Intro to Macro Econ Midterm 1 study guide
Intro to Macro Econ Midterm 1 study guide ECON 105
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This 6 page Study Guide was uploaded by Heer Patel on Tuesday October 13, 2015. The Study Guide belongs to ECON 105 at University of Massachusetts taught by David Kotz in Summer 2015. Since its upload, it has received 122 views. For similar materials see Intro to Political Economy in Economcs at University of Massachusetts.
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Date Created: 10/13/15
1 Explain the following four types of motivations for individual economic behavior selfinterest altruism reciprocity and grouporiented behavior What role does each type of motivation play in individual economic behavior Self interest FOR SELF material gain pro t for self Altruism doing things for others without excepting anything in return donations giftgiving bene ts society and other individuals Reciprocity doing things for someone while expecting something in return Fairness greed involved If i give her a christmas gift she39ll give me a christmas gift Grouporiented behaviour when a group starts to move towards a speci c motivation everyone else within the group moves with it 2 What can be learned about human economic motivations from the following a experimental economics b anthropological studies of smallscale societies c evolutionary considerations Experimental Econ shows predominance for reciprocity and altruism Anthropological Studies Basis of the quotbig manquot is a desirethis is what gains social status everyone wants to be a quotbig manquot and trade primarily selfinterest Evolutionary considerations To survive they must provision produce or maintain the means of sustaining life and reproduce produce and raise the next generation group oriented behaviour 3 Economic production in human societies has always involved cooperation among individuals How do individual motivations and social factors make it possible for such cooperative economic activity to take place Competition get and give away the max amount of goods Competition was the motivation for individuals the strive to be better than the rest of the people This system worked to foster cooperative provisioning and capitalism requires cooperation 4 How can one explain the prevalence of cooperative noncompetitive economic behavior in huntergather economies How does the discovery and adoption of agriculture affect the possibility of the development of competitive economic behavior Not much surplus in the HG societies Competition in the HG societies was to get and give away the maximum amount of goods instead of wanting and consuming the most amount of goods Once agriculture was discovered and adapted to this was easier It fostered cooperative provisioning 5 Explain what is meant by production reproduction necessary product and surplus product Production Making stuffand maintaining and producing products that are necessary for sustaining life Reproduction Making babies Necessary Product The output that goes to consumption by producers and reproducers at customary standards to maintain the society replacement of materials and goods and services used up in production Surplus product Extra stuffthe leftovers when the total product gt necessary product and TPNP SP 6 What are the possible uses of surplus product SP can raise living standards increase population build monuments save for future improve quantity and quality of products invest support the nonproducing class 7 What is a classbased economic system When a distinct group the surplus appropriating class in a society controls and lives off the surplus 8 What factors determine the size of the surplus product in an economy Hours worked intensity of labour productivity of labour living standards and materials and capital goods are factors that determine the size of the surplus product in an economy 9 In what sense are market exchanges voluntary Are market exchanges always voluntary To what extent does one nd unequal power between participants in market exchanges They require a whole set of institutions and practices In capitalism companies are owned by private owners instead of the state so usually they are voluntary In a market economy exchanges are voluntary a primary characteristic of the market economy One can nd unequal power between buyers and sellers because the buyers usually control the demand of the exchanges In a way they are both pretty much equal because the sellers provide for the supply 10 What institutions are required for a market system to operate Well de ned property relations system for enforcing exchange agreements motivation is selfinterest individual freedom and equity before law goods and services to offer in a market 11 Distinguish the market39s function as a rationer of a good or service that is xed is supply from its function as allocator of resources Rationer must gure out the ow of supply and demand Function as an allocator avoid waste of excess supply avoid inconvenience of shortage ef cient coordination and making sure the buyers can afford what they want to buy 12 What are the advantages of the market as rationer of a good or service that is xed in supply What are the disadvantages avoids waste of excess supply avoid inconvenience of shortage ef cient coordination and cost minimization negative externalities asymmetric information is common many important public goods 13 What are the alternatives to the market for rationing a good that is xed in supply What are the advantages and disadvantages of those alternatives First come rst served advantage more egalitarian and disadvantage favour those with free time Lottery advantage more fair and disadvantage unlikely to reward those who want the good most Quotas advantage more egalitarian based on need and disadvantage requires admin apparatus 14 What did Adam Smith mean when he wrote that the market or price mechanism acts like an quotinvisible handquot Pursuit of individual selfinterest unregulated prices competitive markets plus a long list of additional assumptions 15 What are the arguments for and against relying on the market as the allocator of resources in an economy For Consumer sovereignty cost minimization ef cient coordination claim that a market system provides an optimal allocation of resources Against Negative externalities are widespread asymmetric info is common many important public goods labour markets do not work like other markets rich are favoured creates economic insecurity teaches and reinforces narrowly selfinterested behaviour 16 What is quoteconomic planningquot What are the arguments for and against economic planning as the method for allocating resources A process aimed at determining or in uencing the allocation of resources so as to conform to a predetermined goal or program For account of externalities avoid the asymmetric information problem produces suf cient public goods avoids problem of monopoly pricing better at determining wages and working conditions more equal distribution of goods stabilizes prices and incomes fosters cooperative behaviour Against ln exible and resistant to change not good at responding to consumer wants not effective at utilizing information incentive problems requires a costly admin apparatus gives too much power to the government which restricts individual freedom 17 What are the 3 major classbased economic systems according to the political economy approach Slave system Feudal system and Capitalist system 18 How do slave and feudal economic systems differ from one another in the way that the dominant class obtains the surplus product What roles do force and ideology play in sustaining and stabilizing slave and feudal systems Slave System Surplus obtained masters own producers control slaves and the nal product Feudal System Surplus obtained Lords own land serfs are tied to land and are required to turn over a part of the surplus to the lords Roles cannot survive purely on force they get producing class to accept their position and allow the dominant class to see its role as quotrightquot 19 Distinguish between the terms quotcapitalist systemquot and quotmarket economyquot Capitalist System selfinterestexchange nal product for money solely Market System commodity production 20 Explain the capitalist process symbolized by MCC39M39 MC gt It is an exchange of money for commodities C stands for labour power and means of production CC39 gt NOT an exchangeproduction C39M39 gt An exchange of the nal product for money 21 According to the political economy approach workers produce the total product but capitalists get part of what is produced in the form of pro t How does political economy explain the ability of capitalists to get a pro t from production Capitalists get pro t because they have suf cient power over labour and control of the technology 22 What are the roles of the following in explaining the origin of pro t in a capitalist system technology power relations biological requirements for human survival and natural conditions climate locally available natural resources etc Technology and power relations Net Total product depreciation Biological requirements Technology and power relations total pro t 23 What role does unemployment play in the ability of capitalists to obtain pro t from production What alternatives are there to unemployment to ensure that capitalists can obtain pro t Capitalists have no right to coerce workers but they own the means of production Alternatives state acts to repress the labour movement Social democratic compromise 24 Explain using words and symbols the concept quotrate of pro tquot Starting from the de nition of pro t derive an expression for the rate of pro t in terms of the following variables net output per labor hour the wage rate per hour and the value of capital goods owned per hour of labor used What additional variables can affect each of those three determinants of the pro t rate Pro t nancial gain Pi TP D total wages pi net output per hour worked wage per hour worked Depends on depreciation Net TD D and total wages 25 What measures can capitalists take to increase the rate of pro t Explain how each measure would affect one or more of the determinants of the rate of pro t Competition compels maximum pro t There will be an effort to reduce wages tendency to intensify labour speculative investments and geographic expansion 26 For what purposes is the surplus product used under capitalism Consumption by capitalists build monuments government functions and investments 27 What is meant by capital accumulation Explain the role of competition in forcing capitalists to continually strive to accumulate producing more capital goods than used in production developing superior technologies developing new and better products and hiring a larger number of workers With Accumulation capitalists gain advantages over his or her rivals and can possibly drive out rival capitalists 28 What is meant by an economic crisis Distinguish between a shortrun and a longrun economic crisis Economic crisis is the low rate of pro t Crisis can happen from under consumption pro t squeeze and overinvestment Short Run can be stabilized long run effects the nancial liberalization of capital markets 29 What role does the rate of pro t play in causing economic crises If the rate of pro t goes down the economy will go into crisis 30 Explain the following causes of economic crisis underconsumption pro t squeeze and overinvestment Underconsumption occurs when capitalists have a lot of power results in a high rate of pro t underlying cause inclass struggle and capitalists become too strong Pro t Squeeze occurs when economy expands rapidly and long enough to where all workers get jobs underlying cause in class struggle workers become too strong for capitalists to obtain the normal rate of pro t Overinvestment too much accumulation gt can produce too much xed capital relative to total demand for output results the capitalists cannot use all of their productive capacity
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