All Terrain Thinking

A Compendium of things I think are Important

Economics: It's not just whats' in your wallet

Questions of the Day
Introduction to Macroeconomics

1. The accompanying graph describes the pattern of sales at Sam's Market during much of the 1970's. As you can see, in 1974 Sam's suffered a substantial drop in sales and has never regained the loss. Sam, the owner of this intermediate size market in Westerly, attributes the loss in sales to a problem with the quality of some of the produce supplied to his market for a brief period in 1974. The error was quickly corrected, but Sam contends that faithful customers were lost during this period and that they never returned. He is therefore attempting to collect from the supplier an amount of money equal to the difference between projected sales and the actual sales over the period 1974-78.

Your job is to prepare a defense for the supplier in this case. You are to outline your plan and describe the rationale for it. Be sure to indicate what you consider the important factors to be considered and what data you would use, how you would obtain the data, and how you would utilize it.

2. In macroeconomics we tend to focus our attention on business cycles-short term fluctuations in the economy. But what about the cycles in attitudes towards public policy, views on the self-adjustment powers of the economy, and the economic 'crises' that have produced these cycles. Please explain the parallel movements in economic policy, economic theory, and economic performance.  Be sure to look closely at the Great Depression era and the stagflation of the 1970s.

3. The AS-AD model plays much the same role in macroeconomics that the S-D model plays in microeconomics.  It provides a way of structuring your thinking as you read the business news and try to make sense of the movements in the economy.  You are to demonstrate with the aid of the AS-AD model the impact of the following events:

• a. a significant recession in Asia
• b. a substantial slide in the value of the yen
• c. a decrease in the price of oil as Iraq's oil production returns to the market

4. What is the relationship between the budget deficit and the trade deficit?

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