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Macro Midterm 2, UMW, Fall 2011

Midterm 2, November 21, 2011
Macroeconomics
Instructor: Kevin D. Rollins, University of Mary Washington

50 points total, 5 questions worth 10 points each

Answer format: short essay. Please type your answers

Instructions: Each answer to these questions should be yours personally — in the sense that you must take ownership for the arguments you make. You are accountable for believing that it is the best answer you can make today. You should consider the effect on society of your holding that belief. If your answer is lacking, perhaps you should improve it. If you are uncertain, think through what you would have to do to find clarity with regard to the question at hand. If you don’t have a good answer, demonstrate to me that you are capable of some form of reasoning and problem solving. You may consult with your peers, but you should make a note of any help or thoughtful advice you received. Your answers must be written in your own words. If you borrow an idea from a classmate or Prof. Leamer or Prof. North, or anyone else, you should cite them in the following format (Rollins 2011). At the end you would place the reference:

“Rollins, Kevin D. 2011. “Instructions to Students”. Macroeconomics Midterm 2. Nov 21.”

It is advised that if you are discussing a particular sentence or phrasing that you quote from the original, using quotation marks and the above citation format.

Time guidelines: If you have been keeping up with the reading, each of these questions should take no more than 30 or 40 minutes to answer. Obviously, with a take-home exam, I have no knowledge of how much time you spend. You should try to give the best answer you can taking into consideration your other priorities and interests.

Tests should be returned at the beginning of our next class.

Word count guidelines: Use as many words as you need to clarify your point(s). You do not get more points for using more words. Excessive blather will be downgraded. Be precise. Don’t waste my time.

Questions:

1.) Choose a mechanical process that you are familiar with and a biological process you are familiar with. What aspects of these processes could be considered “economical”? Are they microeconomic or macroeconomic? Do you agree with Prof. Leamer that we should use biological metaphors in macroeconomics and not mechanical processes? Why or why not?

2.) Read a recent article on macroeconomics from one of the following authors: Bruce Bartlett, Veronique de Rugy, Paul Krugman, or Tyler Cowen. What patterns is the author looking at? What stories are being told? How does the selection of facts effectively make the writer’s point? What else could the writer consider from a Leamer or North point of view? What would a good followup article explore? How would you construct it?

3.) Is Prof. Leamer overly hostile or judgmental in calling Californians “immature” (Leamer 309)? What is the irony of the term “freeway” and how does it relate to the dichotomy/distinction between intentions and outcomes? Are people entitled to their own opinions about economic theory or is there a set of algebraic or logical truths that cannot be avoided? Are we all accountable in the end to the law of scarcity?

4.) Rap-video Hayek says “the economy’s not a class you can master in college.” What does he mean by this? Use selections from “The Use of Knowledge in Society” to argue your point. Is Hayek right?

5.) What is “macroeconomics” to you? What does the term mean as distinguished from microeconomics? What does it mean if it includes both Prof. North’s ideas and Prof. Leamer’s ideas? What is macroeconomics in terms of questions you are researching this semester? What is macroeconomics in terms of your worldview and experience?

Comments

  1. Conner Pearson · Nov 27, 07:49 PM

    An example of a mechanical process is education. It relates to economics because it is how society passes all the knowledge and skills it has accumulated over to the next generation. Education is more macroeconomic because it deals with the structure and deliverance of how people learn on a large scale. An example of a biological process is sexual reproduction. It relates to economics because it is how members of society pass on their genetic material to their offspring in order to continue the living world. Reproduction is more microeconomic because it deals with how the individual household behaves and makes decisions. I agree with Leamer that we should use biological metaphors instead of mechanical metaphors because the economy is a human creation and cannot be determined with just data analysis.

    The article I read by Tyler Cowen is called The simple macroeconomics of labor unions. The author believes that the closer we are to the competitive market equilibrium, the better off the economy is. He tells us that prices are stationary, an increase in the money supply will also increase aggregate demand and consumer output. Since labor unions are formed from people of similar interest, the author explains that there is less competition among the groups, therefore leading to less demand from the consumer. From a Leamer point of view, the author would attempt a more pattern-seeking form of explaining. From a North point of view, the author would try to elaborate his theories using abstract methods of teaching. A good article to follow up on this one would be about New Keynesian macroeconomists and their theories. It would be told by an economist who follows New Keynesian thought and practice.

    Leamer is being judgmental towards Californians because he is referencing Matt Bai’s quote on how people think that they aren’t required to pay for anything. The term freeway is being used ironically to describe the inability to control scarcity, thus making conditions unbearable and freedom-re stricken. It relates to the distinction between intentions and outcomes because congested roads lead to uncertainty instead of meeting expectations. Whatever the number of factors that result in economic change, people are entitled to their own opinions about the economy. As humans, we are responsible for scarcity due to our never ending desires in a world with limited resources.

    Regardless if one earns an economics degree in college, one cannot for certain be able to fully comprehend the economy as a whole. The economic system cannot be understood just by learning concepts related to the subject.

    Macroeconomics is a branch of economic study that deals with the structure, behavior, and decision making of the economy as a whole. In contrast to microeconomics which focuses on the actions of individual agents and firms, macroeconomics is geared towards aggregated factors such as GDP, price index, and unemployment. From a Leamer point of view, it means the study of all indicators responsible for economic change and how it works. From a North point of view, it is understanding the economy through broad, abstract generalizations. In terms of research questions, macroeconomics is understanding the relationship between certain factors like income, output, consumption, and inflation. In terms of my worldview, macroeconomics is the way to look at and interpret the world economy as one big picture.