Econ 104 Final Exam Questions with Solutions
Evidence on inflation/unemployment trade-off: is it accurate to say that there is always a
trade-off between unemployment and inflation? Compare evidence for the U.S. economy on
a decade-by-decade basis. What do the patterns show? - -The Phillips Curve: tracks the
relationship between inflation and unemployment. the basic ideas is that it is an inverse
relationship. inflation rises when unemployment goes down and vice versa. Gives
businesses the idea to raise prices.
- evidence from decasdes is in powerpoint
-The pattern confirms the inverse relationship, it captures one component of the evidence
- OIL is the main factor. when price of oil and energy increases, inflation rises and makes it
difficult for the economy to operate, so they lay off workers and drives unemploymnet.
-Yes there is trade-off inflation, but it is not accurate to say taht there is always a trade-off
and it depends on the decade because of alternative sources, supply shocks,
-The most widely cited official unemployment rate figure for the U.S. today is 3.6 percent.
What exactly is that statistic measuring? How, if at all, does that measure take account of
people who are "underemployed" or "discouraged" from trying to find a job? - -This
statistic is measuring those who are able to work and are looking for work. It does not
measure those who are underemployed or discouraged from trying to find a job.
-Consider the decade of the 1970s. What could explain the relationship between
unemployment and inflation that we observe then for the U.S. economy, relative to the
relationship we observe for the 1950s and 1960s? - -In the 1970s, there was a positive
relationship between inflation and unemployment. Unemployment and inflation were
positively correlated due to the oil problem that occurred then. This brought up
unemployment while also increasing inflation. However, the relationship in the 1960s and
1950s was supported by the Phillips curve.
-Karl Marx argued that the operation of a capitalist economy requires a "reserve army of
labor"—or mass unemployment—in order for the system to continue functioning. Why did
Marx think that capitalism could not operate if full employment is achieved and sustained?
- -Karl Marx believes that capitalism needs competition to work, and unemployment is
some of that competition. A reserve army of labor makes it so they can more easily control
what they pay their workers. When there is less of a reserve army, the workers have more
bargaining power.
-The Financial Times reported that the "Fed reaches for its 'hatchet" to attack galloping
inflation." What is the Financial Times referring to as "the hatchet?" When, and to what
extent, has "the hatchet" been deployed in the past by the Fed? - -EDIT: The fed raised the
federal funds rate by a half percent, but it is the largest increase in 20 years. In 1980s,
inflation was deflated by a big hatchet, raised to about 18% which basically shut down the
economy.
-The federal reserve had no other way to control inflation, and increased unemployment,
but it succeeded and eliminated inflation by almost 10% within 2 years.
, -Targets the unemployment issue in terms of controlling inflation,
-We do not know what extent the hatchet will be for the future.
-To what extent can we attribute the current rise in inflation to wage increases? What
might be some other factors contributing to the current inflation spike? - -EDIT: Overall
inflation is at 8.5%, the highest since the late 1980s. Wage increases are about 4%.
-It is not the case that current inflation is the result of wage increases
-Factors:
1. the rise in energy (gas price increase by about 50% in the last year), during covid
lockdown the production of fuels declined because there was no demand. when demand
rose after lockdown, the prices went up.
2. Used cars- there was a supply chain breakdown during covid, so demand went up
because supply of new cars went down bc of the lack of computers
-Be clear on where the U.S. stands in the global economy. How big is the U.S. economy as a
share of the global economy? How important is the U.S. in terms of population? In terms of
addressing climate change? - -The U.S. is only a small part of the world, but they have 22%
of the worlds GDP. the U.S. is a large influencer in climate change with 16% of emissions
coming from them/
-Rich, poor and middle-income countries: Be clear on some of the major differences
between countries in terms of what the average person in each category of country can
expect in terms of life expectancy and average income. - -Per GDP per capita and life
expectancy are good indicators for quality of life. Sweden>US>Haiti
-What is the law of comparative advantage? Following the law of comparative advantage,
why would any given country seek to specialize in producing one or two products and
importing everything else they need, rather than diversifying? - -Law of comparative
advantage is that each country would thrive if it was specialized in a certain aspect of
trading. It's more efficient for a country to specialize rather than producing every product.
-If we consider the cases of South Korea and China, is it accurate to say that their
successful growth experiences have been tied to the idea of comparative advantage? In this
context, be able to distinguish between "static" and "dynamic" comparative advantage. - -
EDIT : No, it is not accurate to say that. They had dynamic comparative advantage. Korea
used to be very poor but is now on par with much of Europe. China took the model first
from Japan and then from Korea. Of course the experiments aren't exactly the same, but
China has succeeded. So the textbook helps us understand only the static comparative
advantage, not the dynamic one that helps a country go from a low income to a middle to
high income country. -LOGIC OF COMPARITIVE ADVANTAGE: Both Belgium and Pakistan
produce textiles and chocolate, but Belgium is more productive and efficient and producing
more chocolate -Logic of comparative advantage shows us that Belgium should specialize
in producing chocolate and Belgium should spealize in textiles. Then they can benefit by
trading with eachother, they will have more moeny and more resources than
Evidence on inflation/unemployment trade-off: is it accurate to say that there is always a
trade-off between unemployment and inflation? Compare evidence for the U.S. economy on
a decade-by-decade basis. What do the patterns show? - -The Phillips Curve: tracks the
relationship between inflation and unemployment. the basic ideas is that it is an inverse
relationship. inflation rises when unemployment goes down and vice versa. Gives
businesses the idea to raise prices.
- evidence from decasdes is in powerpoint
-The pattern confirms the inverse relationship, it captures one component of the evidence
- OIL is the main factor. when price of oil and energy increases, inflation rises and makes it
difficult for the economy to operate, so they lay off workers and drives unemploymnet.
-Yes there is trade-off inflation, but it is not accurate to say taht there is always a trade-off
and it depends on the decade because of alternative sources, supply shocks,
-The most widely cited official unemployment rate figure for the U.S. today is 3.6 percent.
What exactly is that statistic measuring? How, if at all, does that measure take account of
people who are "underemployed" or "discouraged" from trying to find a job? - -This
statistic is measuring those who are able to work and are looking for work. It does not
measure those who are underemployed or discouraged from trying to find a job.
-Consider the decade of the 1970s. What could explain the relationship between
unemployment and inflation that we observe then for the U.S. economy, relative to the
relationship we observe for the 1950s and 1960s? - -In the 1970s, there was a positive
relationship between inflation and unemployment. Unemployment and inflation were
positively correlated due to the oil problem that occurred then. This brought up
unemployment while also increasing inflation. However, the relationship in the 1960s and
1950s was supported by the Phillips curve.
-Karl Marx argued that the operation of a capitalist economy requires a "reserve army of
labor"—or mass unemployment—in order for the system to continue functioning. Why did
Marx think that capitalism could not operate if full employment is achieved and sustained?
- -Karl Marx believes that capitalism needs competition to work, and unemployment is
some of that competition. A reserve army of labor makes it so they can more easily control
what they pay their workers. When there is less of a reserve army, the workers have more
bargaining power.
-The Financial Times reported that the "Fed reaches for its 'hatchet" to attack galloping
inflation." What is the Financial Times referring to as "the hatchet?" When, and to what
extent, has "the hatchet" been deployed in the past by the Fed? - -EDIT: The fed raised the
federal funds rate by a half percent, but it is the largest increase in 20 years. In 1980s,
inflation was deflated by a big hatchet, raised to about 18% which basically shut down the
economy.
-The federal reserve had no other way to control inflation, and increased unemployment,
but it succeeded and eliminated inflation by almost 10% within 2 years.
, -Targets the unemployment issue in terms of controlling inflation,
-We do not know what extent the hatchet will be for the future.
-To what extent can we attribute the current rise in inflation to wage increases? What
might be some other factors contributing to the current inflation spike? - -EDIT: Overall
inflation is at 8.5%, the highest since the late 1980s. Wage increases are about 4%.
-It is not the case that current inflation is the result of wage increases
-Factors:
1. the rise in energy (gas price increase by about 50% in the last year), during covid
lockdown the production of fuels declined because there was no demand. when demand
rose after lockdown, the prices went up.
2. Used cars- there was a supply chain breakdown during covid, so demand went up
because supply of new cars went down bc of the lack of computers
-Be clear on where the U.S. stands in the global economy. How big is the U.S. economy as a
share of the global economy? How important is the U.S. in terms of population? In terms of
addressing climate change? - -The U.S. is only a small part of the world, but they have 22%
of the worlds GDP. the U.S. is a large influencer in climate change with 16% of emissions
coming from them/
-Rich, poor and middle-income countries: Be clear on some of the major differences
between countries in terms of what the average person in each category of country can
expect in terms of life expectancy and average income. - -Per GDP per capita and life
expectancy are good indicators for quality of life. Sweden>US>Haiti
-What is the law of comparative advantage? Following the law of comparative advantage,
why would any given country seek to specialize in producing one or two products and
importing everything else they need, rather than diversifying? - -Law of comparative
advantage is that each country would thrive if it was specialized in a certain aspect of
trading. It's more efficient for a country to specialize rather than producing every product.
-If we consider the cases of South Korea and China, is it accurate to say that their
successful growth experiences have been tied to the idea of comparative advantage? In this
context, be able to distinguish between "static" and "dynamic" comparative advantage. - -
EDIT : No, it is not accurate to say that. They had dynamic comparative advantage. Korea
used to be very poor but is now on par with much of Europe. China took the model first
from Japan and then from Korea. Of course the experiments aren't exactly the same, but
China has succeeded. So the textbook helps us understand only the static comparative
advantage, not the dynamic one that helps a country go from a low income to a middle to
high income country. -LOGIC OF COMPARITIVE ADVANTAGE: Both Belgium and Pakistan
produce textiles and chocolate, but Belgium is more productive and efficient and producing
more chocolate -Logic of comparative advantage shows us that Belgium should specialize
in producing chocolate and Belgium should spealize in textiles. Then they can benefit by
trading with eachother, they will have more moeny and more resources than
