1. According to economic growth theory, the level of the GDP and the rate of the real GDP growth rate have different economic implications about the economic well-being of a country. If you are given the options, would you rather live in a nation with a high level of GDP and a low growth rate or in a nation with a low level of GDP and a high growth rate? Why?
Economists consider education as an investment that has both private and social benefits. Education is also the major source of human capital, which is the most important form of capital for the long term economic growth. What is the opportunity cost of investing in human capital? Do you think a country can “overinvest” in human capital? What is the opportunity cost of attending college? Explain.
2. The change in money supply affects the economic agents. Suppose the Federal Reserve increases the money supply to boost aggregate demand during recessionary pressure. How does the increase in money supply affect consumer spending and investment? How does it affect the firm or organization you work for? How do the Federal Reserve policies affect us as individuals (households)?
High rate of inflation is considered bad for the economy since it has various costs. What are the costs of inflation? Which of these costs do you think are most important for the U.S. economy? What are your shoe leather costs of going to the bank? How might you measure these costs in dollars? How do you think the shoe leather costs of your college president differ from your own?
3. The interest rate affects the investment patterns in the economy. A friend of yours suggests a get-rich-quick scheme: Borrow from the nation with the lower nominal interest rate, invest in the nation with the higher nominal interest rate, and profit from the interest-rate differential. Do you see any potential problems with this idea? Explain. What are the cons of the strategy?
Consumer spending during holiday seasons affects the aggregate demand (AD) in the economy. AD drastically declines during serious recessions. In 1939, with the U.S. economy not yet fully recovered from the Great Depression, President Roosevelt proclaimed that Thanksgiving would fall a week earlier than usual so that the shopping period before Christmas would be longer. Explain what President Roosevelt might have been trying to achieve, using the model of aggregate demand and aggregate supply. Was the policy effective to increase AD?