Assignment -
Macroeconomics Questions -
Q1. Define inflation. Explain why someone might be concerned about a significant increase in the inflation rate.
Q2. Assume that you purchased a home in 1973 with a 30 year fixed rate mortgage at a 5% interest rate. In 1981, the inflation rate in the U.S. was 12.5%. What was the "real" interest" rate on your mortgage in 1981. As a borrower, is this good for you or bad for you? 'Why?
Q3. Discuss the three (3) types of unemployment. When the economy is at full employment (employment at its natural level), some unemployment will persist. Which type of unemployment is driven to zero when the economy is at full employment?
Q4. Within the context of economics, what is meant by a discouraged worker? It is often the case that following a recession, more rapid economic growth and news reports about an improving economy lead to an increase in the "official" unemployment rate. Relate this observed pattern to the discouraged worker concept.
Q5. Explain why GDP is a flawed measure of economic performance? ... of well being (happiness)?
Q6. What is the difference between GDP and GNP? Why do economists look at per capita measures of GDP and GNP when making comparisons between nations?
Q7. Discuss each of the components of GDP [GDP = C + IG = G = XN]. Define a trade surplus. Define a trade deficit.
Q8. Classical economics held two fundamental ideas about the degree of resource use within a market economy. List and discuss these concepts.
Q9. What is Say's Law? What rationale underlies it? What does Say's Law imply relative to the level of demand within an economy? Relate this implication of Say's Law to the experience of the U.S. economy during the Great Depression.
Q10. What is the suggested role for government during an economic downturn (recession) based upon Classical Economic thought?
Q11. What is the suggested role for government during an economic downturn (recession) based upon the analysis of John Maynard Keynes?
Consumption and the Aggregate Expenditures Model Questions -
Q1. Define the marginal propensity to consume (MPC).
Define the marginal propensity to save (MPS).
The MPC and the MPS must add up to what?
Q2. What is the current income hypothesis?
What is the permanent income hypothesis?
In terms of the current and permanent income hypotheses, the currently available evidence suggests that people actually determine their level of consumption (during a given time period) in what manner?
Q3. Relate unplanned investment to the inventory level of firms.
If an economy has unplanned inventory investment, is the economy at its equilibrium level?
If an economy has unplanned inventory dis-investment, is the economy at its equilibrium level?
Q4. Discuss the significance of the GDP multiplier. How is it calculated? Why do we observe the multiplier (what causes it)?
Economic Crisis of 2008 and 2009 Questions -
Q1. Explain why banks are inherently unstable.
What is the macroeconomic purpose of deposit insurance?
Q2. What circumstances and characteristics made securities (in this case, bonds based upon home mortgages) very popular starting around 2001?
Why did Wall Street develop securities that were tiered (i.e. had different "levels of risk" - senior, mezzanine and equity tranches).
Why were the "super-senior" and "senior" tranches (slices) of these securities viewed by investors as safe?
Q3. What drove the decline in lending standards by large banks and mortgage brokers between the years 2000 and 2007.
What is the difference between a "Prime" and a "Subprime" loan?
Q4. How did the use of CDSs (Credit Default Swaps) increase the amount of risk (size of potential monetary losses) within the financial system? Explain the difference between "hedging" and "gambling" using a CDS.
Why do economists think that such speculation is a "zero sum gain" (and, thus, neither creates wealth nor benefits the economy as a whole)?