Short-answer questions

1.Using an example, explain what economic models are, why economists use them, and the difference between endogenous and exogenous variables.

2.Explain the difference between leading, lagging and coincident (concurrent) economic indicators? Provide some examples, and explain why they are used.

3.Assume that advances in technology increase the factor productivity of labour and of capital. Explain step-by-step how a new market equilibrium is reached in the markets for each of these factors.

4.Explain some key differences between Classical economic analysis and Keynesian economic analysis.

5.Using a diagram based on the Solow growth theory, explain the new steady-state labour-capital ratio that results from a decrease in the saving rate.

6.Explain the difference between the Solow long-run economic growth theory and Romer's long-run economic growth theory in how they view the effects of population growth.

7.Explain the quantity theory of money and discuss the implications the theory has for monetary policy.

8.What is the 'business cycle' and explain the economic indicators used to determine which phase of the business cycle an economy is in.

9.What is the monetary policy (MP) curve, why does it slope upwards, and discuss the factors that cause the MP curve to shift?

10.What is the natural rate of unemployment, and discuss the main factors that are thought to influence the natural rate of unemployment.

11.Summarise the main arguments for and against the use of discretionary economic policies to try and stabilise an economy.

Explain what is meant by the term 'structural budget deficit' and outline the factors that can cause this to occur.