08 Jun Question Monetary and fiscal policy are governme
Question
Monetary and fiscal policy are government attempts to smooth the business cycle, especially the use of expansionary policies to return to GDP growth from a recession. The goals are relatively short-term, notmore than 5 years. Long-term growth, however, is arguably more important and the subject of last section of the course.
1. If natural resources are ultimately finite, does this imply that there is a limit to per capita GDP? Explain.
2. The great economist Joseph Schumpeter coined the term “creative destruction” to characterize the free market economy. Why should governments facilitate competitive markets and free international trade if competition is inherently destructive?
3. Should the national government ensure income equality through taxation and wealth redistribution?
4. According to Monetarists, what is the long-term result of continuing expansionary monetary policy in which the money supply grows faster than RGDP? Briefly explain using the EOE.
5. During a recession, politicians and economists often speak of returning the nation to full employment. Does this mean zero unemployment? If not, why isn’t zero unemployment desirable?
6. Relatively free trade exists between the US and Mexico as a result of the North American Free Trade Agreement (NAFTA). Should the Law of One Price prevail in major consumer goods sold in the 2 countries? Explain.
7. Suppose the United States has an absolute advantage in the production of 2 goods compared to another country. Could it benefit in trade of these goods with that country?
8. Like the Great Depression of the 1930’s, the Great Recession of 2008 will be studied for many years. Many causes have been identified for both periods. In a short paragraph, explain one of the many causes of the Great Recession.
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