1. A newspaper headline says “The Coldest Winter in 20 Years Brings Record Prices for Heating Oil.”
a. Using a graph of home heating oil, show and explain how the price has changed.
b. What other factors could cause the price of heating oil to increase?
2. Explain why the following is false: “Economics make no sense. When strawberries are in season their price falls, but when Christmas cards are in season their price goes up.”
3. Explain the statement: “A man diminishes GDP by marring his cook.”
4. You read the headline: “Real GDP Rises 3% this year; Further Increases Likely Next Year Economists Say.”
a. What does the headline mean? (Be specific.)
b. Why do people care about the growth in real GDP?
c. What is the difference between real GDP and nominal GDP?
5. You read the following headline: “Inflation Rate at 1.1%-- Lowest Rate in 2 Decades.”
a. What is meant by inflation?
b. How did the statisticians arrive at 1.1 percent? What measure did they probably use?
c. What does the headline imply about inflation during the previous 20 years?
6. You read the following information about the economy:
a. Explain what each of these economic indicators measure and the significance of the current data for the economy.
b. These indicators should paint a picture of the entire economy. What is that picture?
i. Real GDP up 3% from a year ago
ii. Unemployment Rate of 4.6%
iii. Consumer Price Index up 6% from a year ago
iv. Index of Leading Economic Indicators up for the 6 months
v. Prime interest rate of 10%, up from 7 percent a year ago
7. Recently an economist was asked if the Great Depression could occur again. The reply was, “It is possible, but we have many more automatic stabilizers today than we had in 1929.” Describe three automatic stabilizers and explain how they might prevent a depression.
8. The reserve requirement for the banking system is 20%. Currently, Third National Bank has no excess reserves. Then you deposit $100 in your checking account. Explain, without using a mathematical formula, why your deposit can lead to an increase in money supply greater than $100.
9. The Federal Reserve has three primary tools to expand or contract the money supply.
a. List the tools
b. Which tool does the Fed use most often? Why?
10. Using the monetary and fiscal policy tools, outline an expansionary policy that would encourage long run growth and explain why the policies will encourage this growth.
11. Discuss the trade-off between unemployment and inflation in the short run. Why does this policy pose a dilemma for policy makers?
12. What is the “crowding out effect”?
13. Assume that Liechtenstein and Andorra, with equal (and very few) resources, can
Liechtenstein 100,000kilos 100,000kilos
Andorra 50,000 kilos 100,000kilos
Produce the following:
a. Which nation has an absolute advantage in grapes? Why?
b. Which nation has the comparative advantage in grapes? Why?
c. Should Liechtenstein specialize in grapes or wool? Why?
what is the process that lowers and raises wages?
index is off by 23.75% to 10511.65. where was the index at the beginning of the year?
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