to economic growth theory, the level of the GDP and the rate of the real GDP
growth rate have different economic implications about the economic well-being
of a country. If you are given the options, would you rather live in a nation
with a high level of GDP and a low growth rate or in a nation with a low level
of GDP and a high growth rate? Why?
Economists consider education as an
investment that has both private and social benefits. Education is also the
major source of human capital, which is the most important form of capital for
the long term economic growth. What is the opportunity cost of investing in
human capital? Do you think a country can “overinvest” in human capital? What
is the opportunity cost of attending college? Explain.
change in money supply affects the economic agents. Suppose the Federal Reserve
increases the money supply to boost aggregate demand during recessionary
pressure. How does the increase in money supply affect consumer spending and
investment? How does it affect the firm or organization you work for? How do
the Federal Reserve policies affect us as individuals (households)?
High rate of inflation is considered
bad for the economy since it has various costs. What are the costs of
inflation? Which of these costs do you think are most important for the U.S.
economy? What are your shoe leather costs of going to the bank? How might you
measure these costs in dollars? How do you think the shoe leather costs of your
college president differ from your own?
interest rate affects the investment patterns in the economy. A friend of yours
suggests a get-rich-quick scheme: Borrow from the nation with the lower nominal
interest rate, invest in the nation with the higher nominal interest rate, and
profit from the interest-rate differential. Do you see any potential problems
with this idea? Explain. What are the cons of the strategy?
Consumer spending during holiday
seasons affects the aggregate demand (AD) in the economy. AD drastically declines
during serious recessions. In 1939, with the U.S. economy not yet fully
recovered from the Great Depression, President Roosevelt proclaimed that
Thanksgiving would fall a week earlier than usual so that the shopping period
before Christmas would be longer. Explain what President Roosevelt might have
been trying to achieve, using the model of aggregate demand and aggregate
supply. Was the policy effective to increase AD?