Econ_314_1_Simulated_Prelim_1B - (b Why is the concept GNP...

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Problem 4 (a) The indifference map is used in microeconomics to study the consumer’s choice between apples and bananas, and in macroeconomics between consumption and saving. Why should consumers’ confidence matter in the latter but not the former? (b) The reduction of family size often comes hand in hand with the rise of investment when a society experiences economic development. Explain this with the life cycle saving hypothesis. (c) The reduction of corporate tax is sometimes advocated as a way to make the country competitive in world trade. How? (d) Why should investment rise with Tobin’s q? Problem 5 (a) Why does the CPI overstate the impact of inflation on the consumer’s well-being?
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Unformatted text preview: (b) Why is the concept GNP used more often than the concept NNP? (c) What happens to the national income statistics, when in a farm society, a large number of activities like baking bread, making clothes are no longer carried out at home? (d) How is GDP deflator computed, and why this may overstate growth just like CPI overstates inflation? Problem 6 (a) About the ‘twin deficits’, when did trade balance first turn negative after World War II, and when did the Federal Government have surplus last? (b) Do government always go for high growth: any counter-example? (c) How high did US unemployment get and when? (d) When did inflation threat America last time?...
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This note was uploaded on 10/08/2008 for the course ECON 3140 taught by Professor Mbiekop during the Spring '07 term at Cornell.

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