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ECON 1110 Problem Set 09

ECON 1110 Problem Set 09 - at Wal-mart In the aftermath of...

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ECON 1110 Intermediate Macroeconomics Problem Set 9 Spring 2011 1. Explain why an overexpansion of bank credit creates malinvestment in capital goods in the Austrian model 2. Explain why the existence of a lender of last resort facility and deposit insurance leads to excessive risk-taking in the banking sector. 3. Explain the difference between the Keynesian and Austrian theories of the interest rate. 4. Explain why decreasing prices in a depression are not necessarily an evil scourge. 5. Using the recent housing bubble as an example, suppose that Bob is employed as a construction worker by a homebuilding firm while Mary is employed as a clerk
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Unformatted text preview: at Wal-mart. In the aftermath of the housing bubble, explain who is most likely to experience a fall in their wages in the resulting depression? 6. Explain the six things that a government typically does to “fight” a depression that actually make the problem worse by interfering with the correction. Find examples of the government doing these things today. 7. Explain why the abolition of the central bank and fractional reserve banking would prevent credit-driven business cycles in the Austrian model....
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