Study Questions For The Final Exam

ECON 272

 

These questions are not designed to take the place of studying your notes and the reading assignments.  Do not e-mail me and ask me to answer all or some of these questions for you.  If you have missed class, it is your responsibility to get the notes from another student.  Once you have answered these questions yourself, if you are unsure of any of your answers, let me know and I will tell you if you are correct or not.  Don't be afraid to ask me questions, I just want you to try to answer the questions yourself first.

 

 

THE CLASSICAL SCHOOL AND SAY'S LAW

  1. What is the equation of exchange and what was it designed to show? 

  2. What does the velocity of money mean?  What might change it?

  3. Why are the transactions demand for money and velocity inversely related?

  4. What are the policy conclusions of the Classical school?  What does Laissez Faire mean with respect to their policy conclusions?  Why do they want a balanced budget?  Why do they want low taxes?

MARX

  1. Who co-authored a lot of writing with Marx?
  2. What is the labor theory of value?
  3. According to Marx, prices or the value of labor is divided into two parts, name one.
  4. Name the other.
  5. What is exploitation and how is it related to the labor theory of value?
  6. Since Marx's analysis was in terms of people, not things, where did the value of capital and machinery come from?

  7. Explain Marx's reasoning (process) of why capitalism will lead to a revolution.  Make sure you talk about competition, profits, exploitation, etc

 

THE ECONOMIC CALCULATION DEBATE BETWEEN HAYEK AND KEYNES

  1. What was the "economic calculation debate" between Hayek and Keynes all about?

  2. What does "economic calculation" mean?

  3. What are the two types of knowledge Hayek talks about and why does he think government planning of the economy will fail?  Relate this to economic calculation.

KEYNESIAN ECONOMICS

  1. What are the basic assumptions and premises of Keynesian economics (i.e., short-run economists, markets are chaotic, etc.).

  2. Keynes disagreed with the Classical school on all four cornerstones. The following four questions relate to these disagreements:

  3. Did Keynes believe in Say's Law?  Explain.

  4. What two institutions did Keynes say would keep prices and wages from being flexible?

  5. What is savings mostly a function of, according to Keynes?  Is investment a function of the interest rate in the short run (according to Keynes) - why or why not?

  6. How did Keynes criticize the equation of exchange?

  7. What are the three types of demand for money (according to Keynes)?

  8. Explain the speculative demand for money.

  9. What is the liquidity trap?  Explain how it relates to why Keynes did not want to use monetary policy during the depression.

  10. What did Keynes say was the cause of the Depression?  What is the most volatile component of aggregate demand according to Keynes and why (hint:  this would include the idea of animal spirits).

  11. What are the components of aggregate demand in the simple Keynesian model?

  12. What is autonomous consumption?  Besides autonomous consumption, what did Keynes say consumption was a function of?

  13. Graph the components of aggregate demand and add them up in order to get the AD curve in the 45% model.

  14. Where is equilibrium in the 45% model and why?

  15. What is the marginal propensity to consume (MPC)?  To save (MPS)?

  16. What is the Keynesian multiplier effect and how does it relate to the MPC and MPS?

  17. What fiscal policy did Keynes recommend to combat the high unemployment of the depression and why?

  18. Graph and explain what Keynes wanted to do during the depression.  Relate this to the multiplier effect.

  19. Why didn't Keynes recommend a balanced budget during the depression?

  20. What knowledge would Keynesian economic planners have to have to successfully plan the economy in order to achieve full employment?

  21. Why did Keynes want discretionary policy and what does discretionary policy mean?

 

 

 

Topic:  Monetarists

  1. Who is considered the "leader" of Monetarism?

  2. What were the basic ideas that were brought back to the forefront (from the Classical school) by the Monetarists?

  3. What was Irving Fisher's equation for the velocity of money?  How did he derive it from the quantity theory of money equation?

  4. Fisher thought velocity was pretty constant.  What were his theories regarding velocity of money?

  5. The Monetarists changed the quantity theory of money equation  by adding growth rates.  What were the conclusions that came from this?

  6. Monetarists don't assume velocity is constant now, instead they try to do what?

  7. According to the Monetarists, even if aggregate demand dropped, markets would self correct to bring it back up.  Explain the theories as why this would happen?

  8. What are the policy recommendations of the Monetarists?

  9. Compare and contrast the Monetarists with the Keynesians.

SUPPLY-SIDE ECONOMICS

  1. What is supply side economics?  Why do they focus on incentives?  Do they believe in Say's Law?

  2. What is the substitution effect?  What is the income effect?  Which effect do supply side economists think is more prevalent in the economy?

  3. What are the two reasons supply side economists give regarding a tax cut leading to an increase in tax revenue?

  4. What is the tax base?

  5. What is the Laffer curve?  Explain it.

  6. What conclusions do the supply side economists reach regarding policy?

  7. Is there any empirical evidence for supply side economics?  Explain.

  8. What's the difference between a Keynesian tax cut and a supply-side tax cut?

  9. Under what presidential regimes have there been major income tax cuts in the United States?

 

Topic:  Law and Economics

  1. Be able to explain the difference between property, contract, tort and criminal law.

  2. What’s the difference between positive theory of legal efficiency and normative theory of legal efficiency?

  3. What properties must a private legal system have in order to function properly?

  4. Be able to list examples of legal systems different from our own, and one characteristic of the legal system in particular that is different.

  5. Define negligence and strict liability.

 

Topic:  International Economics

  1. What are some arguments both for and against international trade?

  2. What is a tariff?  What is a quota?

  3. Who benefits and who loses (at least in the short run) from a tariff?  From a quota?

  4. Make sure you understand how exchange rates come about through demand and supply.

  5. What does it mean when a currency depreciates against another currency?  Appreciates?

  6. Graphically show how a currency might appreciate or depreciate when a change occurs in either demand or supply.

  7. What are some of the exchange rate systems that we talked about in class?

 

THE COMPREHENSIVE QUESTION

 

What would you, as an economist, look at first and foremost when trying to figure out why one country is "wealthier" than another? What "model" did you learn in this class that relates to the rules of the game?  If there's one thing I want all of you to remember:  if you want a certain outcome to happen (less poverty, better environment, whatever) -- people must have an interest in acting for that outcome -- if rules go against their self interest -- all you will get are unintended outcomes - most of them

negative !!

 

Make sure you go over the  homework, the in class exercises, and chapters in MB. 

 

It has been fun - have a great summer!