ECON1101 Chapter Notes - Chapter 2: Microeconomics, Opportunity Cost, Political Philosophy

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browngrasshopper99

18 Jul 2018

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The scientist method: observation, theory and more observation: economics use theory and observation but they face an obstacle that makes their task challenging. Economic models: economists use diagrams and equations to learn about the world, they do not include every feature of the economy. Our first model: the circular-flow diagram: circular flow diagram: a visual model of the economy that shows how dollars flow through markets among households and firms, this diagram is a schematic representation of the organization of the economy. Households and firms interact in the markets for good and services (where households are buyers and firms are sellers) and in the markets for the factors of production (where firms are buyers and households are sellers). The outer set of arrows shows the flow of dollars and the inner set of arrows shows the corresponding flow of goods and services. The economy can produce any combination on or inside the frontier.

Related Questions

1) Which of the following transactions would be included in GDP?

a) The purchase of a Monet painting.

b) The purchase of paper clips.

c) The purchase of Telstra shares.

d) The purchase of a used car.

2) Economics is the study of

a) the choices everybody makes to attain their goals, given their scarce resources.

b) supply and demand.

c) how to make money in a market economy.

d) how to make money in the stock market.

3) The economy is considered to be at full employment when

a) all unemployment is voluntary.

b) all unemployment is frictional or structural.

c) there are no unemployed workers.

d) there are more unemployed workers than job vacancies

4) An example of an intermediate good would be

a) a can of cool drink sold by a super‐market.

b) a microwave used at home.

c) the bread that goes into a sandwich sold by a lunch bar.

d) the petrol purchased by consumers for their cars

5) From 2004 to 2005, the CPI for medical care increased from 260.8 to 272.8. What was the inflation rate for medical care?

a) 12 percent

b) 11.1 percent

c) 4.9 percent

d) 4.6 percent

6) A shift outwards of the nation's production possibility frontier can occur from

a) a reduction in unemployment.

b) an increase in the size of the labour force.

c) a change in the amounts of one good desired.

d) a natural disaster like a hurricane or severe earthquake

7) What assumptions about humans do economists make?

a) People are greedy and selfish.

b) None, because economics takes humans as given.

c) People are rational and respond to incentives.

d) Humans prefer to live in a society that values fairness above all else.

8) The labour force is the

a) a number of people employed minus the number of people unemployed.

b) ratio of the number of people employed by the number of people unemployed.

c) ratio of the number of people employed to the working-age population.

d) the number of people employed plus the number of people unemployed.

9) The production possibility frontier shows

a) attainable combinations of two products that may be produced with available resources.

b) the various products that can be produced now and in the future.

c) what an equitable distribution of products among citizens would be.

d) the rate of substitution between capital and labour.

10) Which of the following transactions would be included in the official calculation of GDP?

a) Bridgestone sells $2 million worth of tyres to General Motors Holden

b) You illegally download music off the Internet to put on your new iPod.

c) A new iPod.

d) A student buys a used textbook at the bookstore.

11) What are the three fundamental questions that any economy must answer?

a) What will be the prices of goods, how will these goods be produced, and who gets them?

b) What will be the prices of goods, what will be produced, and who gets them?

c) What will be produced, how will these goods be produced, and who gets them?

d) How much will be saved, what will be produced, and how can these goods be fairly distributed?

12) If the nominal interest rate is 6% and the inflation rate is 2%, then the real interest rate is

a) 3%.

b) 2%.

c) 4%.

d) 8%.

14) Suppose that a very simple economy produces three goods: movies, burgers, and bikes. Suppose the quantities produced and their corresponding prices for 2004 and 2009 are shown in the following table:

	2004		2009
	Quantity	Price	Quantity	Price
Movies	20	$6	30	$7
Burgers	100	$2	90	$2.5
Bikes	3	$1000	6	$1100

What is real GDP in 2009, using 2004 as the base year?

a) $3690

b) $7035

c) $6360

d) $3320

15) If the production possibility frontier is graphed as a straight line, what does this mean?

a) Opportunity costs are constant as production shifts from one product to the other.

b) It is easy to efficiently produce output.

c) Nothing, there is no significance of a straight line production possibility frontier.

d) Opportunity costs are increasing as production shifts from one product to the other.

16) If you have both an economics exam and a management exam tomorrow, but find that you have time to fully study for only one of them, what are you facing?

a) A failing grade in both exams

b) A zero opportunity cost

c) A trade‐off

d) An impossible situation

17) Which of the following is a problem inherent in centrally planned economies?

a) Production managers do not satisfy consumer wants but the government's orders.

b) Too much production of low‐cost, high‐quality goods and services.

c) There are no problems, everyone, including consumers are satisfied.

d) None of these describe the problem inherent in a centrally planned economy.

18) Inflation is an increase in the

a) average hourly wage rate.

b) general price level in the economy.

c) the overall level of economic activity.

d) rate of growth of GDP.

19) Total production in the economy is measured as the

a) dollar value of all final goods and services produced in the economy.

b) the total number of services produced in the economy.

c) the total number of goods produced in the economy.

d) the total number of goods and services produced in the economy.

20) An increase in the price of dairy products produced domestically will be reflected in

a) Both the GDP deflator and the consumer price index.

b) Neither the GDP deflator nor the consumer price index.

c) The GDP deflator but not in the consumer price index.

d) The consumer price index but not in the GDP deflator.

21) The reason that opportunity cost arises is that

a) money has proven to be an inefficient means of facilitating exchange in a market.

b) sometimes there are no alternative decisions that can be made.

c) resources are limited at any point in time. d) people have unlimited wants.

21) You have an absolute advantage whenever you

a) are better educated than someone else.

b) can produce something at a lower opportunity cost than others.

c) can produce more of something than others with the same resources.

d) prefer to do one particular activity.

22) Which of the following is an example of a worker experiencing cyclical unemployment?

a) A Freightliner employee who was sacked because of a recession.

b) A worker who quits his job because he does not get along with his boss

c) A worker that changes jobs to move closer to her family.

d) An assembly line worker who loses his job because of automation.

23) A company named Home Depot sells new and used doors to contractors who build new homes. Home Depot also sells new and used doors to home‐owners. Which of the following would be counted in GDP?

a) The sale of a used door to a home‐owner

b) The sale of a used door to for construction for installation into a new home.

c) The sale of a new door to for construction for installation into a new home.

d) The sale of a new door to home‐owner.

24) If you buy shares, the dollar value is

a) not included in GDP.

b) included in GDP under consumer expenditure.

c) included in GDP as a business expense.

d) included in GDP under-investment.

25) During the 1930s, Australia and other industrialised countries experienced the Great Depression with a large number of workers and factories unemployed.Which of the following points on a production possibility frontier model would represent this experience?

a) A point on the frontier

b) A point inside the frontier

c) An increase in the opportunity cost of the substitution between capital and labour

d) A point outside the frontier

26) How is the decision about what goods and services will be produced made in a market economy?

a) The government decides on what will be produced.

b) Producing firms decide to produce only what the firms' owners say must be produced.

c) By consumers, firms, and government choosing which goods and services to buy.

d) What will be produced is determined by what society needs the most.

27) In the country of Shem, the CPI is calculated using a market basket consisting of 5 apples, 4 loaves of bread, 3 robes and 2 gallons of gasoline. The per‐unit prices of these goods have been as follows: Using 2002 as the base year, what was the inflation rate between 2003 and 2004?

a) 28.5 percent

b) 34.2 percent

c) 47 percent

d) It is impossible to determine without knowing the base year.

28) Given the following information, calculate the unemployment rate: Full‐time employed = 80 Part‐time employed = 25 Unemployed = 15 Discouraged workers = 5 Members of underground economy = 6 Consumer Price Index = 110

a) 18.8 per cent.

b) 12.5 per cent.

c) 16.7 per cent.

d) 25 per cent.

29) If the quantity of resources available is fixed, as more of a good is produced, the opportunity cost of producing it increases. The most probable reason for this is that

a) as more of a good is produced, the quality of technology available to produce additional units declines.

b) the price of the inputs used to produce the good will rise.

c) consumers are unwilling to pay higher prices to cover the increases in production costs.

d) resources are not equally well‐suited to producing all goods.

30) Which of the following is a normative statement?

a) The current high price of petrol is the result of strong worldwide demand.

b) The price of petrol is too high.

c) Larger vehicles always use more fuel per kilometre than smaller vehicles

d) The supply of petrol has not been able to meet the demand for petrol.

31) Transfer payments are not included in GDP because

a) they do not generate income.

b) their market value is difficult to measure.

c) they are not purchases of goods or services.

d) their value is included in government expenditure.

32) The opportunity cost of going to your economics class

a) depends on the cost of your transport getting to class.

b) is equal to the highest value of alternative use of the time.

c) is zero because there is no admission charged if you are enrolled in the class.

d) depends on the salary of the lecturer.

33) Establishing employment agencies that speeds up the process of matching unemployed workers with unfilled jobs are an attempt to lower

a) cyclical unemployment.

b) seasonal unemployment.

c) structural unemployment.

d) frictional unemployment.

34) Suppose that money GDP for 2009 was $15 000 billion and the price index was 150 and in 2010 money GDP was $17 050 billion with a price index of 155. What is the rate of economic growth?

a) 5%

b) 10%

c) 2%

d) 1%

35) An individual has a comparative advantage in activity whenever she

a) also has an absolute advantage in that activity.

b) can perform the activity at a lower opportunity cost than another person can.

c) can do everything better than everyone else can.

d) can do the activity in less time than anyone else.

36) GDP is not a perfect measure of wellbeing because

a) GDP is adjusted for increases in drug addiction.

b) GDP is not adjusted for the effects of pollution.

c) GDP is adjusted for changes in crime.

d) the value of leisure is included in GDP.

37) What does an entrepreneur do in a market economy?

a) Organise the factors of production in a working unit.

b) Stand to lose the personal funds provided.

c) Develop the vision for the firm and ensure funding for the firm.

d) An entrepreneur does all of these things.

38) An example of a transfer payment is

a) the purchase of a new government office block.

b) a teacher's pay is transferred electronically from the government to the teacher.

c) interest repayments on a loan.

d) an unemployment benefit.

39) Which of the following is a microeconomics question?

a) What will be the level of total production in the national economy?

b) How much income will be saved and how much will be spent on consumer goods?

c) What factors determine the price of computers in the market?

d) Why is the rate of unemployment rising?

40) The measure of production that values production using current prices is called

a) value-added GDP.

b) nominal GDP.

c) black economy GDP.

d) real GDP.

41) Which of the following causes the official measure of the unemployment rate to understate the true extent of joblessness?

a) People who collect unemployment benefits report themselves to be searching for a job.

b) Discouraged workers are counted as unemployed.

c) Discouraged workers are not counted as unemployed.

d) Many full-time workers really want to be part-time workers.

42) A production possibility frontier will shift inwards if

a) inefficiency in production processes arise.

b) there is an increase in the rate of unemployment.

c) productive resources are destroyed due to war.

d) all of these options are correct.

43) Structural unemployment would increase when

a) discouraged workers drop out of the workforce.

b) the economy enters a recession.

c) the number of individuals who quit their job to find another increase.

d) workers are replaced by machines and the workers do not have the skills to perform new jobs.

44) The 2005 CPI was 196 and the 1982 CPI was 96.5. If your parents put aside $1,000 for you in 1982, how much would you have needed in 2005 in order to buy what you could have bought with the $1,000 in 1982?

a) $1,834.20

b) $2,031.09

c) $2,308.89

d) None of the above is correct.

45) What is an economic model?

turquoisedeer68

Can you summarize this article and wrtite down some important points regarding GDP?

NEW YORK â Striving to revive the world economy while simultaneously responding to the global climate crisis has raised a knotty question: are statistics giving us the right âsignalsâ about what to do? In our performance-oriented world, measurement issues have taken on increased importance: what we measure affects what we do. If we have poor measures, what we strive to do (say, increase GDP) may actually contribute to a worsening of living standards. We may also be confronted with false choices, seeing trade-offs between output and environmental protection that donât exist. By contrast, a better measure of economic performance might show that steps taken to improve the environment are good for the economy. Eighteen months ago, French President Nicolas Sarkozy established an international Commission on the Measurement of Economic Performance and Social Progress, owing to his dissatisfaction â and that of many others â with the current state of statistical information about the economy and society. On September 14, the Commission will issue its long-awaited report. The big question concerns whether GDP provides a good measure of living standards. In many cases, GDP statistics seem to suggest that the economy is doing far better than most citizensâ own perceptions. Moreover, the focus on GDP creates conflicts: political leaders are told to maximize it, but citizens also demand that attention be paid to enhancing security, reducing air, water, and noise pollution, and so forth â all of which might lower GDP growth. The fact that GDP may be a poor measure of well-being, or even of market activity, has, of course, long been recognized. But changes in society and the economy may have heightened the problems, at the same time that advances in economics and statistical techniques may have provided opportunities to improve our metrics. For example, while GDP is supposed to measure the value of output of goods and services, in one key sector â government â we typically have no way of doing it, so we often measure the output simply by the inputs. If government spends more â even if inefficiently â output goes up. In the last 60 years, the share of government output in GDP has increased from 21.4% to 38.6% in the US, from 27.6% to 52.7% in France, from 34.2% to 47.6% in the United Kingdom, and from 30.4% to 44.0% in Germany. So what was a relatively minor problem has now become a major one. Likewise, quality improvements â say, better cars rather than just more cars â account for much of the increase in GDP nowadays. But assessing quality improvements is difficult. Health care exemplifies this problem: much of medicine is publicly provided, and much of the advances are in quality. The same problems in making comparisons over time apply to comparisons across countries. The United States spends more on health care than any other country (both per capita and as a percentage of income), but gets poorer outcomes. Part of the difference between GDP per capita in the US and some European countries may thus be a result of the way we measure things. Another marked change in most societies is an increase in inequality. This means that there is increasing disparity between average (mean) income and the median income (that of the âtypicalâ person, whose income lies in the middle of the distribution of all incomes). If a few bankers get much richer, average income can go up, even as most individualsâ incomes are declining. So GDP per capita statistics may not reflect what is happening to most citizens. We use market prices to value goods and services. But now, even those with the most faith in markets question reliance on market prices, as they argue against mark-to-market valuations. The pre-crisis profits of banks â onethird of all corporate profits â appear to have been a mirage. This realization casts a new light not only on our measures of performance, but also on the inferences we make. Before the crisis, when US growth (using standard GDP measures) seemed so much stronger than that of Europe, many Europeans argued that Europe should adopt US-style capitalism. Of course, anyone who wanted to could have seen American householdsâ growing indebtedness, which would have gone a long way toward correcting the false impression of success given by the GDP statistic. Recent methodological advances have enabled us to assess better what contributes to citizensâ sense of well-being, and to gather the data needed to make such assessments on a regular basis. These studies, for instance, verify and quantify what should be obvious: the loss of a job has a greater impact than can be accounted for just by the loss of income. They also demonstrate the importance of social connectedness. Any good measure of how well we are doing must also take account of sustainability. Just as a firm needs to measure the depreciation of its capital, so, too, our national accounts need to reflect the depletion of natural resources and the degradation of our environment. Statistical frameworks are intended to summarize what is going on in our complex society in a few easily interpretable numbers. It should have been obvious that one couldnât reduce everything to a single number, GDP. The report by the Commission on the Measurement of Economic Performance and Social Progress will, one hopes, lead to a better understanding of the uses, and abuses, of that statistic. GDP Fetishism - Project Syndicate 2/8/10 4:05 PM http://www.project-syndicate.org/commentary/stiglitz116/English Page 2 of 3 The report should also provide guidance for creating a broader set of indicators that more accurately capture both well-being and sustainability; and it should provide impetus for improving the ability of GDP and related statistics to assess the performance of the economy and society. Such reforms will help us direct our efforts (and resources) in ways that lead to improvement in both. Copyright: Project Syndicate, 2009. www.project-syndicate.org Reprinting material from this website without written consent from Project Syndicate is a violation of international copyright law. To secure permission, please contact [email protected]. tvselvakumaran 05:30 30 Sep 09 The official consensus Professor Martin Feldstein's latest article, "The G-20's Empty Promises" on Project Syndicate needs careful consideration. In his article, Professor Feldstein essentially adopts the "official consensus" of the economics profession on the current economic crisis. This official consensus, in its various mainfestations, has also been elaborated on by other famous economists, notably Professor Robert Lucas in his article in the Economist in early August, and by Professor Paul Krugman in his recent article in the New York Times Magazine. One characterizing feature of this official consensus is a confidence (a.k.a. triumphalism) in the certainty of outcomes predicted by modern economic theory. The main precepts of this official consensus are (i) Professor Ben Bernanke, the Chairman of the Board of Governors of the Federal Reserve, has at his disposal all the theoretical tools of economics that are necessary and sufficient to deal with the current economic crisis. As Professor Lucas explains it in his Economist article, if one were able to predict in advance exactly when a market crash would occur, it would imply that the market entertains arbritrage opportunities. Hence, it is not possible to predict financial crises in advance. However, except for the precise timing of the occurrence of financial crises, macroeconomic theory could explain the workings of the economy completely. In particular, to avert the recurrence of the Great Depression, certain actions were needed to be taken by the Fed -- the specifics of these actions were all clearly understood by the economics profession. However, it was politically untenable to take these actions before there was a financial crisis. Once the financial crisis occurred though, Professor Bernanke could intervene in the markets and take the necessary actions (in the Fall of 2008). These actions include the injection of several trillion dollars into the economy and making the availability of credit the cheapest possible. The actions taken by the Fed have now resulted in the economy avoiding a recurrence of the Great Depression. This is, in brief, what Professor Lucas has stated in his Economist article. (ii) Thus in Professor Lucas' interpretation of things, the collapse of Lehman Brothers, for example, was necessary, in order to justify the intervention of the Federal Reserve in the functioning of the markets. The collapse of Lehman Brothers was, although regrettable, an unavoidable event. But, on the whole, monetary policy, even if it is a profligate one, would be necessary and sufficient to prevent the recurrence of the Great Depression, in Professor Lucas' view. Furthermore, the old wisdom of the Chicago School that government should be kept minimal at all times continues to hold, even in light of the current economic crisis. The Keynesians led by Professor Krugman, on the other hand, believe that Lehman Brothers should never have been allowed to fail. In their view, when the Fed's fund rate is at zero, monetary policy is largely ineffective for sustaining and stimulating economic activity. This is because of liquidity traps caused by businessmen who don't see economic opportunities that would induce them to borrow the cheap money available from the banks. Hence the government should step in to provide massive fiscal assistance to the economy by taking on spending directly, even if it means assuming trillions of dollars of public debt. (iii) Professor Krugman scored a lot of points by pointing out that the current state of economic theory, highly influenced as it is by the efficient market hypothesis of the Chicago School, indicated that a crisis of such magnitude as the current economic crisis could not happen at all. This fundamental failure to recognize that an enormous crisis could indeed happen, calls for the overthrow of the policy that markets provide the best social gain when they are completely free from government interference. From first impressions, it might seem that the views of the monetarists and Keynesians are vastly different. However, it is important to note that in the view of the Keynesians too, once large scale government spending as prescribed by the Keynesians is instituted, there is again enough assurance that modern economic theory (although with a heavy Keynesian tilt) would be sufficient to deal with the current economic crisis. (iv) In this regard, perhaps it is relevant to refer here to Professor Robert Shiller's latest article, "Re-inventing Economics" on Project Syndicate. Professor Shiller points out that the free market ideology fails to identify bubbles. Because of the belief that markets know best on all occasions, bubbles cannot occur according to the free market ideology. Professor Shiller's approach pursues a different branch of the Keynesian school of thought than the big spenders. Rather than advocate large government spending to avert a depression, Professor Shiller proposes using techniques from behavioral psychology to predict bubbles in advance. In this way, the socially harmful effects of massive misallocations of capital that arose in the case of the housing bubble or the tech bubble could be prevented in the future. In his other recent article, "Echo Chamber of Boom and Bust" in the New York Times, Professor Shiller elaborates further on the techniques that one could use for studying bubbles. Briefly, the process by which confidence or panic spreads in markets is very similar to the process by which diseases spread among populations. This outlook allows for introducing methods that scientists use to study epidemics into the study of bubbles. (v) The Keynesians have also managed to re-write the conventional wisdom on the advantages of a strong dollar. Through the works of Professors Barry Eichengreen, Jeffrey Sachs and Ben Bernnake, a consensus has developed that attempting to support the gold standard was a major cause for the prolongation of the Great Depression. This has resulted in a viewpoint among economists that a devaluation of the dollar at present would help to reduce global imbalances by restoring the American manufacturing industry. The implications of this viewpoint were analyzed by Professor Feldstein in his July 2009 article "America's Saving Rate and the Dollar's Future" on Project Syndicate, with the conclusion that devaluation of the dollar would necessarily lead to a better future for GDP Fetishism - Project Syndicate 2/8/10 4:05 PM http://www.project-syndicate.org/commentary/stiglitz116/English Page 3 of 3 America. Lost in this new interpretation is the fact that a stable dollar provides many economic benefits for America. The equity premium for American companies taking more risks globally, the transaction charges for providing market making facilities in global markets, and the provisions of liquidity for the currency of international trade are major drivers of economic growth for America, which derive from the dollar being the global reserve currency. (vi) Some other Keynesians have gone beyond questioning just the free market ideology. For example, in his latest article, "GDP Fetishism" on Project Syndicate, Professor Joseph Stiglitz proposes a broad set of economic indicators like health, well-being and sustainability rather than a narrow focus on GDP growth. Yet other developments imply that the rest of the world is steadily moving away from using the dollar as the main reserve currency. To finance this new global reserve system, the IMF has created $250 billion worth of Special Drawing Rights (SDR), and the IMF has indicated its intention to triple this allocation of $250 billion in the future. It would need a strong commitment from the policy-makers in America to re-claim for the dollar its position as the predominant global reserve currency. However, judging from the writings of American economists like Professor Feldstein, it appears that the consensus among professional economists favors devaluing the dollar instead. (vii) The official consensus is a result of a grand compromise between the Chicago School economists and the Keynesians.The conservative economists of the Chicago School would like to avoid the embarassment of getting publicly criticized for the failures of the efficient market hypothesis that this current economics crisis has severely exposed. So famous conservative economists like Professor Lucas have reached out for a consensus by indicating their willingness for a compromise. This compromise involves among other things, (a) foregoing raising concerns about the government's mismanagement of Fanie Mae and Freddie Mac, and (b) lending support to the Fed and the Treasury in their efforts to stabilize the economy, even if the methods that the Fed and the Treasury employ are highly inefficient. What are the Keynesians compromising on? Well, the Western liberal tradition has been intellectually bankrupt ever since the late 1960s. It is only the free market ideology of the Chicago School that has served as the driver of wealth creation in the advanced countries during the last four decades. Hence, the official consensus is a convenient compromise for the Keynesians to avoid asking difficult questions about the future of the Western liberal tradition. Instead, they would like to enact much drama in the media about the resurrection of their hero, John Maynard Keynes. (viii) One other characterizing feature of the official consensus in the economics profession is a collective tendency to "Blame It All On Obama". The conservative economists blame President Obama for not focusing adequately on America's ballooning national debt. The liberals, led by Professor Krugman, fault President Obama for getting distracted from the left's free spending ways by concerns on the size of the fiscal deficit. In the confusion that has ensued, President Obama's own team of economics advisors has fallen back on the official consensus in the economics profession. Availing themselves of the security provided by this official consensus, President Obama's economics team has misled the President thoroughly in economic matters. To begin with, the President is only empowered to administer the nation's affairs for a four year term. The projections put out by the Congressional Budget Office (CBO) for the deficits in the next decade are only a non-authoritative guidance for where the nation's finances would be, if current policies hold for the next decade. Instead, the democrats have been behaving as if the $9 trillion of additional public debt that the CBO projects for the next decade is already a given certainty. In particular, they have not been careful to mention clearly in public discussions how much of this extra spending can be attributed to the President's own spending plans in his current four-year term. Neither have they shown any concerns for taking the Fed and the Treasury to taks for their highly inefficient methods to stabilize the economy. Because of these instances of neglect, the public is not willing to trust the government in financial matters. President Obama has rapidly lost his approval ratings. Professor Lawrence Summers, Professor Christina Romer, Professor Austan Goolsbee and Professor Peter Orszag are directly responsible for this abuse of public trust. (ix) The official consensus has also prevented economists from recognizing that President Obama's universal message of tolerance and justice, which has been received very favorably all around the world, actually opens up vast areas of economic opportunity for America. Unfortunately, it does not matter, for the economists, whether George W. Bush or Barack Obama is in office. The most they can do is re-work their models to favor Keynesian policies, and to argue that the policies they propose arise directly from their number-crunching methods. One might be tempted to attribute this widespread consensus among economists to stick to a narrow theoretical interpretation of the current economic crisis, to the certainty afforded by the mathematical models, which have become indispensible through the course of the 20th century, for the development of economic theory. However, this would be a big mistake. The official consensus in the economics profession is primarily a result of undue influences of power and money. It is much less a result of mathematically based economic theory. In the longterm, this attitude among economists of sticking to an official consensus is going to do serious damage to the American economy. Some other aspects of the official consensus have been explained very well by Professor Kenneth Rogoff in his recent article, "The Confidence Game" on Project Syndicate. I recommend that the reader go through that article. The official consensus is the single largest threat to a robust recovery in the global economy. The official consensus also gravely misinterprets the events of the Great Depression. The implications of this misinterpretation bear directly on the economic health of America.

ECON1101 Chapter Notes - Chapter 2: Microeconomics, Opportunity Cost, Political Philosophy

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