Economics Problem Set

1.) What was Fisher’s Quantity Theory of Money Equation? Identify and explain each variable. Explain the relationship Fischer said existed between inflation and interest rates.

2.) Keynes’ theory was not a radical break from Classical Economics like Marx but it still represented a significant deviation in many areas; economically, politically and even in the philosophy of the balance of power between the state and the individual. Explain in detail 3 specific ways that Keynes broke with Classical Economics.

3.) In the opening line of “The Pure Theory of Public Expenditure”, Samuelson makes an interesting statement that few economists have actually done much work in the area of public expenditures up to that point but had focused on taxation. This article reflects a clear change in thinking about the government’s role in the economy. Explain the shift this article represents with its focus on government expenditures and the notion that there is an optimal level of government expenditure.

4.) The Keynesian School argues for policy makers to have discretion and be able to respond to changes in the economic situation, primarily through the fiscal policy of changing government expenditure levels and tax rates. Friedman had a different view. Explain Friedman’s Monetarist approach and how it differed from Keynes/Samuelson.