ECON 364
Homework Assignment Seven – (20 pts.)

DUE TUESDAY, APRIL 19 AT THE BEGINNING OF CLASS

ANSWERS MUST BE TYPED - EXCEPT DIAGRAMS - AND ALL PAGES MUST BE STAPLED!

Explain the Austrian Theory of the Business Cycle.  Your answer should include explanations of the following:

a.  Time preferences (future consumption or saving vs. consumption now) and how they relate to interest rates.

b.  How changes in time preferences would "shift" the Hayekian triangle.

c.  How interest rates are signals to entrepreneurs - what do they signal to do or not do?

d.  Cluster of errors - what is it and what caused it.

e.  Mal-investment -- there two "types" of mal-investment you should talk about.

d.  The downturn (recession or depression) and retooling.