Ap Macro

Summer Reading Macroeconomics Guided Reading Questions Directions: After reading the book, please complete the following questions for discussion. Your responses must be typed, and they will be collected on the first day of class. Chapter 1: The Power of Markets 1. What are the two basic assumptions that economists make about individuals and firms? 2. What is the role and significance of prices in the market economy? 3. What’s so great about a market economy anyway? Chapter 2: Incentives Matter 1. Explain how each of the following relates to efficient outcomes in a market economy: * adverse selection * “perverse incentives” * principal-agent problem, * the prisoner’s dilemma. Chapter 3: Government and the Economy 1. In your own words, explain what an externality is. 2. Besides addressing externalities, what other important and beneficial roles does government play in our market economy? Chapter 4: Government and the Economy II 1. What are the main reasons why government should only take a limited role in a market economy? Chapter 5: Economics of Information 1. Wheelan explains that basic economic models assume that all parties have “perfect information.” How does “informational asymmetry” undermine our market economy? Chapter 6: Productivity and Human Capital 1. After reading Wheelan’s argument, do you agree that Bill Gates should be so much richer than you? 2. Evaluate the following statement from p. 113: “We should not care about the gap between rich and poor as long as everybody is living better.” Chapter 7: Financial Markets 1. Explain how get-rich-quick schemes violate the most basic principles of economics. 2. What advice about investing in the stock market did you find most interesting and/or useful? Chapter 8: The Power of Organized Interests 1. Why have mohair farmers earned a subsidy from the federal government for decades?

Chapter 9: