Macroeconomics Exam 1, Week 5, Question List

One these questions will be selected at random on the day of the exam. Your answer will count for 20% of your exam grade. The grading standard will be 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, focusing on what your instructor believes you should know about the subject. (Gentle reminder: your instructor does not like the discussion of models in the text very much!) Here are some optional topics you may wish to include:

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 examples of models you used in everyday life and models used in economics.

2) "The Basic Model" was presented in early lectures in the course to account for the basic features of economic life in any advanced economy. Write an essay on the subject of "The Basic Model", focusing on ideas you believe your instructor would wish to emphasize. Here are some optional suggestions to get you thinking:

A) What are the assumptions of the basic model, and the significance of each one? Which assumptions seem particularly important or surprising? For each assumption, consider what would happen if the world did not behave according to that assumption.

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) Cost, Opportunity Cost, Marginal Cost, Marginal Opportunity Cost, Price, Value and Production Possibility Curve. Write an essay on these topics, focusing particularly on relationships, similarities and differences between them. Focus on what your instructor believes is important for every student to know.

4) 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. Write and essay on linkages. Be sure to cover examples of linkages generated by scarcity, opportunity cost, "substitutes" and "complements", connections between inputs and outputs, 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:

5) Essay. Write an essay on Markets, focusing on what your instructor believes every student should know. Here are some optional subjects to include:

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

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

C) The role of the "law of one price" in describing the behavior of markets, and why the law of one price holds true in a market.

D) 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.

6) Essay. Write an essay on "The Law of One Price" focusing on the ideas your instructor believes every good student should know about this subject. Here are some optional topics to include:

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.

D) Why is the "law of one price" important?

7) Essay. Write an essay on the " Labor-Leisure Choice" model, focusing on what your instructor hopes you have learned about employment and unemployment from the model. However, be sure to also discuss what additional ideas are needed to fully understand employment and unemployment in a macroeconomy. Here are some optional suggestions of topics to cover:

A) Present the labor-leisure choice model and basic diagram, explaining the point of equilibrium.

B) Use the diagram to illustrate why a worker might stop working and become unemployed. Discuss whether this model is realistic or is incomplete.

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

D) What factors might lead a worker to remain unemployed for a time rather than immediately find a new job. How would you model the process that a worker goes through in deciding whether and when to become employed again?

8) 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 that 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?

9) 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.

10)Essay on interest rates. What are the ideas your instructor believes are crucial to a useful basic model of interest rates. Focus on the essential qualities of interest rates, their role in a modern economy, the behavior of suppliers and demanders of funds, and all other topics crucial to an understanding of interest rates in a macroeconomy, including the possible impact of expected price inflation (prices expected to rise during the period of the loan).