Questions:
Part
1. Suppose seven people are trying to decide whether to get a pizza with pepperoni, a pizza with sausage and pepperoni, or a pizza with everything on it. Four people want everything, one wants pepperoni and sausage, and two want pepperoni only. Assume that each person prefers a pizza closer to his or her first choice to a pizza that is unlike the first choice. What is the preference of the median voter? Which pizza will be selected if the majority rules?
2. What dilemma faces regulators trying to regulate natural monopolies?
3. Distinguish among private goods, public goods, natural monopoly, and open-access goods.
4. Political corruption is epidemic in Russia today. What effect does this have on the Russian economy? Compare and contrast bureaus and business firms.
5. How does social regulation differ from economic regulation?
6. Additional Question: Answer in as many words as it takes to answer - Has airline deregulation been a success? Be sure to take into account the accessibility and flight amenities, as well as price. What, if any, effects do you think rising fuel costs will have on airline regulation/deregulation?
Part 2
1. Explain how welfare creates work disincentives.
2. Discuss the factors that cause the average income of nonwhites to be lower than the average income of whites.
3. Education is often used as an example of a positive externality. Are the external benefits greater for elementary, secondary, or college education? Explain.
4. Explain why the optimal level of pollution is not zero. According to an EPA study, the health hazards of Superfund sites have been greatly exaggerated and air pollution tends to be a bigger health hazard than toxic waste dumps. Why is more attention focused on toxic waste dumps than on air pollution?
5. Explain the changes in welfare caused by the "Personal Responsibility and Work Reconciliation Act" of 1996.
6. To what extent do you think U.S. income distribution is determined by economic factors? Use the material developed in this unit to inform your (positive) position. To what extent do you think the U.S. income distribution should be determined by economic factors? Use the material developed in this unit to inform your (normative) position.
Part 3
1. Explain how banks are financial intermediaries. What are reserves? What are excess reserves? Explain how the Fed can affect the quantity of excess reserves in the banking system.
2. What are the three functions of money, and why are they important?
3. What are the differences between M1 and M2?
4. Discuss the factors that led to deregulation of U.S. financial markets in the 1980s.
5. How can the Fed affect the money supply by using the discount rate?
6. Additional Question: Answer in as many words as it takes to answer - The chapter traces out the evolution of money from commodity moneys to unbacked fiat moneys. How is money likely to change during this century?
Part 4
1. Explain how the short-run Phillips curve, the long-run Phillips curve, the short-run aggregate supply curve, the long-run aggregate supply curve, and the natural rate hypothesis are all related. How do active and passive views of these concepts differ?
2. What is meant by the demand for money? Which way does the demand curve for money slope? Why?
3. Explain why the Fed can attempt to target either changes in the money supply or changes in interest rates, but not both.
4. Explain how an active policy differs from a passive policy.
5. How does monetary policy affect aggregate demand in the short run? How does monetary policy affect aggregate demand in the long run?
6. Additional Question: Answer in as many words as it takes to answer - What are the major similarities and major differences between the direct and indirect channels of monetary policy?