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engineering
chemical engineering

Questions and Answers of Chemical Engineering

The number of U.S. autoworkers has decreased considerably, in part due to the decline of the auto industry but also due to changes in the way that automobiles are manufactured. In light of the
What is a shock? Give an example of a macroeconomic shock.
An Associated Press article about sticky prices states: “That’s what analysts call it when companies slap higher prices on products and keep them there even though the rationale for the price
What is an expansion? What is a recession?
Why are nominal prices and wages sticky in the short run?
Why is it costly for firms to change prices?
The price of a bottle of Coke remained constant for nearly 70 years, but the prices of other types of goods can also be very sticky. Identify at least two products that have prices that change
In Chapter 7, we saw that one possible explanation for higher natural rates of unemployment in Western Europe than the United States was stronger unions. Strong unions may also increase the severity
Consider the following statement: “If all nominal wages and prices adjusted instantly, there would be no business cycle.”Do you agree with this statement? Briefly explain.
What effect would each of the following factors have on the stickiness of nominal wages and prices? Would these factors increase or decrease the severity of the business cycle? a. Grocery stores
How does the National Bureau of Economic Research (NBER) define a recession? What data do the NBER consider when determining whether the economy is in a recession?
Suppose that potential GDP in a small country is $10,000 in year 1 and real GDP is also $10,000. Potential GDP grows at a rate of 3% per year. a. Calculate potential GDP for the next six years. b. If
Consider the following statement: “In a business cycle, recessions are followed by expansions. Therefore, it is not necessary to be concerned about the costs of business cycles, because they will
Explain how each of the following workers may be permanently affected by the situation described. a. Satyajit loses his job during a recession and remains unemployed for a long period of time. b.
Some economists believe that the severity of the 2007–2009 recessions may have permanently changed Okun’s Law. Okun’s law states that as real GDP increases by 1 percentage point relative to
For each of the following, define the variable and state why it is a leading, lagging, or coincident indicator.a. Average duration of unemploymentb. Stock pricesc. Personal income minus transfer
What would each of the following tend to indicate about the state of the economy? That is, in each of these situations, is the economy likely to be headed for a recession, in a recession, headed for
Consider the following statement: “Large countries such as the United States, in which a relatively small portion of GDP comes from international trade, are not likely to be affected by business
Discussing business cycles, an article from the Federal Reserve Bank of Dallas stated: “Volatility can also spill over into real and financial asset markets, where severe price movements can
How might economic uncertainty resulting from business cycles affect long-term economic growth?
What has been the average duration of U.S. recessions since World War II? What has been the average duration of U.S. expansions since World War II? What factors have contributed to the moderating of
Give examples of a procyclical and a countercyclical variable. Give examples of a leading, a lagging, and a coincident indicator.
The following table shows data on the quarterly growth rate of real GDP for the U.S. economy:a. Using the rule-of-thumb definition of a recession, did this economy experience any recessions during
What is a multiplier effect? Give an example.
What factors affect the size of the multiplier?
One factor in the 2007–2009 recession was the decline in housing prices due to the bursting of the housing bubble. The housing industry is closely linked to many other markets and to the spending
Suppose that the federal government decides to increase purchases by $10 billion. Briefly explain why this increase in purchases is likely to have a multiplier effect. If the tax rate on personal
A decline in stock prices reduces household wealth and consumption spending. Estimates of U.S. stock market losses in 2008 are around $7,000 billion. a. It is estimated that the propensity to spend
The costs of the Japanese earthquake and tsunami of March 2011 include the direct cost of cleanup and additional costs, such as the loss of revenues from seafood harvests, tourism, and related
In 2011, the U.S. automobile industry appeared to be recovering as the overall economy improved. Suppose, though, that the following unlikely event had occurred: Because of the severity of the
Draw a graph of the goods market and identify the equilibrium level of GDP. Then use your graph to show the effect of each of the following changes:a. Households become more pessimistic and decide to
The graph on the next page shows the goods market in equilibrium at output Y1 .Then the aggregate expenditure function shifts to AE2.a. What could have caused this shift in aggregate expenditures? b.
For each of the following values of the marginal propensity to consume (MPC), find the value of the multiplier. Use the equation from footnote 4 on page 308 to also calculate the value of the tax
Suppose that the marginal propensity to consume is 0.8. a. If the government increases spending by $100 million, what is the change in output? b. If the government increases taxes by $100 million,
The IS curve shows the equilibrium combinations of the real interest rate and real GDP. a. Demonstrate using graphs how the IS curve represents equilibrium in the goods market. b. Now suppose that
For each of the following changes, identify (1) whether there is a shift in the IS curve or a movement along the curve, and (2) if the curve shifts, state the direction in which it shifts. a. The
Consider the following statement: “The IS curve slopes downward because a fall in short-term nominal interest rates increases the money supply and decreases investment spending.” Do you agree
The Great Depression began in the summer of 1929, but the stock market crash of October 1929 may have deepened the initial recession. The stock market crash increased the pessimism of both households
During the 1960s, a major restructuring of the tax code decreased taxes for most people. Also during these years, the war in Vietnam required increased government purchases. a. Which components of
How might actual investment spending be different from planned investment spending?
The name of the IS curve derives from the relationship between investment and saving. a. What is the relationship between investment and saving along the IS curve? b. Why must this relationship hold?
Why does a change in autonomous expenditure lead to a larger change in real GDP?
Explain how the IS curve represents equilibrium in the goods market.
Over which interest rates does the central bank have the most control?
What are the key differences between the short-term nominal interest rate and the long-term real interest rate?
What would cause the MP curve to shift up? Down?
Briefly describe the Fed’s changes in its target interest rate from 2004 to 2008.
Show the following using graphs:a. Show how the MP curve represents equilibrium in the money market.b. Suppose that the Fed increases the target for the federal funds rate. Show the effect on the
For each of the following changes, identify (1) whether there is a shift in the MP curve or a movement along the curve, and (2) if the curve shifts, state the direction in which it shifts. a. The Fed
Consider the following statement: “Central banks control only short-term interest rates, but long-term interest rates are most important for economic activity. Therefore, monetary policy is not
How does a shift to the right of the IS curve affect the output gap and the real interest rate?
In the early 1990s, Japan’s economy experienced a number of shocks due to the bursting of bubbles in real estate and the stock market.a. Use the IS–MP model to show the economy’s equilibrium
In the early 1990s, Finland experienced a severe recession in which real GDP decreased by 14% and the unemployment rate increased from 3% to nearly 20%. The causes of the depression were in some ways
Suppose that a central bank wants to increase economic activity by increasing the rate of growth of the money supply.a. What does this increase in the money supply imply about the target federal
The effectiveness of monetary policy in changing output depends on the slope of the IS curve, which in turn depends on the responsiveness of investment and consumption to the real interest rate. The
In a speech at the Monetary Economics Workshop of the National Bureau of Economic Research, Fed Chairman Ben Bernanke said: “With inflation expectations well anchored, a one-time increase in energy
Problem 4.10 discussed the language that the Fed uses to describe stable inflationary expectations: the idea that expectations are “well anchored.” If expectations are adaptive, are they likely
The Lehman Brothers bankruptcy helped set off a wave of demand shocks around the world.a. Use the IS-MP model to show the effects of these shocks.b. Why was the Fed worried about deflation in the
In the aftermath of the 2007–2009 financial crises, the Fed became concerned about deflation. a. Use the IS–MP model including the Phillips curve to show how a decrease in aggregate expenditure
How is the expected inflation rate measured?
What are adaptive expectations?
For each of the following scenarios, state the likely effect on the price level and whether it is cost related or demand related. a. Unions in the airline and automobile industries successfully
Proponents of supply-side policies that aim to stimulate productivity through tax cuts and work incentives argue that changes in the individual and corporate tax codes and cuts in capital gains taxes
Suppose that the economy is known to be producing at potential output. In other words, the output gap is zero. a. Graph the economy’s initial equilibrium using the IS–MP model including the
Consider the following statement: “Because wages and prices are sticky, the Phillips curve relationship between inflation and the output gap is valid only when the output gap is positive.” Do you
Recent evidence suggests that the Phillips curve has flattened. An article in the Economist states: “A flatter Phillips curve is good news when unemployment is falling. But it also implies bad news
What were the three shocks that the U.S. economy experienced during the 2007–2009 period?
Why did the default-risk premium increase during 2007–2009. How did that increase affect interest rates?
How did the collapse in housing prices after 2006 alter the composition of GDP?
What was the effect of the increase in oil prices during 2008 on the Phillips curve?
China experienced many negative effects of the U.S. recession of 2007–2009. Like the United States, China was faced with higher oil prices. Unlike the U.S. case, housing prices in China did not
Prior to the 2007–2009 recession, China’s inflation rate appeared to be increasing. a. What would a high and increasing rate of inflation imply about China’s output gap? b. What would you
Some economists were concerned that the financial crisis of 2007–2009 would lead to problems with deflation. The Federal Reserve Bank of San Francisco’s Economic Letter stated: “A popular
Consider the following statement: “The event that caused the recession of 2007–2009 was the failure of Lehman Brothers. If Lehman Brothers had not been allowed to fail, there would have been no
This appendix demonstrates why the IS–LM model accurately represents movements in the real interest rate and the output gap during the Great Depression.a. Use the IS–LM model to show the
Explain how the LM curve represents equilibrium in the market for money.
What factors shift the LM curve?
How can the MP curve be derived from the IS–LM model?
In earlier periods, the Fed targeted the money supply. More recently, the Fed has targeted the interest rate. a. Which model best represents the United States today? Which model would you use in
Draw a graph showing the IS–LM model and identify the initial equilibrium.a. For each of the following changes, show the effect on the output gap and the real interest rate.i. The government
Consider the following statement: “Because interest rates in the real world change, it is more appropriate to use the IS–LM model than the IS–MP model.”Do you agree with this statement?
Why did Congress create the Federal Reserve System?
Explain the structure of the Federal Reserve.
What is the Federal Open Market Committee (FOMC), and why is it important?
In 1913, Congress created 12 Federal Reserve districts spread over the country. a. Why did Congress divide the country into districts? b. Some argue that Fed districts should change. Why might this
Consider the following statement: “Because the Chairman of the Fed is appointed by the president of the United States and serves a four-year term, the president controls the Fed.” Do you agree
What are the primary goals of the Fed?
The Congressional Budget Office uses 5% as its estimate of the natural rate of unemployment. Most economists estimate that the natural rate is between 5% and 6%. However, some evidence suggests that
When financial markets do not function well, savers and investors waste resources, and the economy is less efficient. a. How might problems in financial markets affect employment and economic
What does the Fed consider to be “price stability”?
Would the Fed consider zero unemployment to be a desirable goal? Explain.
How are the goals of high employment and economic growth related?
What problems can interest rate fluctuations cause?
The Fed views price stability as keeping inflation in the range of 1% to 3%.Why doesn’t the Fed target a 0% rate of inflation?
Consider the following statement: “On average, rates of unemployment in Europe are higher than rates of unemployment in the United States. Thus, the Fed must be doing a good job of maintaining high
During the Great Depression, banks were subject to runs.a. Explain how a bank run can occur.b. How does the term structure of a bank’s assets and liabilities create the possibility of liquidity
Explain how the Fed uses open market operations to target the federal funds rate. Why does the value of the federal funds rate matter?
What is the discount rate? How is it different from the federal funds rate?
What is the direct effect of changes in reserve requirements?
What are the new tools of monetary policy? How do these new tools differ from the conventional tools?

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