Macroeconomics Exam 1, Week 5, Question List

One these questions will be selected at random on the day of the exam. You will write a short essay on it. It will count for 40% of your exam grade. It will be graded for subject mastery. The version for exam day may have slight differences, for example in numbers or exact choices of examples, but will be basically identical to one of these.

1) Models. We use models in all our activities of life, including science, business, social relationships. Write an essay on the subject of models. Your goal is to write what is interesting to you, and also what is important to your instructor, about this fascinating subject. (Warning: your instructor does not like the discussion of models in the text very much!) In addition to these general instructions, you should be sure to cover at least the following:

A) Definition of "model" (according to your instructor, not the text).

B) Why do we use models?

C) What are the characteristics of a good model?

D) Give two examples of models you use in everyday life, and four models already presented which we use in the study of economics.

2) "The Basic Model" was presented in early lectures in the course to account for the basic features of economic life in any society. Write an essay on the subject of "The Basic Model". Your goal is to write what is interesting to you, and also what is important to your instructor, about this fascinating subject. In addition to these general instructions, you should be sure to cover at least the following:

A) What are the assumptions of the basic model, and the significance of each one?

B) Why do all societies seem to operate according to the assumptions of "The Basic Model"?

C) How are Capitalism, Socialism and Traditional Societies, as discussed in the text, all examples of economic systems operating under "The Basic Model"?

3) Money. Write an essay on the subject of "Money". Your primary goal is to show you now have an economist's perspective on money--a good model about money. Your basic goal is to write what is interesting to you, and also what is important to your instructor, about this fascinating subject. In addition to these general instructions, you should be sure to cover at least the following:

A) Money's benefit to society, as logically deduced in "The Basic Model". (If you write "money makes the world go 'round", or "money is the root of all evil", or write about how to get rich, you will go directly to jail without any lunch, as that would be a capital offense!)

B) Money's relationship to "barter".

C) Characteristics which good money should have. (You had a homework problem on this.) I suggest including some examples of goods which have been used as money.

D) Why does society need more than one denomination of money?

4) Cost, Opportunity Cost, Marginal Cost, Price, Value and Transformation. Write an essay on these topics, focusing particularly on relationships, similarities and differences between them. Your basic goal is to write what is interesting to you, and also what is important to your instructor, about these fascinating subjects.

5) Linkages. The process of dealing with scarcity and opportunity cost results in linkages between various goods and activities. To be a really good economist you must know how to search for, uncover and analyze linkages. Your goal is to write what is interesting to you, and also what is important to your instructor, about this fascinating subject. In addition to these general instructions, you should be sure to cover examples of linkages generated by scarcity, opportunity cost, "substitutes" and "complements", linkages between inputs and outputs, linkages caused by specialization and the division of labor, and any other types of linkages you can think of.

X) Markets, "The Law of One Price", Equilibrium and Prices. In this topic are several possible questions:

6) Essay. Write an essay on Markets. Your goal is to write what is interesting to you, and also what is important to your instructor, about this fascinating subject. In addition to these general instructions, you should be sure to cover the following:

A) Definition of "Market", being sure to use the definition from lecture, NOT from the text!

B) Why do price, and also quantity pouring through a market, come to some equilibrium level? (What is the "mechanism" observed in the real world?)

C) What conditions must exist in a market for neither buyer nor seller to control the price? Why or how does this work? Give examples of what might happen if this condition does not hold.

7) Essay. Write an essay on "The Law of One Price". Your goal is to write what is interesting to you, and also what is important to your instructor, about this fascinating subject. In addition to these general instructions, you should be sure to cover the following:

A) Under what conditions does it hold?

B) Under what conditions might the law NOT hold, and give several examples.

C) What is the "mechanism" by which the law holds? Give examples of what happens if several prices exist in a market.

8) Essay on " Labor-Leisure Choice" and unemployment. Your goal is to write what is interesting to you, and also what is important to your instructor, about this fascinating subject. In addition to these general instructions, you should be sure to cover the following:

A) Present the labor-leisure choice model and basic diagram.

B) Use the diagram to illustrate a worker moving from a regular job to working zero hours per week--unemployed.

C) Discuss events and mechanisms which might lead to such a situation. Which curves in the diagram might shift and why?

D) If a person is fired and is too optimistic about wages to be found during the search for a new job, what might be the impact on unemployment of this incorrect belief?

E) How might you model D) in a labor-leisure diagram. (I'm not sure how to do this, so this is really an extra credit part, if you happen to have any ideas.)

9) Supply and Demand model. Write an essay on the subject of Supply and Demand.

A) Why are supply and demand treated separately if supply always equals demand in a market?

B) What are the variables which affect supply? Demand?

D) For each variable, what "signs" do you expect for its relationship to the "affected variable" (supply or demand), +, -, 0 or some combination? (You may want to give examples.)

E) What is the special importance of the "own price" of the product in the supply and demand model?

10)Essay on "The Circulation Model". Present a simple "circulation model" similar to the one in lecture. Label the principal parts of the diagram. Be sure to discuss the special role of money in this model. Describe what is meant by "macroeconomic equilibrium". Describe the mechanism by which this model works its way to full employment. In general, your goal is to write what is interesting to you, and also what is important to your instructor.