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foundations of economics

Questions and Answers of Foundations Of Economics

Some of the new money is held as currency—a currency drain.
New money is used to make payments.
The quantity of money increases.
Bank deposits increase.
Banks lend excess reserves.
An open market purchase creates excess reserves.
Operation Twist
Credit easing
Quantitative easing (or QE)
Four presidents of the other regional Federal Reserve Banks (on a yearly rotating basis
The president of the Federal Reserve Bank of New York
The Chairman and the other six members of the Board of Governors
Extraordinary crisis measures
Open market operations
Discount rate
Required reserve ratios
The Federal Open Market Committee
The regional Federal Reserve Banks
The Chairman of the Board of Governors
4. Loans are $990 + $400 = $1,390. Securities are $634.Reserves are $30 + $2 = $32.
3. Total deposits are $320 + $896 + $840 = $2,056.Deposits that are part of M1 are checkable deposits, $320.Deposits that are part of M2 include all deposits, $2,056.
2. A bank makes a profit by borrowing from depositors at a low interest rate and lending at a higher interest rate. The bank must hold enough reserves to meet depositors’ withdrawals. The bank’s
1. The institutions that make up the banking system are the Fed, commercial banks, thrift institutions, and money market funds.
4. Calculate the bank’s loans, securities, and reserves.
3. Calculate the bank’s total deposits, deposits that are part of M1, and deposits that are part of M2.
Use the following information to work Problems 3 and 4. A bank’s deposits and assets are $320 in checkable deposits, $896 in savings deposits, $840 in small time deposits, $990 in loans to
2. What is a bank’s balancing act?
1. What are the institutions that make up the banking system?
4 Explain how the banking system creates money and how the Fed controls the quantity of money
3 Describe the functions of the Federal Reserve System (the Fed).
2 Describe the functions of banks.
1 Define money and describe its functions.
10. China invests almost 50 percent of its annual production in new capital compared to 15 percent in the United States. Capital per hour of labor in China is about 25 percent of that in the United
9. Describe and illustrate in a graph what happened in the economy in Table 1 if in year 1, capital per hour of labor was 30 and in year 2 it was 40.
8. Table 1 describes labor productivity in an economy. What must have occured in this economy during year 1?
7. Explain how an increase in physical capital and an increase in human capital change labor productivity. Use a graph to illustrate your answer.
5. Which of the events increase the equilibrium quantity of labor and increase potential GDP?
4. Sort the items into four groups: those that change the production function, those that change the demand for labor, those that change the supply of labor, and those that do not change the
Migration to the United States increases the working-age population.
A huge scientific breakthrough doubles the output that an additional hour of U.S. labor can produce.
U.S. labor unions negotiate wage hikes that affect all workers.
The New York Yankees win the World Series.
The Middle East cuts supplies of oil to the United States.
3. Draw a graph of the production functions in Korea and the United States.Mark a point on each production function that shows potential GDP per hour of work in each economy. Explain the difference
2. Draw a graph of the demand for and supply of labor in Korea and the United States. Mark a point at the equilibrium quantity of labor per person per week and the real wage rate in each economy.
Use the following information to work Problems 2 and 3.In Korea, real GDP per hour of labor is $22, the real wage rate is $15 per hour, and people work an average of 46 hours per week.
1. Distinguish between a low and high income and a low and high economic growth rate. What are the key features of an economy that are present when incomes are high or fast growing and absent when
11. Slowing down growth China’s GDP growth target for the 12th Five-Year-Plan period 2011–2015 is 7 percent a year. This largely symbolic goal (China’s average growth rate for the past five
10. What can governments in Africa do to encourage economic growth and raise the standard of living in their countries?
Use a graph of the productivity curve to illustrate your answer.
8. Explain how saving and investment in capital change labor productivity.Why do diminishing returns arise? Provide an example of diminishing returns.
Real GDP per person be twice what it was in 2006?
7. In 2005 and 2006, India’s real GDP grew by 9.2 percent a year and its population grew by 1.6 percent a year. If these growth rates are sustained, in what years would
6. If the labor force participation increases, explain how employment, the real wage rate, and potential GDP change.
5. Calculate the quantity of labor employed, the real wage rate, and potential GDP.
4. Which of the events increase potential GDP and which decrease it?Use the information set out in Table 1 and Table 2 about the economy of Athabasca to work Problems 5 and 6.
3. Which of the events raise the real wage rate and which lower it?
2. Which of the events increase the equilibrium quantity of labor and which decrease it?
1. Sort the items into four groups: those that change the production function, those that change the demand for labor, those that change the supply of labor, and those that do not change the
It might be possible to achieve faster growth by encouraging saving, subsidizing research and education, and encouraging international trade
Economic growth requires an incentive system created by economic freedom, property rights, and markets.
4. Describe the policies that speed economic growth.
Saving and investment in physical capital alone cannot bring sustained steady growth because of diminishing marginal returns to capital.
The interaction of saving and investment in physical capital, expansion of human capital, and technological advances bring labor productivity growth.
Real GDP per person grows when labor productivity grows.
Real GDP grows when aggregate hours and labor productivity grow.
The Rule of 70 tells us the number of years in which real GDP doubles—70 divided by the percentage growth rate of real GDP.
Sustained economic growth transforms poor nations into rich ones.
Real GDP per person must grow if the standard of living is to rise.
Economic growth is the sustained expansion of production possibilities.The annual percentage change in real GDP measures the economic growth rate.
At full-employment equilibrium, the real wage rate makes the quantity of labor demanded equal the quantity of labor supplied.
Potential GDP is the quantity of real GDP that the full-employment quantity of labor produces.
5. A well-educated population has more skills and greater labor productivity than a poorly educated population. A well-educated population can contribute to the research and development that create
4. Clearly defined private property rights and a legal system to enforce them give people the incentive to work, save, invest, and accumulate human capital.
3. Economic freedom is crucial for achieving economic growth because economic freedom allows people to make choices and gives them the incentives to pursue growth-producing activities.
2. Some African countries experience slow economic growth because they lack economic freedom, private property rights are not enforced, and markets do not function well. People in these countries
1. The preconditions for economic growth are economic freedom, private property rights, and markets. Without these preconditions, people have little incentive to undertake the actions that lead to
5. Explain why, other things remaining the same, a country with a well-educated population has a faster economic growth rate than a country that has a poorly educated population.
4. What role do property rights play in encouraging economic growth?
3. Why is economic freedom crucial for achieving economic growth?
2. Why does much of Africa experience slow economic growth?
1. What are the preconditions for economic growth?
3. Calculate the change in the number of years it will take for real GDP per person in India to double if the growth rate of real GDP per person increases from 8 percent a year to 10 percent a year.
2. Calculate the approximate number of years it will take for real GDP per person to double if an economy maintains an economic growth rate of 12 percent a year and a population growth rate of 2
1. Mexico’s real GDP was 8,762 billion pesos in 2010 and 9,105 billion pesos in 2011. Mexico’s population growth rate in 2011 was 1 percent. Calculate Mexico’s economic growth rate in 2011 and
4 Describe policies that speed economic growth
3 Explain the sources of labor productivity growth.
2 Define and calculate the economic growth rate, and explain the implications of sustained growth.
1 Explain what determines potential GDP.
10. To maintain these real interest rates in the coming months, how will these nominal rates change if the inflation rate increases to 0.2 percent a year?
9. Calculate the real interest rate on each of these financial assets.
Use the following information to work Problems 9 and 10.Money market funds are yielding almost nothing Last month, the interest rate on a money market fund averaged 0.08% a year and on 5-year CDs it
Which catalog will you choose and why? Refer to any biases in the CPI that might be relevant to your choice.
8. Imagine that you are given $1,000 to spend and told that you must spend it all buying items from a Sears catalog. But you do have a choice of catalog.You may select from the 1903 catalog or from
7. In 1988, the average wage rate was $9.45 an hour and in 2008 the average wage rate was $18.00 an hour. The CPI in 1988 was 118.3 and in 2008 it was 215.3. Which real wage rate is higher?
6. What was the percentage increase in production from 2009 to 2013, and by what percentage did the cost of living rise from 2009 to 2013?
5. Calculate nominal GDP in 2009 and in 2013 and the percentage increase in nominal GDP from 2009 to 2013.
Use the following information to work Problems 5 and 6.The base year is 2009. Real GDP in 2009 was $10 trillion (2009 dollars). The GDP price index in 2009 was 112, and real GDP in 2013 was $11
4. Tables 2 and 3 show the quantities of the goods that Harry bought and the prices he paid during two consecutive weeks. Harry’s CPI market basket contains the goods he bought in Week 1. Calculate
3. The people on Coral Island buy only juice and cloth. The CPI market basket contains the quantities bought in 2010. The average household spent $60 on juice and $30 on cloth in 2010 when the price

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