Instructions

1. What is "the economic problem"?

2. Indicate whether each of the following topics would be primarily studied by macroeconomists or by microeconomists.

1. a family's decision about how much income to save
2. the impact of higher national saving on economic growth
3. the relationship between the currency exchange rate and net exports
4. a firm's decision about how many workers to lay off
5. the relationship between the inflation rate and the quantity of money
6. the effect of government regulations on automobile emissions

3. Indicate whether each of the following statements are normative or positive economic statements.

1. A reduction in the rate of money growth will reduce the rate of inflation.
2. Society faces a short-run trade-off between inflation and unemployment.
3. Society ought to require welfare recipients to look for jobs.
4. Lower tax rates encourage more work and more saving.
5. The Federal Reserve should reduce the rate of money growth.
6. The economy will grow at a rate of 2.1% next year.

An economy consists of three workers: Larry, Moe, and Curly. Each works ten 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 cars; Moe can either mow one lawn or wash two car; Curly can either mow two lawns or wash one car.

4. If all three spend half their time washing cars and half their time mowing lawns, how many cars would be washed and how many lawns would be mowed in a day?

5. If all three spend all their time mowing lawns, how many cars would be washed and how many lawns would be mowed in a day?

6. If all three spend all their time washing cars, how many cars would be washed and how many lawns would be mowed in a day?

7. If they specialize: Moe spends all his time washing cars, Curly spends all his time mowing lawns, and Larry spends half his time doing each activity, how many cars would be washed and how many lawns would be mowed in a day?

8. Draw their production possibilities frontier, being sure to label the axes with both units and numbers.