Problem Set     1     2   3     4    5    6

CALIFORNIA STATE UNIVERSITY, SACRAMENTO
Department of Economics

Prof. A. R. Gutowsky
Economics 100A

Problem Set 6

Chapter 14

1. You can expect a question on the final like the following: Should Policy be Active or Passive and should it be conducted by rule or by discretion?
        (A) This question will require you to know all of the material in this chapter that pertains to these two questions.

Chapter 15

1. Read this chapter focusing on pages 407-412, the measurement problems, pages 425-428,
2. Access the following websites:

• www.urban.org/retirement And read Brief Series No 4, May 1999 titled "The Coming
  Collapse of the U.S. Economy
• www.concordcoalition.org/federal_budget/001011isuebrief.htm titled "The Surplus Field of Dreams"
  October 11, 2000. On page 5 of this brief access the Congressional Budget Office link found under
  footnote 1 and answer the following questions. Questions like this will appear on the final exam.
• www.rfe.org access the Federal Reserve Bank of New York and read the April 2000 FRBNY
  Economic Policy Review article by Auerbach, "Formation of Fiscal Policy: The Experience of the
  Past 25 Years.

(A) Define mandatory, discretionary, means tested and nonmeans tested expenditures
(B) What are the assumptions underlying the CBO’s budget and surplus projections and how accurate are they?
      Be sure to read Auerbach And Gale article on the CBOs projections found at:                                                                   www.brook.edu/views/papers/gale/20000717.htm

The final exam will have one question on consumption and investment.

Chapter 16

1. Explain how consumption decisions are intertemporal choices.
        (A) Pay particular attention to pages 444-445 on how changes in income affect consumption.
2. Discuss the Life Cycle Hypothesis.
3. Discuss the Permanent Income Hypothesis.
4. Read the conclusion, pages 460-61.

Chapter 17

1. What is the neoclassical theory of investment? What is the rental price of capital? The cost of capital?
2. Know the equations found on pages 467-469.
3. What are the determinants of investment?
4. How can taxes influence investment?
5. What is the Tobin q?
6. Read page 482.

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