Questions and Answers of Economics An Introduction To Traditional

Explain the arguments of free-market economists that procorporate globalization is a predominantly positive trend in the world economy.
What is a “virtuous circle”? What is the process that creates a virtuous circle?
What are sources of disturbances to the economy according to conservative economists? Why is there unemployment?
What is “underconsumption”? What causes it? How does it impact the macroeconomy?
What is “overinvestment”? What causes it? How does it impact the macroeconomy?
What is a “vicious circle”? What is the process that creates a vicious circle?
What are sources of disturbances to the economy according to progressive economists?
What is the main criticism of underconsumption?
What are the main criticisms of overinvestment?
What are the differences in the explanations by conservative and progressive economists?
According to conservative economists, how will the economy recover from a shock?
Describe the process of recovery used by progressive economists.
Identify the “internal process” that drives the economy from boom to bust and back again.
Describe in detail each step of the process in #6.
What are the two sides that squeeze profits near the end of expansion? Explain how the “squeeze” on profits happens.
List the components of revenue and explain how revenue behaves over the business cycle. What leads to crisis? What leads to recovery?
List the components of costs and explain how costs behave over the business cycle. What leads to crisis? What leads to recovery?
What are sources of savings? What does Say’s law say will happen with savings?
What did Malthus assume about increasing production? Why?
Why is investment important to economic growth? Can there be growth without investment? Explain.
What is the relationship of increasing production and population growth? Why would this be a problem?
Why is productivity important for growth? What happens if productivity falls?
Why have developed countries not experienced mass starvation as their populations grew? Explain.
How are technology and productivity related?
What policies would conservatives argue help increase savings? Investment?
What would conservatives recommend encouraging technological breakthroughs?
How would progressive economists view conservative policies on savings and investment? Explain.
Since World War II, what two decades had the highest growth rates? What three decades had lower growth rates? What were some of the factors leading to lower growth rates?
List the types of waste in the economy described in this chapter. Which ones do you disagree with (if any) , and why?
Describe one type of waste in detail and explain why it occurs.
Does high growth of GDP always lead to high growth of employee compensative, middleclass income, and income of the poor?
Name some key fiscal policies used by the Bush administration (2001–2006). What was their impact?
Use historical examples to demonstrate what happens to government spending duringperiods of war.
What fiscal policy finally brought the U.S. out of the Great Depression of the 1930’s? Explain.
Name some key fiscal policies used by the Clinton administration (1993–2001). What was their impact?
What happens to taxes during periods of war? Why?
What problems are created by active fiscal policies according to conservative economists?
Explain why wages grew more slowly than productivity and GDP during the 1990s.
Explain why there is an expansion during periods of war and recessions after the war.
Give some examples of fiscal policy that progressive economists would use to help the economy. How would progressive economists counter conservative criticisms of fiscal policy?
Other than expansion, what contributed to a budget surplus? What spending was cut and why?
Describe how fiscal policy decisions can be constrained by high debt.
What role did investment play in the expansion of the 1990s?
How would budget deficits be erased through the use of fiscal policy, according to progressive economists?
How and why has the amount of military spending differed from the Clinton administration of the 1990s to the Bush administration of 2001–2006?
What fiscal policies should be used if there is a recession? Explain how they would work.
What spending has been cut during the Bush administration? Increased? What has happened to taxes?
What fiscal policies should be used if there is inflation? Explain how they would work.
State some of the political issues/problems with fiscal policy. Give an historical example.
How might the use of fiscal policy have a negative impact on some private businesses? Explain.
Why is military spending usually politically popular? Who benefits? Who does not benefit?
What are some opportunity costs to military spending?
Explain the “guns versus butter” debate. Where would you stand on this debate? Why?
What are some automatic types of government spending? Does automatic government spending tend to go up or down in a recession?
What are some discretionary types of government spending?
Does deficit spending help or hurt aggregate demand? Explain.
Does the deficit usually go up or down in an expansion? Explain.
Does the deficit usually go up or down in a recession? Explain.
Does automatic taxation tend to go up or down in a recession?
Explain why tax rates and tax revenues often decrease in recessions and increase in expansions.
How is government spending for war financed? What does this mean for the deficit if taxes are not raised? If taxes are raised?
Does military spending always decrease during peacetime? What are other programs that may receive extra funds during times of peace? What does this mean for the deficit if taxes are not raised? If
State each function of money. Which function is money’s most exclusive function? Why? Which function is money’s least exclusive function? Why?
U.S. banks operate on a “fractional reserve system.” What does this mean? How can this cause problems for the banking system and the economy?
Explain why an index card or a cow does not fulfill all three functions of money.
Why are bank panics so destructive? What was the response of government after the Great Depression to try and stop panics?
What are the four “stages” of money? What drove the changes from one stage to the next? Explain.
Why does a bank make loans?
What was the role of the earliest bankers? Why? How did bankers eventually begin to “create” money.
How does the bank manage the asset side of its “T” account in order to make money?
Why do interest rates rise in expansions and fall in contractions?
How do changes in the reserve requirement affect the deposit multiplier?
Why do interest rates lag at the peak, still rising for a little while (or at least holding steady), while a recession has already started?
Given an initial deposit of $100, how much money is created if the reserve requirement is 5%, 10%, 15%?
Why have many households fallen deeper into debt over the last thirty years?
What happens to the money creation process if banks do not lend out all their excess reserves?
What happens to the money creation process if people do not redeposit all money into the bank?
What are two measures of price levels introduced in this chapter? How are they similar; how are they different?
What are the differences between a competitive market and monopoly/oligopoly markets? How does that impact prices and price formation?
Why would wage and price controls be used? What are the “controls” attempting to control?
Assume the CPI rose from 117 to 123 between 2005–2006. What was the inflation rate?
Describe differences in historical price movements between competitive and monopoly/ oligopoly markets?
Describe historical examples of wage and price controls. Were they effective?
In most cyclical expansions, do prices go up or down? Why?
Describe how monopoly/oligopoly firms protect their profits. Can a firm owner in a competitive market do this? Explain.
What are conservative criticisms of price and wage controls? Progressive criticisms? How are they similar? Different?
What happens to prices in a major war situation? Why?
What is profit-push inflation?
What has happened to prices in recessions since the 1950s? Why?
In most cyclical recessions up until the 1950s, did prices go up or down? Why?
How has the role of the Central Bank and the Federal Reserve changed over time?
How does the focus on production for money profits introduce instability into the economy? Explain.
List and describe key policies implemented to increase stability in the banking sector.
What are problems using monetary policy to lower unemployment?
What are the conservative arguments for deregulating the banks?
What are the major propositions of monetarists? How do these related to the conclusion of how monetary policy should be conducted?
What are the progressive arguments for not deregulating the banks?
What are the criticisms of monetarism? How do these impact conclusions about the conduct of monetary policy?
Draw a “map” of the basic structure of the Federal Reserve system.
What are the three main tools used by the Federal Reserve to affect inflation or unemployment?

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