Questions and Answers of Economics An Introduction To Traditional

Did cycles of boom and bust exist under feudalism? Why or why not?
How is the economy different today from feudalist society that leads to boom and bust?
What are the four functions of money? Does it serve all functions equally well? Explain.
How does the use of credit complicate business cycles?
Which neoclassical argument claims that prices and output react in a certain way to outside shocks so as to lead back to equilibrium?
What is the traditional view of involuntary unemployment?
Which neoclassical argument claims that employee compensation and number of employees hired react in a certain way to outside shocks so as to lead back to equilibrium?
How would conservative economists explain the high unemployment rates of the Great Depression? How would progressive economists?
Which neoclassical argument claims that money and interest rates react in a certain way to outside shocks so as to lead back to equilibrium?
Name the three markets that comprise the macroeconomy and explain how traditional economists come to the conclusion that all three markets tend to be in equilibrium.Do these three arguments support
Who was Wesley Mitchell? What was his argument against Say’s law?
What is the neoclassical response to Keynes’ vision of business cycles?
What is “effective demand” according to Keynes? How can there be a lack of effective demand?
How do Marx and Mitchell refute Say’s law?
Can aggregate demand suffer from “leakages” according to the traditional view? Explain.
Compare and contrast Marx and Mitchell’s arguments to that of Keynes.
How did Keynes explain that aggregate production and aggregate spending might not be equal? What happens if aggregate production is greater than aggregate spending?
Why does aggregate spending rise more slowly than income?
How do Keynesians counter the neoclassical argument that, in a recession, falling prices will restore demand for goods to the full employment equilibrium point?
How do Keynesians counter the neoclassical argument that. in a recession, falling wages and salaries will restore demand for labor to the full employment equilibrium point?
How do Keynesians counter the neoclassical argument that in a recession, falling interest rates will restore demand for loans for new investment to the full employment equilibrium point?
How does Keynes explain inflation?
How are the peaks and troughs of the business cycle measured?
What is an expansion? What is a contraction?
How does unemployment behave over the business cycle?
What happens to capacity utilization over the business cycle?
What is a cycle base? Explain how to find a cycle base.
What is a cycle relative? Explain how to find a cycle relative.
Explain how to calculate the percentage of expansion and the percentage of contraction?
Name one economic series that rises in every expansion and falls in every contraction. Explain this behavior.
Name one economic series that falls in expansion and rises in contraction. Explain this behavior.
What is a cycle relative and how is it calculated?
Even though labor income stagnated after 1970, consumer spending rose. Explain.
How does wealth and debt affect spending?
Define average propensity to consume, average propensity to save, marginal propensity to consume, marginal propensity to save.
Why does a decline in the labor share cause a decline in the propensity to consume for the average of all consumers?
Why does the labor share decline as economic expansion continue?
Why does the ratio of consumer debt to income rise during the average expansion?
Why do people purchase less if they have less wealth, even if their income remains constant?
How does aggregate consumption behave over the business cycle?
Define net investment, replacement investment, new investment and gross investment.
Why do individuals invest in the stock market?
How do investment and consumption behave over the business cycle?
According to the movement of S&P 500 and the business cycle, when should investors sell? Buy? Explain.
Give two reasons why investment is strongly influenced by profits.
Where do business owners get funds to invest?
Give several reasons why investment does not immediately follow profits but occurs only after a time lag.
Define the government multiplier. Explain how it calculates the total growth of national income that results.
Describe what effect changing national income has on investment. Why is the impact on investment larger than the change in income?
Define the investment multiplier. Explain how it calculates the total growth of national income that results.
How does a firm decide how much money to invest in future production?
Define the import multiplier. Explain how it calculates the total growth of national income that results.
If businesses are optimistic, how will that affect investment decisions? How will investment decisions impact output?
Describe the process of how the multiplier impacts the economy. Explain each step of the process.
If there is a sudden drop in investment, what will happen to other macroeconomic measures of the economy?
Explain how government would use knowledge of multiplier effect to stimulate the economy. Slow down the economy.
State some of the simplifying assumptions used to develop the multiplier. Explain what happens if the assumptions do not hold?
What happens to the multiplier if people do not spend much (or any) of their additions to income? Explain.
Explain how access to financing might impact investment and the accelerator.
What is the impact on the economy if the government has to borrow money to spend?
What does the measure of price elasticity try to capture? Why might this measure be useful information?
What are the main determinants of price elasticity of demand? What are the main determinants of price elasticity of supply?
How is price elasticity of demand calculated? Why do we use absolute values for price elasticity of demand?
Explain why all downward-sloping linear demand curves have elastic, inelastic, and unitary elastic regions.
Suppose that the demand schedule is given as:a. Graph this data and find the vertical intercept. Assume the demand curve is everywhere linear.b. Calculate an elasticity coefficient in the inelastic
What is the difference between elasticity and slope?
Suppose that a supply curve is given as:a. Graph this data.b. Calculate an elasticity of supply coefficient. i. Q ii. P 30 $60 28 50 26 40 24 30 22 20 20 10
As manager of the Eagle Crest Ski Resort and Lodge, you announce an increase in the price of lift tickets from $35 to $50. The number of skiers falls, but your total revenue increases.a. What does
How are total revenue and price elasticity of demand related?
Would a firm planning a price increase be better off if the demand for its product was elastic or inelastic? Explain.
Use price elasticity to explain the following observations:a. The price of gasoline is higher near the freeway than at a gas station two miles off the freeway.b. Airline tickets are less expensive if
What is income elasticity? What is it used to measure?
Use income elasticity to explain the differences between normal, inferior, luxury, and necessity goods.
Look at each of the following pairs and discuss which component has a higher price and income elasticity. Briefly explain your answer.a. Movies/taxi cabsb. Tobacco/gasoline c. Electricity/water d.
What is a complement and what is a substitute good? Give examples of goods that are complements and goods that are substitutes.
What is cross-price elasticity? What is the formula for calculating cross-price elasticity?
What are some problems with measuring the various types of elasticities?
Using cross-price elasticity, how is it determined whether a good is a complement or substitute?
Explain what happens if the marginal utility of the last unit consumed divided by the price (bang per buck) is not the same. What are you giving up? Why? Number of Cookies 0 1 2 3 4 5 6 7 8 Total
List the assumptions that are used to build the traditional model of consumer demand.
Explain the “identification problem.”
Fill in the table above. Is the principle of diminishing marginal utility operative in this case? How do you know? Number of Cookies 0 1 2 3 4 5678 Total Utility 0 37 51 77 Marginal
What does it mean if a person is rational and making rational choices?
Why is income limited? Does everyone get to make the same choices? Why or why not?
Can consumers dictate the prices they pay for products at the store? What can consumers do if the price of a product rises, and their income is fixed? What role does the availability of substitutes
What is the difference between ordinal and cardinal utility?
If the price of a good goes up and throws the utility-maximizing pattern of consumption out of whack, what does utility theory predict the consumer will do?
Why does the marginal utility increase if the consumer purchases less of a product?
Why is it not possible to precisely measure utility or pleasure?
What is the difference between total and marginal utility?
Explain how consumers reacting to changes in prices and attempting to keep at a utility maximizing level of consumption leads to the relationship between price and quantity demanded.
What is the explanation for diminishing marginal utility? Give an example of diminishing marginal utility.
What happens to total utility even if there is diminishing marginal utility? Even if there is diminishing marginal utility, why is it assumed that people prefer more rather than less?
Do people always behave in rational ways? Give an example.
What is the utility-maximizing condition? What does that mean in words?
Is it possible to consume goods until their marginal utility goes to zero? Why or why not?
What is conspicuous consumption? How is this type of decision not rational?
What is the difference between demand and effective demand or the ability to buy a good or service?
What factors might affect your preferences for different goods or services?
In general, is there scarcity in a capitalist system? Why or why not?

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