Download Study Questions for Final Examination

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Economics 101
Study for Final Examination
Name____________________
This course has involved a macroeconomic history of the 20th and early 21st centuries. This period has
seen major economic problems: inflation, recessions and a Depression, slow economic growth, budget
deficits, & trade deficits.
1. First, let us consider the problem of slow economic growth. From 1973 to 1995, the United States
experienced a problem of very slow economic growth. Especially, productivity grew slower than in the
past and slowly in comparison to other countries.
a. How do we measure economic growth? Be precise. (2 Points) (Chapter 2)
b. How do we measure productivity? Be precise. (3 Points) (Chapter 2)
c. What are the problems that resulted from the slow period of economic growth? (5 Points)
d. What monetary and fiscal policies might be undertaken to increase economic growth rates?
Explain how each acts to increase the rate of economic growth. Be specific as to the policies and
why each might act to increase economic growth rates. (5 points) (Chapters 18, 19, 22)
2. Second, let us consider the problem of recessions and depression. There was a Great Depression in
the 1930s. And since 1961, there have been five main recessions with the most recent beginning in 2001.
a. Explain how the unemployment rate is measured. (2 Points) (Chapter 3)
b. What criticisms can be made of the official unemployment rate measure? (3 Points) (Chap 3)
c. Explain why recessions and recessionary gaps are problems for the United States. (Be sure
to define each term.) That is, what are the bad effects that result from them? Name as many as
you can. (5 Points) (Chapter 3)
d. Explain the causes of the Great Depression of the 1930s. Name as many possible causes of
each as you can. Illustrate your answer using the aggregate demand, aggregate supply,
Potential Real GDP graph. (3 Points) (Chapters 9 and 12)
GDP Deflator
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0
Real GDP
e.
f.
What arguments were given by Keynes that these recessionary gaps would NOT end
automatically? (3 Points) (Chapter 13)
What fiscal and monetary policies might be used to end the recessionary gaps? Explain why
each would act to end a recessionary gap. Be specific as to the policies. Again, illustrate your
answer using the aggregate demand, aggregate supply, Potential Real GDP graph. (4 points)
(Chapters 9, 18, 19, 22, 23, 24)
Please Turn Over
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GDP Deflator
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0
Real GDP
3.
Third, let us consider first the problem of inflation. The United States experienced persistent
inflation (inflationary gaps) during the 1960s and especially throughout the 1970s. But there has
been some inflation every year since 1954.
a. Inflation is measured by both the Consumer Price Index (CPI) and GDP Deflator.
Explain how each of these is calculated, highlighting the differences between them. Which one is
a “better” measure? Why? (4 Points) (Chapter 4)
b. Then, explain why inflation is a problem for the United States. In particular, consider
the effects of unexpected inflation on the distribution of wealth (who gains and who
loses?) and its effects on the growth of Real GDP over time. (6 Points) (Chapter 4)
c. The inflation rates were reduced dramatically in the 1980s and 1990s. What fiscal and
monetary policies were used to reduce the inflation rates? Explain why each of these
policies would act to reduce inflation rates. (Consider in your answer the Keynesian, Monetarist,
and Supply-Side explanations.) Again, illustrate your answer using the aggregate demand,
aggregate supply, Potential Real GDP graph. (5 points) (Chapters 9, 18, 19, 22, 23, 24)
GDP Deflator
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0
Real GDP
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4. Fourth, from 1981 to 1998, the United States had very high budget deficits. These budget deficits
reappeared in 2001 and will be very large from 2002 until at least to 2016.
a. Define "budget deficit" “gross national debt”, and "net national debt", highlighting the
difference. (3 Points) (Chapter 18)
b. If one wants to understand the effect of these budget deficits on the economy, one needs to adjust
the official budget deficit. Explain the adjustment that must be made and why it needs to be
made. How does one know if fiscal policy is expansionary or contractionary? (4 Points) (Ch 18)
c. What are the ways by which budget deficits may be good for the American economy? What
are the ways by which budget deficits may be harmful to the American economy? (5 Points)
(Chapters 18 and 19)
d. Is the national debt of $9 trillion an economic problem for the United States?
Explain why or why not. (3 points) (Chapter 18)
5.
Since the early 1980s, the United States has also experienced high trade deficits.
a. Define “trade deficit”. How is it measured? Given some reasons as to why the trade deficit
might be occurring at the present time. (5 Points) (Chapters 2, 7, 26)
b. Explain the following systems for international economic relations that existed in the 20th
century: the Gold Standard, the Bretton Wood System, and the system of floating exchange
rates. Use the example of rapid economic growth occurring in the United States and recession in
the other countries, to illustrate your answer (that is, consider what would happen under each
system if there were rapid economic growth in the United States and recession in other
countries.) (5 Points) (Chapters 7, 11, and 25)
c. What is meant by “globalization”? What are the arguments that globalization is good for the
world? What are the arguments that globalization is bad for the world? (5 Points) (Chapter 26)
6. This course has explored different economic philosophies as to how the American economy operates
and what should be done to correct economic problems. The course has considered the Classical,
Keynesian, Monetarist, and Supply-Side philosophies, the philosophies that have been most important
in the 20th and 21st centuries. Examine the data on the sheet on the following page. Then, answer the
following questions. In your answers, be sure to show the differences between these views. Also, be
sure that your answers relate to the specific situation shown. (The sheet on the next page is for practice
only. You will be given a different situation on the examination.)
a. Describe the economic situation depicted on the sheet on the following page. What are the main
economic problems shown? In what areas is the economy performing satisfactorily?
(Remember that “Target Real GDP” is the same as “Potential Real GDP”.) (4 Points)
b. Given the situation you just described, what would a Classical economist recommend be done?
Explain why (how would that recommendation solve the economic problems?) (4 Points)
(Chapter 11)
c. Given the situation you just described, what would a Keynesian economist recommend be done?
Explain why (how would that recommendation solve the economic problems?) (4 Points)
(Chapters 13, 14, 15, 18)
d. Given the situation you just described, what would a Monetarist economist recommend be done?
Explain why (how would that recommendation solve the economic problems?) (4 Points)
(Chapters 22, 23, 24)
e. Given the situation you just described, what would a Supply-side economist recommend be
done? Explain why (how would that recommendation solve the economic problems?) (4 Points)
(Chapter 19)