UIW How to Build an Economic Model in Your Spare Time Questions

1. Imagine a society that produces military goods and consumer goods, which we’ll call “guns” and “butters”.

a. draw a PPF for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out (concave) shape.

b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient.

2. Classify each of the following statements as positive or normative. Explain

A. Society faces a short-run trade-off between inflation and unemployment.

B. A reduction in the rate of money growth will reduce the rate of inflation.

C. The federal Reserve should reduce the rate of money growth.

D. Society ought to require welfare recipients to look for jobs.

E. Lower tax rates encourage more work and more saving.

3. Read the online article (see attached file) and write a summary about how to build a economics model.

Read Chapter 2 Appendix. P45-58.

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