Classify the following topics as relating to microeconomics or macroeconomics.

1. a family's decision about how much
2. income to save.
3. the effect of government regulations on auto emissions.
4. the impact of higher national savings on economic growth.
5. a firm's decision about how many workers to hire.
6. the relationship between the inflation rate and changes in the quantity of money.

Question 2

Classify each of the following statements as positive or normative. Explain.

1. Society faces a short-run trade-off between inflation and unemployment.
2. A reduction in the rate of money growth will reduce the rate of inflation.
3. The Federal Reserve should reduce the rate of money growth.
4. Society ought to require welfare recipients to look for jobs.
5. Lower tax rates encourage more work and more savings.

Question 3

An economy consists of three workers: Larry, Moe, and Curly. Each works 10 hours a day and can produce two services: mowing lawns and washing cars. In an hour, Larry can either mow one lawn or wash one car; Moe can either mow one lawn or wash two cars; and Curly can either mow two lawns or wash one car.

1. Calculate how much of each service is produced under the following circumstances, which we label A, B, C, and D:

• All three spend all their time mowing lawns. (A)
• All three spend all their time washing cars. (B)
• All three spend half their time on each activity. (C)
• Larry spends half his time on each activity, while Moe only washes cars and Curly only mows lawns. (D)

1. Graph the production possibilities frontier for this economy. Using your answers to part a, identify points A, B, C, and D on your graph.
2. Explain why the production possibilities frontier has the shape it does.
3. Are any of the allocations calculated in part (a) inefficient? Explain.

Question 4

Draw a circular flow diagram. Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities.

1. Selena pays a storekeeper $1 for a quart of milk.
2. Stuart earns $8 per hour working at a fast-food
3. restaurant.
4. Shanna spends $40 to get a haircut.

Salma earns $20,000 from her 10 percent ownership of Acme Industrial.