Essay Questions:
1. Why is the financial sector important in macroeconomic debates? Why are macroeconomists concerned with the total amount of flows coming out of and returning to the spending?
2. Would any asset that is easily spendable be money? Why do people hold their assets in the form of money?
3. The three functions of money are to serve as: (1) a medium of exchange, (2) a unit of account, and (3) a store of wealth. Briefly explain each of these functions and give an example of each.
4. The major measures of money are M1, M2 and L. What are the major components of each of these measures? Why do economists focus their attention on M2?
5. Explain how banks create money. How is creating money by accepting a cash deposit different from creating money by making a loan?
6.How and why are the decisions facing a monopolist different from the collective decisions of competing firms?
7. Why will a monopolistic firm maximize total profit if it produces at the output level where marginal revenue equals marginal cost?
8. How are a monopolist's price, output, and profit determined graphically?
9. How would we show graphically the welfare loss resulting from converting a perfectly competitive industry into a monopoly?