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Pages: 129
Course Code: Econ211
Course Title: Economics
(a) In the classical model, how does the interest rate move in response to shocks of autonomous changes in the economy to ensure the balance between the aggregate demand and the long-run output? Illustrate your answer with a hypothetical scenario parallel to what we observe in the real world.
(b) Explain, using Solow’s (1956) model, (i) why the seeds of long-run output growth lie in investment, which constitutes a part of the aggregate demand (AD), and (ii) how AD grows when the long-run output grows so that the balance in the goods market is maintained?
(c) How does Solow’s model help both (i) the life-cycle theory of Modigliani and (ii) the permanent income hypothesis of Friedman to solve the “consumption puzzle” identified by Kuznets?
Important Questions of Economics
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2. What is the difference between accounting profit and economic profit?
3. How does economic growth happen? In other words, why are some countries rich and wealthy while others are poor?
4. What are the top five things to know about economics?
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6. True or false? China’s new economic reforms brought new democratic elections to the country.
7. True or false? In today’s economic world, economic nationalism (mercantilism) no longer exists, being replaced by free trade.
8. What is the condition of Pareto efficiency in a pure exchange economy?
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10. What is the modern definition of economics?
11. What is the definition of perfect goods in economics?
12. What is the definition of scarcity in economics?
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