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Why does “substitution bias” arise if the inflation rate is calculated based on a fixed basket of goods?

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Module 1

Unit 1

Is the above video a good example of scarcity?  How could water be scarce?  List at least three personal examples of scarcity that you have encountered.  Imagine that scarcity no longer existed, would you still be taking this course?  Explain.  Click on create thread to begin.


Unit 2

Why do you think that U.S. GDP has not grown as fast as China’s GDP over the last ten years?  If you were in charge of trying to make the U.S. economy grow faster, what would you do?


Unit 3

1.  Over the past 50 years, many countries have experienced an annual growth rate in real GDP per capita greater than that of the United States.  Does this mean the U.S. is regressing relative to other countries?  Does this mean that the U.S. real GDP will eventually be smaller than most countries?  Explain.

2.  How did the Industrial Revolution increase the rate of economic growth and income levels in the United States?


Unit 4

1.  Are all people over 18 who are not working counted as unemployed by the Bureau of Labor and Statistics?  Explain.

2.  Is the decrease in the unemployment rate always a good thing?  Explain.

3.  Is zero unemployment a desirable outcome?  Explain.


Unit 5

1.  Why does “substitution bias” arise if the inflation rate is calculated based on a fixed basket of goods?

2.  Identify several parties likely to be helped and hurt by inflation.  Explain how they are helped or hurt.

3.  Who in an economy is the big winner from inflation?  Explain.


Module 2

Unit 1

In your view, is the economy currently operating in the Keynesian, intermediate, or neoclassical portion of the economy’s aggregate supply curve?  Explain.

2.  If households decide to save a larger portion of their income, what effect would this have on the output, employment, and price level in the short run?  What about the long run?


Unit 2

What is a recession?  How is it defined?  If Keynes were alive today, how do you think he would advise President Obama to move the U.S. economy out of a recession?  What would be your advice?


Unit 3

1.  What is the difference between rational expectations and adaptive expectorations?

2.  Explain why neoclassical economists believe that nothing much needs to be done about unemployment.  Do you agree or disagree?  Explain.

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