ECON 272

In Class Exercise Eighteen - An Alternative Theory of the Business Cycle - the Austrian Theory

1.  Explain Hayek's idea of a "capital structure" -- example?  How does this differ from the mainstream idea or model of capital?

            Does this mean than a "piece" of capital from one capital structure will always be productive in another capital structure?  Explain.

2.  If people generally have low time preferences, what does that mean with respect to savings and interest rates and how entrepreneurs will invest?

3.  Looking at interest rates as a "signal" to investors -- how does the FED create a "signal extraction problem"?

4.  What does mal-investment mean and why would it happen with respect to capital goods and consumer goods if interest rates are distorted?  Example?

5.  The downturn or recession happens when the economy has to "retool" itself back to where it should be - what does this mean and why does it mean there is a downturn in the economy?

6.  What questions do you still have about this material?