ECON 364 - Intermediate Macroeconomics
Study Questions for the Final Exam
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.
Who are the main characters of the Austrian School?
What are the major cornerstones of the Austrian School?
What is methodological subjectivism? Individualism?
Why is the Austrian methodology considered radical -- not in the "mainstream"?
Why do Austrians think that there should be "dual methodologies" - one for the hard sciences and one for the social sciences? What is the difference in the "data" these disciplines study that drives the different methods -- i.e., see the "facts of the social sciences vs. the natural sciences in your notes.
Why do the Austrians not limit themselves to math? This relates to the method questions above.
What is the most important economic problem people face, according to Austrian economists? Why?
Why does the Austrian say that we cannot "speak of efficiency outside of the individual?"
Why do the Austrians focus on institutions? How does this focus differ from the Institutionalists?
Explain the concept of a spontaneous order -- what are the characteristics or properties of a spontaneous order? Give an example.
What is the Hayekian triangle? What does it represent? On the homework a lot of people missed the idea that the triangle represents the capital "structure" -- meaning how heterogeneous pieces of capital fit together in order for them to be productive -- the relationships between these pieces of capital (like a puzzle). Each piece is different and needs the other pieces in order to be productive.
How does this differ from mainstream a mainstream economist's capital theory?
How does time fit into the triangle?
How does subjective value fit into the triangle? Imputation theory means?
Why do centrally planned economies fail, according to Austrian economists - in general?
How does knowledge (what kind?), private ownership of the means of production, and market prices and profits fit into this theory? (Economic calculation)
According to Hayek, the question is not whether economic planning should be done, but rather . . . . . . ?
What are the two ends of the spectrum (with respect to economic planning) and what is the middle ground?
How does Hayek separate different kinds of knowledge in society?
According to Hayek, why can't a central planner take advantage of individual knowledge of time and circumstances? And related, why should economic decisions be left to individuals?
Decentralization solves part of our economic problem? What does it solve and what does it not solve? What other information does the individual need to make good choices? How is that knowledge conveyed to him or her?
Why do economic problems arise from change?
In the price system, individuals need not know everything that caused a price change to act accordingly. In this way, the system economizes on knowledge. Explain.
Is it fair to say that, according to Hayek, subjective values help individuals coordinate their own personal plans and prices/profits help individuals coordinate their plans with others? Explain. This relates to questions 21-23.
What is the "marvel" of the price mechanism, according to Hayek? Why does he think others have taken this "marvel" for granted? (Two reasons here)
What are positive time preferences and how do they relate to savings and to interest rates?
Why is savings seen as future consumption to Austrians (and other economists)?
If time preferences decreased and people started saving more -- what would the interest rate do and what would that signal entrepreneurs to do (relate this to a shift in the Hayekian triangle).
Explain the Austrian theory of the business cycle.
Include in your analysis: the Hayekian triangle and it's meaning as a capital structure (higher order and lower order goods), a shifting of the triangle, a "cluster of errors", time preferences, signal extraction problem, relative price changes, mal-investment (on two levels), re-tooling of the capital structure and what that means. How does the FED factor into all of this?
Make sure you read "The Use of Knowledge in Society."
What is the basic problem with the Social Security System (SSS) right now?
The SSS is a pay-as-you-go system, what does that mean?
What is the SSS trust fund and where is it "kept" so-to-speak?
What are the 8 possible solutions to the SSS problems we talked about in class?
Why do some economists think that putting some or all of the contributions workers and employers make into the SSS would lead to more economic growth - explain the theory?
Why do some economists think that the SSS decreases work effort and also decreases the incentive to save?
What is a tax (economist's definition)?
What are the reasons people give for having taxes (we talked about three).
What is a user fee? Example? How does it differ from a tax?
Can you think of an example of something that is both a tax and a user fee?
What is a benefit tax?
What is a direct tax and what are its characteristics? Example?
What is an indirect tax and its characteristics? Example?
Economists prefer to classify taxes by their effect on economic activity -- in other words, the government taxes either what or what?
What is a head or lump-sum tax and why do economists use it to compare the effects of other taxes?
What is the tax incidence? What is the economic incidence of a tax in particular? Example?
What does it mean to levy a tax?
What is tax shifting? Example?
Do corporations or firms really pay taxes? Explain.
What does it mean to talk about the "income incidence of a tax?" Example?
When is a tax progressive, regressive, proportional?
What does it mean to talk about the "regional incidence of a tax?" Example?
What does it mean to talk about the "generational incidence of a tax?" Example?
What is the lifetime burden of a tax and how is it determined? Why is the burden of a tax greater when it is levied on a person who is young versus relatively older?
What is the income tax system in the U.S.? Is it progressive, regressive, proportional?
Why is the income tax considered anti-productive by some economists?
Have savings rates increased or decreased over time? Why? Relate this to the income tax.
What is a flat tax? Is it regressive, progressive, proportional?
What are some advantages to the flat tax (over the current system)?
What are some disadvantage to the flat tax?
What is the national retail sales tax? Is it regressive, progressive, proportional?
What do economists suggest to make the sales tax less regressive?
What are some advantages to the national sales tax?
What are some disadvantages to the national sales tax?
Why might prices, under a national sales tax, not increase by the entire tax?
Why might the size of the economic pie change if there is a large amount of redistribution of wealth through a tax system?
Compare the income tax, flat tax, and national sales tax with respect to administrative and compliance costs.
Make sure you look at homework and in class exercises -- GOOD LUCK!!