Question & Answer

What are some aspects of business that require knowledge of taxation?  What are some aspects of personal finance that require knowledge of taxation?

Jessica’s friend Zachary once stated that he couldn’t understand why someone would take a tax course.  Why is this a rather naïve view?

Why is it the case that a – b = e – f, and c – d = g – h?

If the slope of the C_d function is ¾ what is the slope of the W function?

If a country imports a whole range of goods whose average income elasticity of demand is the same as for home-produced goods, will the mpm rise or fall as national income rises?

Go through each of the determinants of consumption that were listed in the previous section and consider how they will affect saving. Are there any determinants of consumption in that list which will not cause savings to rise if consumption is caused to fall?

Which is likely to show the greater variation from one person to another at any given level of income: the short-run mpc or the long-run mpc?

What effect will the following have on the mpc:

(a)     the rate of income tax rises;

(b)     the economy begins to recover from recession;

(c)     people anticipate that the rate of inflation is about to rise;

(d)     the government redistributes income from the rich to the poor?

In each case sketch what would happen to the consumption function.

It is possible that as people get richer they will spend a smaller and smaller fraction of each rise in income (and save a larger fraction). Why might this be so? What effect will it have on the shape of the consumption function?

Two economists disagree over the best way of tackling the problem of unemployment. For what types of reasons might they disagree? Are these reasons positive or normative?

What are the potential implications for future aggregate living standards of ‘super-hysteresis’ compared with ‘hysteresis’ following the COVID-19 pandemic?

Does the use of public-sector deficit targets rule out the use of fiscal policy to reduce economic fluctuations associated with the business cycle.

Give some examples of stochastic shocks.

What is the connection between the concepts of 'hysteresis’ and ‘propagation mechanisms’?

What technological developments are likely to have reduced menu costs in recent years?

Illustrate the effect of a fall in demand for an imperfectly competitive firm (a) in the presence of menu costs and (b) in the absence of menu costs?

Assume that there is a positive economic shock and the economy expands. Why may it continue to expand for some time? Why may the expansion eventually cease and be followed by a recession?

Would an intensification of government regulation constitute a positive or negative economic shock in RBC models?

Why are monetary surprises less likely with independent central banks pursuing an inflation target? Would monetary surprises still be possible in such circumstances?

Is voluntary unemployment the same as frictional unemployment?

Give some examples of supply-side policies that would help to reduce the natural rate of unemployment.

If a rise in aggregate demand were to encourage firms to invest more, how would this influence the size of the rise in real GDP?

What would be the classical economists’ criticisms of this argument?

Assuming that Y rises each year as a result of increases in productivity, can money supply rise without causing inflation? Would this destroy the validity of the quantity theory?

What would have happened if countries in deficit had not responded to an outflow of gold by reducing total expenditure?