1. Macroeconomics, in some sense, requires that a country exist and a government has some ability to control production, taxation and trade, etc.in order to manage the income and growth of the economy. In this sense do you think that Mercantilism qualifies as one of the first Macroeconomic Theories? Why or why not?
2. The Keynesian Model suggests that we can manage the economy to full employment. If the consumption function is C= 200+ .75 Y and Investment by business is 200 and government spending is 200, what is the equilibrium level of income in the economy? If full employment income is 1500 what kind of gap is this economy facing? What policy would you introduce to bring the economy into balance? Will one policy be enough? If not what else must you do?
3. If the reserve requirement of the federal reserve is .1 or 10 percent of deposits much be kept in reserve then if the Fed wanted to cut the money supply by $10,000it would need to Buy/Sell commercial banks how much $ value in T-bills? Why would it not just change the reserve requirement to achieve this goal? If the Chairman of the Fed did not want to use open market operations to change the money supply what other policy could it use and what direction would that policy be changed?
4. Under the Classical model, economist believed that free markets and no government intervention were what was required to achieve full employment. Draw a four quadrant classical model labeling all axis and draw the economy in an initial equilibrium. Then assume that the current wage in your economy is lower than your neighboring country. What will happen and how can you show the effect on the classical model-show that effect graphically and explain what happens in words?
5. The classical and Keynesian models are both based on the circular flow model of the economy. Can you explain how each of the models attempt to replicate the circular flow concept of an economy? Do they depict things in a similar or different fashion and if so how are they similar or different?You can use diagrams to illustrate your arguments.
6. Classical economics is a product of its time, the world was still simple in its economic structure, and like most economists one of the critical focal points of classical theory was growth and progress of the economy and society. Malthus was rather pessimistic about achieving economic progress- part 1 why was he pessimistic? Part 2-But Sowell seems to show a way out -Using our four quadrant graph and Thomas Sowell's article on blackboard and using his graph on page 198 in the place of our usual supply and demand, If technical change is of a labor using variety where each shift out in the production function implies a greater demand for labor can you construct a version of the four quadrant model where technical change overcomes pessimism and creates a possible path for economic growth?