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foundations macroeconomics

Questions and Answers of Foundations Macroeconomics

Who in the United States loses from this trade in roses and would lobby for a restriction on the quantity of imported roses? Suppose that the U.S. government put a tariff on rose imports. Show on
Who in the United States loses from free trade in shoes with Brazil? Explain why.
The world price of a pair of shoes is $20. Explain how consumers and producers in the United States gain or lose as a result of international trade. On the graph, show the change in U.S. purchases,
The world price of a pair of shoes is $20. Explain how consumers and producers in Brazil gain or lose as a result of international trade. Show the change in Brazil’s purchases, production, and
Explain who in the United States gains and who loses from restrictions on steel imports. How do you expect the prices of automobiles and office towers to be affected?U.S. steelmakers seek antidumping
What is dumping? Who in the United States loses from China’s dumping of steel?U.S. steelmakers seek anti dumping action, steelmakers want the United States to put restrictions on imports from five
Explain what an anti dumping tariff is. What argument might U.S. steelmakers use to get the government to raise the tariff on steel imports?U.S. steelmakers seek antidumping action, steelmakers want
The supply of roses in the United States is made up of U.S. grown roses and imported roses. Draw a graph to illustrate the U.S. rose market with free international trade. On your graph, mark the
Does the Fed face a tradeoff in the short run? Explain why or why not.The U.S. economy is at full employment when the world price of oil begins to rise sharply. Short-run aggregate supply decreases.
Explain how the U.S. price level and real GDP will change in the long run if the Fed takes monetary policy actions that are consistent with its objectives as set out in the Federal Reserve Act of
Explain how the U.S. price level and real GDP will change in the short run.The U.S. economy is at full employment when the world price of oil begins to rise sharply. Short-run aggregate supply
Explain whether the Fed faces a tradeoff in the short run.Suppose that the U.S. economy is at full employment when strong economic growth in Asia increases the demand for U.S.-produced goods and
Explain how the U.S. price level and real GDP will change in the short run.Suppose that the U.S. economy is at full employment when strong economic growth in Asia increases the demand for
Explain how the U.S. price level and real GDP will change in the long run if the Fed takes monetary policy actions that are consistent with its objectives as set out in the Federal Reserve Act of
How do healthcare programs and Social Security benefits drive spending and the deficit and how do they create fiscal imbalance and generational imbalance?CBO expects higher long-term deficits, the
If the government decided to slow the growth of debt by cutting transfer payments and raising taxes by the same amount, how would this fiscal policy influence the budget deficit and real GDP?CBO
Explain why the national debt does not measure the federal government’s true indebtedness. How does the nation’s fiscal imbalance provide a more accurate account of government’s debt?CBO
Aggregate supply increases when ________.A. The price level risesB. The money wage rate fallsC. Consumption increasesD. The money price of oil increases
When potential GDP increases, _______A. Aggregate demand increasesB. Aggregate supply increasesC. Both aggregate demand and aggregate supply increaseD. The price level rises
The quantity of real GDP demanded increases if _______.A. The buying power of money increasesB. The money wage rate risesC. The price level fallsD. The nominal interest rate falls
An increase in expected future income increases ________.A. Consumption expenditure, which increases current aggregate demandB. Investment, which increases current aggregate supplyC. The demand for
Macroeconomic equilibrium occurs when the quantity of real GDP _______ equals the quantity of _______.A. Demanded; real GDP suppliedB. Demanded; potential GDPC. Supplied; potential GDPD. Demanded;
If the economy is at full employment and the Fed increases the quantity of money, _______.A. Aggregate demand increases, a recessionary gap appears, and the money wage rate starts to riseB. Aggregate
Over the past decade, the demand for goods produced in China has brought a sustained increase in demand for China’s exports that has outstripped the growth of supply. As a result, China has
Figure 14.1 shows aggregate planned expenditure when the price level is 100. When the price level increases to 110, aggregate planned expenditure changes by $0.5 trillion. What is the quantity of
Why do multiplier estimates differ? What conditions would be consistent with a large multiplier?
The output gap in the second quarter of 2009 was $0.8 trillion. How much fiscal stimulus would be required to close the output gap if the multiplier was as large as the Obama team believes? How much
The consumption function shows how an increase in _______ influences _________.A. Income; households’ aggregate planned expenditureB. Nominal GDP; consumption expenditureC. Disposable income;
The marginal propensity to consume tells us by how much _______ changes when _______ changes.A. Consumption expenditure; wealthB. The real interest rate; planned consumptionC. Expected future income;
Induced expenditure includes ________ .A. Consumption expenditure, government expenditure, and exportsB. Investment, exports, and importsC. Consumption expenditure and importsD. Consumption
The aggregate planned expenditure curve ________ increases.A. Slopes upward because induced expenditure increases as incomeB. Is horizontal because autonomous expenditure is constant when incomeC.
If real GDP _______ planned expenditure, the economy converges to equilibrium expenditure because inventories _________ and firms increase production.A. Exceeds; pile upB. Exceeds; are run downC. Is
The multiplier equals ____________ divided by _________.A. The marginal propensity to consume; autonomous expenditureB. 1; (1 – Slope of the AE curve)C. 1; Slope of the AE curveD. Slope of the AE
The multiplier will increase if the marginal propensity to consume ______ or the marginal tax rate ______.A. Increases; decreasesB. Increases; increasesC. Decreases; increasesD. Decreases; decreases
A rise in the price level shifts the AE curve ______.A. Upward and creates a movement up along the AD curveB. Downward and creates a movement up along the AD curveC. Upward and shifts the AD curve
In 2019, the outcome turned out to be row C of the left side of the table. Plot the short-run Phillips curve for 2019 and mark the points A, B, C, and D that correspond to the data in the right side
Compare the short-run Phillips curve of 2019 with that of 2018. Data 2018 Price level (2017 100) Data 2019 Real GDP Unemployment (trillions of Real GDP Unemploymen Price level (trillions of rate t
Explain the effects of a global recession on the U.S. macroeconomic equilibrium in the short run. Explain the adjustment process that restores the economy to full employment.
Suppose that the world price of oil rises. On an AS–AD graph, show the effect of the world oil price rise on U.S. macroeconomic equilibrium in the short run. Explain the adjustment process that
The table sets out the aggregate demand and aggregate supply schedules in Japan. Potential GDP is 600 trillion yen. What is the short-run macroeconomic equilibrium? Does Japan have an inflationary
How would such an action influence aggregate supply?
How would such an action influence aggregate demand?
Suppose that the United States is at full employment. Then the federal government cuts taxes, and all other influences on aggregate demand remain the same. Explain the effect of the tax cut on
Suppose that the United States is at full employment. Explain the effect of each of the following events on aggregate supply: Union wage settlements push the money wage rate up by 10 percent.The
What, according to the mainstream theory of the business cycle, is the most common source of recession: a decrease in aggregate demand, a decrease in aggregate supply, or both? Which is the most
Read Eye on the Business Cycle on p. 347. What caused the 2008–2009 recession and how do we know that a decrease in aggregate supply played a role?
€œBrexit€ expected to rattle U.S. economy, the United Kingdom vote to leave the European Union (known as Brexit) is expected to affect the U.S. economy by driving up the value of
Some events change aggregate demand from AD0 to AD1and aggregate supply from AS0to AS1. What is the new macroeconomic equilibrium?Use Figure 13.2 to work Problem. Initially, the economy is at point
Some events change aggregate supply from AS0to AS1. Describe two possible events. What is the new equilibrium point? If potential GDP is $1 trillion, does the economy have an inflationary gap, a
Some events change aggregate demand from AD0to AD1. Describe two possible events. What is the new equilibrium point? If potential GDP is $1 trillion, describe the type of macroeconomic
Explain the effect of the Fed€™s action that increases the quantity of money on the macroeconomic equilibrium in the short run. Explain the adjustment process that returns the economy to
Suppose that the U.S. economy has a recessionary gap and the world economy goes into an expansion. Explain the effect of the expansion on U.S. real GDP and unemployment in the short run.
The table sets out an economy€™s aggregate demand and aggregate supply schedules. What is the macroeconomic equilibrium? If potential GDP is $600 billion, what is the type of macroeconomic
The United States is at full employment when the Fed cuts the quantity of money, other things remaining the same. Explain the effect of the cut in the quantity of money on aggregate demand in the
Explain the effect of each of the following events on the quantity of U.S. real GDP demanded and the demand for U.S. real GDP:The world economy goes into a strong expansion. The U.S. price level
As more people in India have access to higher education, explain how potential GDP and aggregate supply will change in the long run.
The costs of inflation do not include _______. A. The cost of running around to compare prices at different outlets B. The increased opportunity cost of holding money C. The tax on
In the long run with a constant velocity of circulation, the inflation rate ______. A. Is constant and equals the money growth rate B. Equals the money growth rate minus the growth rate of
If the quantity theory of money is correct and other things remain the same, an increase in the quantity of money increases _______. A. Nominal GDP and the velocity of circulation B. The
In the long run, money market equilibrium determines the _______. A. real interest rate B. price level C. nominal interest rate D. economic growth rate
If the Fed increases the quantity of money, people will be holding ________. A. Too much money, so they buy bonds and the interest rate rises B. Too much money, so they buy bonds and the
The quantity of money demanded increases if _______. A. The supply of money increases B. The nominal interest rate falls C. Banks increase the interest rate on deposits D. The
The opportunity cost of holding money _______. A. Is determined by the inflation rate B. Is zero because money earns no interest C. Equals the nominal interest rate on bonds D.
Holding money provides a benefit ________. A. Because it is a means of payment B. Because its opportunity cost is low C. Which is constant no matter how much money is held D.
If the money growth rate and real GDP growth rate of the 2010s are maintained and if the velocity growth rate is zero, will the inflation rate rise to 3 percent as predicted by Martin Feldstein?
Sara has $200 in currency and $2,000 in a bank account on which the bank pays no interest. The inflation rate is 2 percent a year. Calculate the amount of inflation tax that Sara pays in a year.
If the velocity of circulation is constant, real GDP is growing at 3 percent a year, the real interest rate is 2 percent a year, and the nominal interest rate is 7 percent a year, calculate the
Plot the short-run Phillips curve and aggregate supply curve for 2018 and mark the points A, B, C, and D on each curve that correspond to the data in the left part of the table.The left part of the
Explain the process by which a decrease in durable goods orders at a constant price level changes equilibrium expenditure and real GDP.U.S. durable goods orders slump most in three years, the
What determines the decrease in aggregate demand resulting from a decrease in durable goods orders?U.S. durable goods orders slump most in three years, the Commerce Department reported that orders
Calculate saving at each level of disposable income. Over what range of disposable income does consumption expenditure exceed disposable income? Calculate autonomous consumption expenditure.The table
Calculate the marginal propensity to consume. At what level of disposable income will saving be zero? If expected future income increases, in which direction will the consumption function change?The
Compare the shift of the AD curve with the $1 trillion increase in investment. Explain the magnitude of the shift of the AD curve.The figure shows the aggregate demand curve in an economy. Suppose
If investment increases by $1 trillion, calculate the change in the quantity of real GDP demanded if the price level is constant at 105.The figure shows the aggregate demand curve in an economy.
If investment increases by $0.5 trillion, calculate the change in equilibrium expenditure and the multiplier.In an economy with no exports and no imports, autonomous consumption is $1 trillion, the
If real GDP is $30 trillion, explain the process that takes the economy to equilibrium expenditure. If real GDP is $40 trillion, explain the process that takes the economy to equilibrium
If real GDP is $30 trillion, calculate disposable income, consumption expenditure, and aggregate planned expenditure. What is equilibrium expenditure?In an economy with no exports and no imports,
What determines the increase in aggregate demand resulting from an increase in durable goods orders?U.S. durable goods orders rebound strongly, the Commerce Department reported that orders for
Explain the process by which an increase in durable goods orders at a constant price level changes equilibrium expenditure and real GDP.U.S. durable goods orders rebound strongly, the Commerce
If investment crashes to $0.55 million but nothing else changes, what is equilibrium expenditure and what is the multiplier?The table shows real GDP, Y, the components of planned expenditure, and
Calculate the marginal propensity to consume and the marginal propensity to import. What is equilibrium expenditure?The table shows real GDP, Y, the components of planned expenditure, and aggregate
Find the value of Q, R, S, T, U, and V.The table shows real GDP, Y, the components of planned expenditure, and aggregate planned expenditure (in millions of dollars) in an economy in which taxes are
Calculate consumption expenditure at each level of disposable income. Over what range of disposable income is there dissaving? Estimate the level of disposable income at which saving is zero.The
Calculate the marginal propensity to consume. If wealth increases by $10 trillion, in which direction will the consumption function change?The table shows disposable income and saving in an economy.
The U.K. economy in 2016 was close to full employment. Use the AS-AD model to show the effect on U.K. real GDP of the effects of Brexit described in the news clip.Brexit means a bumpy road ahead for
Explain the effects of a fall in the value of the U.K. pound and lower spending by businesses and households on U.K. aggregate demand and aggregate supply.Brexit means a bumpy road ahead for the U.K.
When Martin Feldstein describes the Fed’s monetary policy as “easy,” he means that the Fed has created a lot of money, has made money grow at a fast rate, and has pushed interest rates down.
Why might Martin Feldstein be right? If he is right, what is he implying about the equation of exchange and the quantity theory of money?Robert F. Stauffer, Emeritus Professor of Economics at Roanoke
Why might Robert Stauffer be right? If he is right, what is he implying about the equation of exchange and the quantity theory of money?Robert F. Stauffer, Emeritus Professor of Economics at Roanoke
Read Eye on Creating Money on pp. 292—293. By how much did the monetary base increase and why didn’t M2 increase by the same percentage?
When the Fed increased the monetary base between 2008 and 2014, which component of the monetary base increased most: banks’ reserves or currency? What happened to the reserves that banks borrowed
What happened to the money multiplier between 2008 and 2014? What would the money multiplier have been if the currency drain ratio had increased? What would the money multiplier have been if the
What are the three functions that money performs? Which of the following items perform some but not all of these functions and which of the items are money?An antique clockAn S&L savings
What is the quantity theory of money? Define the velocity of circulation and explain how it is measured.
Naomi buys $1,000 worth of American Express travelers’ checks and charges the purchase to her American Express card. What is the immediate change in M1 and M2?
A bank has $500 million in checkable deposits, $600 million in savings deposits, $400 million in small time deposits, $950 million in loans to businesses, $500 million in government securities, $20
What can the Fed do to increase the quantity of money and keep the monetary base constant? Explain why the Fed would or would not.Change the currency drain ratio.Change the required reserve
Use the table, which shows a bank€™s balance sheet, to work Problem. The desired reserve ratio on all deposits is 5 percent and there is no currency drain.Calculate the bank€™s
If the Fed makes a decision to cut the quantity of money, explain the short-run effects on the quantity of money demanded and the nominal interest rate.
The Fed conducts an open market purchase of securities. Explain the effects of this action on the nominal interest rate in the short run and the value of money in the long run.

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