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business
economics today the micro view
Questions and Answers of
Economics Today The Micro View
4 Why are cheques, debit cards and credit cards not money?
3 Are all the components of M4 really money?
2 What are the largest components of money in the UK and in the Eurozone today?
1 What makes something money? What functions does money perform? Why do you think Polo mints don’t serve as money?
1.◆ Explain how the quantity of money influences the price level and the inflation rate
1.◆ Explain how the demand for and supply of money determine the nominal interest rate
1.◆ Explain how the banking system creates money
1.◆ Describe the functions of a central bank
1.◆ Explain what banks are and their economic functions
29 G20 Vows to Boost World GDP by $2 trillion The centrepiece of the 2014 G20 meeting is for all 20 countries to boost investment, create new jobs and together boost world income by $2 trillion over
28 After you have studied Economics in the News on pp. 550–551, answer the following questions.a Looking at Figure 1 on p. 551, what must have happened to either the demand for or the supply of
27 Explain how an increase in government debt influences the loanable funds market. Explain whether the demand for loanable funds or the supply of loanable funds or both change. On a graph, show how
26 Explain how an increase in the government budget deficit influences the loanable funds market. Explain whether the demand for loanable funds or the supply of loanable funds or both change. On a
25 Return of Growth and the Deficit While UK government borrowing is on a downward track, the recent growth rates that show a recovering economy may not be enough to reduce the government’s deficit
24 With economic growth forecasted to slow, future incomes are expected to fall. If other things remain the same, how will the demand or supply of loanable funds in India change? India’s Economy
23 If the Indian government reduces its deficit and returns to a balanced budget, how will the demand or supply of loanable funds in India change? India’s Economy Hits the Wall At the start of
22 The table shows an economy’s demand for and supply of loanable funds schedules. The government’s budget is balanced.a Calculate the equilibrium real interest rate, investment and private
21 In 2017, suppose that the stock market crashes and the default risk increases. Explain how this increase in default risk influences the Lee family’s supply of loanable funds curve. In 2016, the
20 Draw a graph of the Lee family’s supply of loanable funds curve. In 2016, the Lee family had disposable income of £80,000, wealth of £140,000, and an expected future income of £80,000 a year.
19 Draw a graph to illustrate how an increase in the supply of loanable funds and a decrease in the demand for loanable funds can lower the real interest rate and leave the equilibrium quantity of
18 Draw a graph to illustrate the effect of an increase in the demand for loanable funds and an even larger increase in the supply of loanable unds on the real interest rate and the equilibrium
17 Canadians Saving More Recent data indicate that Canadians are saving more.Statistics Canada reports that the Household Savings Rate is currently 5.4%, a 0.4% increase from the previous
16 Karrie is a golf pro and, after she paid taxes, her income from golf and interest from financial assets was €1,500,000 in 2013. At the beginning of 2013, she owned €900,000 worth of financial
15 Annie runs a fitness centre. On 31 December 2012, she bought an existing business with exercise equipment and a building worth €300,000. During 2013, business improved and she bought some new
14 Calculate UK depreciation and net investment during 2011. The Office for National Statistics reported that the UK capital stock was £5,014 billion at the end of 2011, £4,982 billion at the end
13 Calculate UK net investment and gross investment during 2010. The Office for National Statistics reported that the UK capital stock was £5,014 billion at the end of 2011, £4,982 billion at the
12 On 1 January 2017, Terry’s Towing Service owned 4 tow trucks valued at €300,000. During 2017, Terry’s bought 2 new trucks for a total of €180,000. At the end of 2017, the market value of
11 If the government budget becomes a deficit of €100 billion, what are the real interest rate, the quantity of loanable funds, investment and private saving? Does any crowding out occur?use the
10 What are the real interest rate, the quantity of loanable funds, investment and private saving?use the table and the information that the quantity of loanable funds demanded increases by €100
9 In Problem 7, suppose that the government creates a budget deficit of €100 billion and the Ricardo–Barro effect occurs.What are the real interest rate and investment?
8 In Problem 7, if the government creates a budget deficit of€100 billion, what are the real interest rate, investment and private saving? Does any crowding out occur?
7 The table shows an economy’s demand for and supply of loanable funds schedules. The government’s budget is balanced.a Calculate the equilibrium real interest rate, investment and private
6 First Call expects its profit to double next year. Explain how this increase in expected profit influences First Call’s demand for loanable funds. First Call plc is a mobile phone company. It
5 Draw a graph of First Call’s demand for loanable funds curve. First Call plc is a mobile phone company. It plans to build an assembly plant that costs £10 million if the real interest rate is 6
4 Interest Rate on Government Bonds Rising The interest rates on UK and German government bonds have risen. For example, the interest rate on 10-year UK government bonds rose above 2.6 per cent
3 Lori teaches golf at the weekend, and in a year earns€20,000 after paying her taxes. At the beginning of 2015, Lori owned €1,000 worth of books, DVDs and golf clubs and she had €5,000 in a
2 What is the value of Michael’s capital at the end of 2016? Michael is an Internet service provider. On 31 December 2016, he bought an existing business with servers and a building
1 Calculate Michael’s gross investment, depreciation and net investment during 2016. Michael is an Internet service provider. On 31 December 2016, he bought an existing business with servers and a
5 How did saving and investment change? The following items are (approximate) facts about the US economy before and after the global fi nancial crisis:◆ In 2005, the nominal interest rate on bonds
4 Did the change in the government budget deficit crowd out some investment? The following items are (approximate) facts about the US economy before and after the global fi nancial crisis:◆ In
3 What happened to the demand for loanable funds between 2005 and 2009? How do you know? The following items are (approximate) facts about the US economy before and after the global fi nancial
2 What happened to the price of a bond between 2005 and 2009? How do you know? The following items are (approximate) facts about the US economy before and after the global fi nancial crisis:◆ In
1 What were the inflation rates in 2005 and 2009? The following items are (approximate) facts about the US economy before and after the global fi nancial crisis:◆ In 2005, the nominal interest rate
2 What is the crowding-out effect and how does it work?
3 How do firms make investment decisions?
1 What is the loanable funds market?
4 What are the main types of financial institutions and how do they differ?
3 What are the three main types of markets for financial capital and what makes them different?
1.◆ Explain how governments influence financial markets
1.◆ Explain how saving and investment decisions interact in the loanable funds market
1.◆ Describe the flows of funds in financial markets
24 UK Immigration Hits Wages Post-2004 immigrants from Eastern Europe have markedly lower wages on average than other groups, including pre-2004 immigrants from the same countries.That has changed
23 Make Way for India – The Next China China grows at around 9 per cent a year, but its one-child policy will start to reduce the size of China’s working population within the next 10 years.
22 After you have studied Economics in the News on pp. 528–529, answer the following questions:a Why have most economic forecasters downgraded the long-term growth prospects for the UK?b What are
21 Makani Power: A Mighty Wind Makani Power aims to generate energy from what are known as high-altitude wind-extraction technologies.And that’s about all its 34-year-old Aussie founder, Saul
20 Is faster economic growth always a good thing? Argue the case for faster growth and the case for slower growth. Then reach a conclusion on whether growth should be increased or slowed.
19 The Productivity Watch According to former Federal Reserve chairman Alan Greenspan, IT investments in the 1990s boosted productivity, which boosted corporate profits, which led to more IT
18 India’s Economy Hits the Wall Just six months ago, India was looking good. Annual growth was 9 per cent, consumer demand was huge, and foreign investment was growing. But now most economic
17 Suppose that labour productivity increases in 2010. What effect does the increased labour productivity have on the demand for labour, the supply of labour, potential GDP and real GDP per
16 What are labour productivity and potential GDP in 2010?The first table describes an economy’s labour market and the second table describes its production function in 2010. Real wage rate (euros
15 What are the equilibrium real wage rate and the quantity of labour employed in 2010?The first table describes an economy’s labour market and the second table describes its production function in
14 If a severe drought decreases labour productivity, explain what happens to:a Potential GDP.b Employment.c The real wage rate.
13 If a large increase in investment increases labour productivity, explain what happens to:a Potential GDP.b Employment.c The real wage rate.
12 The New World Order While gross domestic product growth is cooling a bit in emerging market economies, the results are still tremendous compared with the US and much of Western Europe.The emerging
11 South Africa’s real GDP was 1,900 billion rand in 2011 and 1,970 billion rand in 2012. South Africa’s population was 50.5 million in 2011 and 51.0 million in 2012.Calculate:a The economic
10 Mexico’s real GDP was 13,405 trillion pesos in 2013 and 13,805 trillion pesos in 2014. Mexico’s population was 118.4 million in 2013 and 119.5 million in 2014 Calculate:a The growth rate of
9 In 2014, China’s real GDP was growing at 7 per cent a year and its population was growing at 0.5 per cent a year. If these growth rates continue, in what year will China’s real GDP per person
8 Explain the processes that will bring the growth of real GDP per person to a stop according to:a Classical growth theory.b Neoclassical growth theory.c New growth theory.
7 Labour Productivity on the Rise During the year ended June 2009, US non-farm sector output fell 5.5 per cent as labour productivity increased 1.9 per cent – the largest increase since 2003. But
6 In 2015, the population increases and labour hours supplied increase by 10 at each real wage rate. Does the standard of living in this economy increase in 2015? Explain why or why not.The tables
5 In 2015, the population increases and labour hours supplied increase by 10 at each real wage rate. What are the equilibrium real wage rate, labour productivity and potential GDP in 2015?The tables
4 What are the equilibrium real wage rate, the quantity of labour employed in 2014, labour productivity and potential GDP in 2010?The tables describe an economy’s labour market and its production
3 China was the largest economy for centuries because everyone had the same type of economy – subsistence –and so the country with the most people would be economically biggest. Then the
1.2 The IMF projects that China’s real GDP per person will be 15,040 yuan in 2015 and 16,010 yuan in 2016 and that India’s real GDP per person will be 54,085 rupees in 2015 and 56,840 rupees in
1.1 Brazil’s real GDP was 1,180 trillion reais in 2013 and 1,202 trillion reais in 2014. Brazil’s population was 198 million in 2013 and 200 million in 2014. Calculate:a The growth rate of real
3 If the growth rate of China’s standard of living during 2013 is maintained, how many years will it take to double? The World Economic Outlook reports the following information:◆ China’s real
2 What was the growth rate of China’s standard of living during 2013? The World Economic Outlook reports the following information:◆ China’s real GDP was 17.9 trillion yuan in 2012 and 19.3
1 What was China’s real GDP growth rate and its population growth rate during 2013? The World Economic Outlook reports the following information:◆ China’s real GDP was 17.9 trillion yuan in
3 What is the key proposition of new growth theory that makes growth persist?
2 What, according to neoclassical growth theory, is the fundamental cause of economic growth?
2 Explain the influences on the pace of labour productivity growth.
1 What are the preconditions for labour productivity growth?
6 What are the effects of an increase in labour productivity on potential GDP, the quantity of labour employed, the real wage rate and potential GDP per hour of labour?
5 What are the effects of an increase in the population on potential GDP, the quantity of labour employed, the real wage rate and potential GDP per hour of labour?
4 What are the two broad sources of potential GDP growth?
3 What determines potential GDP?
2 What determines the demand for labour, the supply of labour, and labour market equilibrium?
1 What is the aggregate production function?
3 Compare the growth rates and levels of real GDP per person in Hong Kong, South Korea, Singapore, Taiwan, China and the US. How far is China behind the other Asian economies?
2 Describe the gaps between the levels of real GDP per person in the US and other countries.For which countries are the gaps narrowing? For which countries are the gaps widening? For which countries
What has been the average growth rate in the UK over the past 100 years? In which period was growth most rapid and in which was it slowest?
3 Use the Rule of 70 to calculate the growth rate that leads to a doubling of real GDP per person in 20 years.
2 What is the relationship between the growth rate of real GDP and the growth rate of real GDP per person?
1 What is economic growth and how do we calculate its rate?
1.◆ Explain the theories of economic growth and policies to increase its rate
1.◆ Explain the sources of labour productivity growth
1.◆ Explain what makes potential GDP grow
1.◆ Describe the economic growth trends in the UK and other countries and regions
1.◆ Define and calculate the growth rate of real GDP and explain the implications of sustained growth
34 Jaguar Land Rover Job Applications ‘Overwhelm’Halewood More than 14,000 people applied for 1,500 new jobs at a new Jaguar Land Rover car plant at Halewood on Merseyside.The jobs have been
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