Question 1: What do you mean by the term competitive market? In brief explain the types of markets other than perfectly competitive markets.
Question 2: What do you mean by the term demand curve? Why does it slope downward?
Question 3: Define the term equilibrium of a market. Explain the forces that move a market toward its equilibrium.
Question 4: Explain the role of prices in the market economies.
Question 5: Throughout the 1990s, technological advance decreased the cost of computer chips. How do you think this influenced the market for computers? For computer software? For typewriters?
Question 6: To do this exercise you must have read the paper by Romer and Romer published in the AER.
A) Download the data file, inflation.xls or inflation.dta.
B) Plot both series against time, that is, do two plots: in the first one, graph expected inflation against time and, in the second one, plot actual inflation against time.
C) Test the hypothesis which the survey data for inflation expectations is rational. In order to do this, follow the steps below:
- Run the given regression using simple OLS: πt = α + βπet + εt where πt stands for actual inflation and πet stands for the survey expected inflation.
- Test the hypothesis that a = 0 (where a is the estimate for the intercept).
- Test the hypothesis that b = 1, where b is the estimate for β.
- Notice that if you refuse the hypothesis above, you can conclude (in a rough sense) that the survey is not rational. What do you conclude from your tests illustrated above?