Provide an example of a normative economic statement. Provide an example of a positive economic statement.
2. What are the “factors of production?” Provide an example of each.
3. For each of the following, explain the effect on the PPF curve. Hint — it is possible for there for to be no effect on the PPF
from a given case.
a. An increase in the labor supply
b. A decrease in government expenditures c. An increase in tax rates
d. An improvement in technology
e. Increased government regulations over the use of natural resources
4. Provide an example of how the government could alter each of the four factors of production.
5. Explain why economic models may be inaccurate.
6. What is the difference between an intermediate and a final good? Explain.
7. Suppose that components of an economy have the following values. What is the value of GDP?
! Consumption = $8 trillion
! Investment = $2 trillion
! Net Exports = -$1 trillion (a negative value)
! Government Expenditures = $3 trillion
8. Suppose that the components of an economy have the following values and GDP for the economy is $15 trillion. What is the value of Net Exports?
! Consumption = $10 trillion
! Investment = $2 trillion
! Government Expenditures = $2 trillion
9. Explain the four biases to the measurement of inflation.
10. Suppose that you are being paid $10 per hour. If the CPI has a value of 2.50 (base year 1982), what is the value of your real wage?
11. Explain what the “good” values are for the three main economic variables. Why are these considered to be “good” values?
12. Why is frictional unemployment not of central concern to macroeconomists?
13. If technology changes, structural unemployment likely increases. Why? What will this do to the “full employment rate of unemployment”? Explain.
14. What is a discouraged worker? Why does the existence of discouraged workers matter to our understanding of the state of the macroeconomy?
15. Explain the difference between gray and black market goods. How do these lead to mis-measurement of economic activity?
16. Suppose that the CPI had a value of 2.35 in 2011 and 2.42 in 2012. What is the rate of inflation for 2012? What information would you need to calculate the rate of inflation for 2011?
17. Explain each of the three functions of money.
18. Explain the advantages and disadvantages of fiat money.
19. Explain the advantages and disadvantages of a commodity backed money.
20. Explain the three functions of the Fed.
21. Explain how the money supply can be larger than the amount of currency actually printed.
22. Explain the difference between the primary credit rate (the discount rate) and the Federal Funds rate.
23. Explain Milton Friedman’s rule for controlling the money supply. How did he reach this conclusion? Does this appear to be a good rule for the economy today? Why or why not?
24. What are the “shoe-leather” costs of inflation?
25. Why is deflation likely worse for an economy than modest inflation?
26. Given the following information compute
a. Nominal GDP for 2001
b. Real GDP for 2001
c. The implicit price deflator for 2001
d. The rate of inflation for 2001 (use the implicit price deflator as the price index for the calculation)
1999 (Base Year) 2000 2001

Price Quantity Price Quantity Price Quantity
Pizza $10 1000 $11 1200 $12 1200
Beer $2 1500 $2 1500 $2 1500

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