's assumption concerning where capital would be employed?
What is the significance of this?
17.
Explain what is meant by: opportunity cost, microeconomics,
macroeconomics, absolute advantage, comparative advantage.
18.
Page 56: Questions 1,2,4. Pages 56-7: Problems 3,7,8a-c,9. What are
the assumptions of the model of comparative advantage?
19.
State the law of demand and graph the demand curve. Distinguish
between "change in demand" (a shift of the demand curve) and "change in
quantity demanded" (movement along a demand curve). Relate the demand curve
to MU and “willingness to pay.” Graph a person’s demand for food, assuming
that the individual has no money.
20.
State the supply relationship and graph the supply curve. Distinguish
between "change in supply" (shift of the supply curve) and "change in
quantity supplied" (movement along a supply curve). What does the upward
slope of the supply curve indicate about the marginal cost of producing the
good?
21.
Explain and graph the concepts of consumer surplus and producer
surplus.
22.
Put D and S on the same graph and explain the process of reaching the
equilibrium. In terms of your graph, explain how the market allocates
resources among alternative uses and how it allocates goods among alternative
people. Does the market guarantee that all people’s basic needs will be met?
Explain.
23.
Page 86: 3,7.
24.
Graphically illustrate the gains, losses, and net gain to an importing
country if it allows free trade. Repeat for the exporting country. Do both
nations gain? Do all individuals within both nations gain? COULD all
individuals in both nations gain?
25.
By the economic tools that we have developed, what makes a nation
“better off”? What are alternative ideas concerning what makes nations
“better off”?
26.
With protectionism, what is protected? What are the main forms that
protections may take? Why is their protectionism?
27.
Illustrate graphically that a tariff imposes a net cost on the
importing country.
28.
When were there large tariffs protecting UK industries? US industries?
Japanese industries?
29.
Page 193: 1,2,4,7.
Remaining study questions for the first test.
30.
Corrected: End of chapter 22, answer Questions 1-7, and Problems
1,4,6,10,11.
31.
Comment on the two articles in light of our economic theory and classroom
discussion.
32.
What is a price index? Distinguish among and provide the formulas for GDP
deflator, CPI, and PPI.
33.
End of chapter 23: Questions for review 1,2,3,5; Problems and Applications
1,2,3,5,7,8,10
Remaining study questions for the first test.
34.
Corrected: End of chapter 22, answer Questions 1-7, and Problems
1,4,6,10,11.
35.
Comment on the two articles in light of our economic theory and classroom
discussion.
36.
What is a price index? Distinguish among and provide the formulas for GDP
deflator, CPI, and PPI.
37.
End of chapter 23: Questions for review 1,2,3,5; Problems and Applications
1,2,3,5,7,8,10
Remaining study questions for the first test.
38.
Corrected: End of chapter 22, answer Questions 1-7, and Problems
1,4,6,10,11.
39.
Comment on the two articles in light of our economic theory and classroom
discussion.
40.
What is a price index? Distinguish among and provide the formulas for GDP
deflator, CPI, and PPI.
41.
End of chapter 23: Questions for review 1,2,3,5; Problems and Applications
1,2,3,5,7,8,10
Remaining study questions for the first test.
42.
Corrected: End of chapter 22, answer Questions 1-7, and Problems
1,4,6,10,11.
43.
Comment on the two articles in light of our economic theory and classroom
discussion.
44.
What is a price index? Distinguish among and provide the formulas for GDP
deflator, CPI, and PPI.
45.
End of chapter 23: Questions for review 1,2,3,5; Problems and Applications
1,2,3,5,7,8,10
Remaining study questions for the first test.
46.
Corrected: End of chapter 22, answer Questions 1-7, and Problems
1,4,6,10,11.
47.
Comment on the two articles in light of our economic theory and classroom
discussion.
48.
What is a price index? Distinguish among and provide the formulas for GDP
deflator, CPI, and PPI.
49.
End of chapter 23: Questions for review 1,2,3,5; Problems and Applications
1,2,3,5,7,8,10
Remaining study questions for the first test.
50.
Corrected: End of chapter 22, answer Questions 1-7, and Problems
1,4,6,10,11.
51.
Comment on the two articles in light of our economic theory and classroom
discussion.
52.
What is a price index? Distinguish among and provide the formulas for GDP
deflator, CPI, and PPI.
53.
End of chapter 23: Questions for review 1,2,3,5; Problems and Applications
1,2,3,5,7,8,10
54.
55.
56.
Remaining study questions for first test
Pages 214-5:
More Study questions for first exam:
21.