Question

  

Q-3) solve - A to V  of Review Sheet 3 & define all definations.....

A) Draw a short run Phillip’s Curve. What does it represent? Draw a long run Phillip’s Curve. Why does it look different from a short run curve?

B) What is Say's Law? What are the three mechanisms behind Say's Law? Compare the monetarists view with the Keynesian view of Say's Law.

C) What are automatic stabilizers? Give examples of such stabilizers. How do they work and how effective are they?

D) What is meant by fiscal policy? What are the tools of fiscal policy? How does the government use these tools?

E) What is inflation? What are the costs to the economy of inflation? Explain 4 ways the government can slow inflation.

F) What is the Federal Reserve System? What are its goals? What tools are available to the Fed to achieve these goals? How can the Federal Reserve use these tools to stop inflation?

G) How does the banking system create money? Is monetary expansion limitless? Why?

H) List and explain the three functions of money.

I) What is the backing for the US dollar?

J) What is the quantity theory of money? What assumptions do the monetarists make about this theory? What conclusion do these assumptions lead to for the monetarists? What is the Keynesian response to this conclusion?

K) In your opinion, can we have another Great Depression? Why or why not?

L) What is potential GDP? Why do some economists argue for government intervention to help us reach potential GDP and why do others argue against intervention?

M) Define deficit and national debt. What should be done to reduce the national debt?

N) It has been argued that providing unemployment insurance discourages people from looking for a job. Do you agree, why or why not?

O) Different explanations have been given for how nations should decide what to trade. Discuss the explanations of Smith, Ricardo and Hecksher-Olin.

P) Governments have not always encouraged free international trade. What are some reasons why they discourage free trade?

Q) What tools can be used to prevent free trade? Explain what effect these tools have on the economy.

R) What is meant by the gold standard? Why do some people favor our return to the gold standard?

S) What three institutions were set up by the Bretton Woods conference? Explain the goals of each of the institutions.

T) What is meant by the pegged exchange rate? Explain how it differs from the fixed exchange rate. Why was it abandoned by President Nixon?

U) Explain what is meant by the floating exchange rate. How is the value of the dollar determined under this system? What is the impact on the economy of a very strong dollar? Why has the US government in the past tried to reduce the value of the dollar?

V) What should be done about the US trade deficit?

W) Define:

- Absolute advantage

            - Comparative advantage

- Recession

- Long run

- Short run

- Fractional Reserve Banking

- Excess Reserves

- Required Reserves

- Stagflation

- Velocity

- Liquidity

- Assets

- Liabilities

- Fiscal Policy

- Monetary Policy

- Balance of Trade

- Terms of Trade

- Cost-Push Inflation

- Demand-Pull Inflation

Answer 1

B.) Says law states that supply with creates its own demand. The three mechanism behind says law are Flexible prices ,flexible interest rates and flexible wages.

Monetarists argue that says law will work and doesnt need goverent help and keynesians argue that things they willnot be having will inhibit felxibility.

C) Automatic stabilizers are called so because they act to stabilise economic cycles and they are automatically triggered without having government action.

Eg: corporate and personal taxes , unemployment insurance and welfare.

They are economic policies and programes designed to offset fluctuations in Nations economic activity without intervention by the government or any policy makers.

D) Fiscal policy is the policy that based on the theories of a British economist John Maynard Keynes ,the state that increasing of decreasonh revenue taxes and expenditures levels influence inflation ,employment and the flow of money through the economic system. Fiscal policy shapes the countrys economical direction.

The two main tools of Fiscal policy are taxes and spending.

Taxes influence the economy by determining how much money the govt.has to spend in certain areas and how much money the indivijuals should spend.

Spending is a tool to drive government money to certain sectors needing an economic boost.