Economic models
1 All economic models—indeed all models m science—distinguish between exogenous and endogenous variables Explain carefully the difference between an exogenous variable and an endogenous variable.
2. Which one of these macroeconomic variables—(a) the inflation rate. (b) the interest rote. (c) the labor force participation rate. or id) the unemployment rate—measures the rate of change of a variable? Explain your answer.
3. Who gets helped by unanticipated inflation people who owe money or people who lend money’ Explain your answer
4 Distinguish carefully between monetary policy and fiscal policy, and illustrate your answer with regard to the United States
5 Define the concept of pnce flexibility. Do flexible prices make it easier or more difficult for an economy to avoid business cycles^ Explain your answer
6 -Fractional-reserve banking enables banks to make loans that are a multiple of their reserves. and as a consequence the money supply grows True or false’ Explain your answer.
“100-percent-reserve banking enables banks to make loans that are one hundred tunes their reserves. and as a consequence the money supply grows.’ True or false? Explain your answer.
S. If you owned a bank, would you rather that it be (a) illiquid, or (b) insolvent? Explain your answer.
9 If interest rates fell, would you expect that house prices would (a) rise, or (b) fall? Explain your answer
10 Imagine the federal government were to cut the marginal rate of income tax on people’s earnings from work Why might this policy reduce tax revenue in the short run yet increase tax revenue in the long run’
11. Distinguish between a progressive tax system and a regressive tax system. Consider two categories of people—the rich and the poor Who—the rich or the poor—pay more tax under a progressive tax system’ Who pay more tax under a regressive tax system? Who pay a higher percentage of their taxable income under a progressive tax system’ And who pay a higher percentage of their taxable income under a regressive tax system?
