Class Questions week 1

1. Draw a possible demand curve for tomatoes (no need for numerical prices or quantities, just
shape). Show on the graph what would happen if it were announced that eating tomatoes
could cure killer diseases.

2. Can you think of any good where the demand curve could be upward sloping? Why?

3. What does a completely inelastic demand curve look like?

4. Define the following goods

 Normal

 Inferior

5. If
Qd = -4P +1600

plots the demand curve for a good. What is the EPQ (price elasticity of demand) if the price of
that good is increased from 100 to 101? Can this be described as elastic or inelastic?

Suppose we increase the price from 300 to 301. What is the elasticity of the curve at this
point?

What can we say about elasticity at different points of the curve?

6. Give advice to a company that wants to increase revenue. Should they increase or decrease
the price? What should the decision depend on?

7. The price of coffee machines is lowered. Draw this on your demand curve graph for coffee
machines.

Now draw the original demand curve and then the new demand curve for coffee on a
demand curve graph for coffee.
Class Questions week 2
1. Real & Nominal Prices

Consider gas prices. Compare prices in 2013 and 1960. Complete the following tables.

Nominal price Consumer Price Index Real price

1960 $ 0.30 25 $ 0.30
2013 $ 4.50 230 X

Where X = Real Price of gas in 2013 in terms of 1960 prices

Nominal price Consumer Price Index Real price

1960 $ 0.30 25 Y
2013 $ 4.50 230 $4.50

Where Y is the Real Price of gas in 1960 in terms of 2013 prices.

What is the real price percentage increase?

Why is it important to know if there has been a real price increase or a nominal price increase?

What is a price index and why do its contents change over time?

2. If a company is using profit from product A to help produce product B, which of the products
will be ‘unfairly’ priced for the consumer and inefficiently priced for the producer in the short
-run?

3. What does economies of scale mean in production mean? At what level of production do we
expect to see this and why?

4. What is the difference between the price an individual firm will charge in a perfectly
competitive market and in a monopolistic market?
Class Questions week 3

1. Fill out all the definitions about Capital, GDP and labour on the powerpoint

2. If employees’ wages pay for less now than in the past, can we can anything about their real
wage, their nominal wage in compared to the past?

3. Is the wage level positively related to the level of education? What are the consequences for
labour productivity? the labour supply? Show on the graph below.

4. If economic immigrants are satisfied with lower wages than the general population and there
are a significant number of them, what are the consequences for the labour supply and the
labour market equilibrium? Explain and show on the graph below, where Price is the wage
and Quantity is the quantity of Labour.

5. What effect does a minimum wage have on the labour market? Show on the same graph.

6. What effect does an increase in social security contributions have?

7. Why is long-term unemployment worse than lots of short-term unemployment on the

economy?
Class Questions week 4
1. What is the intrinsic value of the money we use today and why do we accept it as money?

2. What is the nominal value of money?

3. What is fiat money and what are the advantages and disadvantages of using it?

4. We can divide Money Demand into 3 parts. Explain what they are.

5. What happens to the interest rate with expansionary monetary policy? With contractionary
monetary policy?

6. What is liquidity?

7. What is the Euribor rate and who controls it?

8. Would you advise someone to choose for fixed or variable interest rates? Why?

9. What differences are there in the interest rate and the clients between the wholesale and the
retail money market?

10. What are open market operations and the result of these?

A. What is inflation?

B. What are the causes of inflation? Be specific

C. What are the effects of inflation?

D. Who are the winners and losers in the inflation story?

E. Your company wants to take out a loan of 1 million euros for 1 year in 6 months’ time. The current
interest rate is 4.5%. You believe it will be 7% in 6 months.

What forward rate agreement contractual rate would you be prepared to accept?

You manage to get one for 6%.

Scenario 1: in six months the interest rate is 7.5%. What are your total payments and what have
you saved?

1 million X …

Scenario 2: In six months the interest rate is still 4.5%. What are your total payments and what
have you lost?

1 million X …

F. What is hyperinflation and what is the result? How can we solve inflation in general? Be specific
Class Questions week 5

What is the MPC (marginal propensity to consume)? If your company invests 20 million in a country
where the MPC is 80%, what will the total expenditure be (including the initial investment)?

Explain why the marginal propensity to consume for an increase in social security benefits is often
higher than an increase in wages.

1. Explain why you as a producer of pot noodles should follow trends in social security benefits.
What assumption are you making about pot noodles?

2. Explain how a rise in the real interest rate would affect the MPC.

3. Explain how a decrease in consumer confidence about the future would affect the MPC.

4. What is the Keynesian view on how to stabilize business cycle?

5. What is the criticism by the classical/monetarist economists?

6. What is wrong with going for growth according to 21st century economists? What 3 things do
we need to address according to Raworth?

7. Explain the importance of the following terms either as causes of a greater susceptibility to
business cycles or as solutions.
Class Questions week 6
1. What is the spot rate of the euro today against the yen, American dollar and pound sterling?

Quote both direct and indirect rates.

2. Can the dollar depreciate, appreciate, devalue or revalue?

What about the euro?

3. Find the six-month forward rate of the euro against the dollar. Can we talk of a discount or
premium? What is the best predictor of future spot rate?

4. According to purchasing power parity if a basket of goods costs 100 pounds sterling in the UK
and 130 dollars in the USA, what do we expect the exchange rate to be? If the exchange rate
is however £1= $1.5 dollars, what will happen? If the rate is £1= $1.2, what will happen?

5. What is the Big Mac index? Does it solve the problem of the limitations of PPP?

6. What are some of the advantages and disadvantages of fixed and floating exchange rates?

7. Ashley wants to invest 1,000,000 euros for 3 months and can choose between:

Investing in euros at 2% interest per annum

or

Investing in yen at 0.5% interest per annum, with an exchange rate where 100 yen = 1 euro and a 3-
month forward contract is available where 98 yen = 1 euro.

What is your advice? Why?

8. Ashley believes that positive Brexit negotiations mean the price of the euro will go up against
the pound sterling.

Now the exchange rate is £100 = €112.

Ashley can buy a call option at the strike price of €115 believing the price will be even higher than
that at the end of an expiration date.

The spot rate at the end of the expiration period is €119.

How much is Ashley’s profit / loss?