Problem 1
Why do you think macroeconomists focus on just a few key statistics when trying to understand the health and trajectory of an economy? Would it be better to try to examine all possible data?
Problem 2
Consider a nation in which the volume of goods and services is growing by 5 percent per year. What is the likely impact of this high rate of growth on the power and influence of its government relative to other countries experiencing slower rates of growth? What about the effect of this 5 percent growth on the nation's living standards? Will these also necessarily grow by 5 percent per year, given population growth? Why or why not?
Problem 4
Why is there a trade-off between the amount of consumption that people can enjoy today and the amount of consumption that they can enjoy in the future? Why can't people enjoy more of both? How does saving relate to investment and thus to economic growth? What role do banks and other financial institutions play in aiding the growth process?
Problem 5
How does investment as defined by economists differ from investment as defined by the general public? What would happen to the amount of economic investment made today if firms expected the future returns to such investment to be very low? What if firms expected future returns to be very high?
Problem 7
Catalog companies are committed to selling at the prices printed in their catalogs. If a catalog company finds its inventory of sweaters rising, what does that tell you about the demand for sweaters? Was it unexpectedly high, unexpectedly low, or as expected? If the company could change the price of sweaters, would it raise the price, lower the price, or keep the price the same? Given that the company cannot change the price of sweaters, consider the number of sweaters it orders each month from the company that makes its sweaters. If inventories become very high, will the catalog company increase, decrease, or keep orders the same? Given what the catalog company does with its orders, what is likely to happen to employment and output at the sweater manufacturer?
Problem 9
Why do many firms strive to maintain stable prices?
Problem 11
LAST WORD How do the Minsky and Austrian explanations for the causes of the Great Recession differ? Explain how the proponents of government stimulus believe that it will affect aggregate demand and employment (be specific!). How might government stimulus possibly slow rather than accelerate a recovery?
