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foundations of economics

Questions and Answers of Foundations Of Economics

A Consumer Expenditure Survey in Sparta shows that people buy only juice and cloth. In 2015, the year of the Consumer Expenditure Survey and also the reference base year, the average household spent
The BLS reported the following data for the first quarter of 2016: In the nonfarm sector, output increased 0.9 percent as aggregate hours increased by 1.5 percent; in the manufacturing sector, output
1. What is the classical growth theory and why does it predict that economic growth will eventually end?2. What is the driving force of economic growth according to new growth theory? Why does it
The world’s first graphene battery pack puts more power in a smartphone and recharges in 13 to 15 minutes. Graphene also makes flexible screens possible, improves heart rate and fingerprint
1. What are the preconditions for economic growth?2. Why does much of Africa experience slow economic growth?3. Why is economic freedom crucial for achieving economic growth?4. What role do property
The government of India is scaling up and better targeting its infrastructure investment.A key component of its policy is “digitalisation”: an infrastructure program to increase Internet
1. Michael is an Internet service provider. On December 31, 2015, he bought an existing business with servers and a building worth $400,000. During 2016, he bought new servers for $500,000. The
Regulators say that some of the world’s biggest banks should not be permitted to rely on their own assessment of risk and must hold 40 percent more capital.What are the financial institutions that
Table 1 shows the demand for loanable funds schedule and the supply of loanable funds schedule when the government budget is balanced.1. If the government budget surplus is $1 trillion, what are the
Stock prices measured by the S&P 500 and Dow Jones Industrial Average set new highs this week. Company profits remain low, but investors are betting that higher profits are just around the corner.Are
Economists in the Statistics Bureau decide to check the CPI substitution bias. To do so, they conduct a Consumer Expenditure Survey in both 2015 and 2016. Table 1 shows the results of the survey. It
In the year to April 2016, the U.S. budget deficit increased to $511 billion, up from $460 billion a year earlier.Explain the effect of a large federal deficit and debt on economic growth.
1. In the United States today, which of the items in List 1 are money?2. In January 2016, currency held by individuals and businesses and traveler’s checks were $1,347 billion; checkable deposits
Android Pay now operates in the United States and the Uinted Kingdom and is expanding around the world. It supports CITI bank and AMEX and from today, 115 more banks and credit unions are joining the
1. What are the institutions that make up the banking system?2. What is a bank’s balancing act?3. A bank’s deposits and assets are $320 in checkable deposits and $896 in savings deposits held by
Regulators shut down Atlantabased Georgian Bank. On July 24, 2009, Georgian Bank had $2 billion in assets and $2 billion in deposits. By September 29, 2009, Georgian Bank had lost about $2 billion in
1. What is the Fed and what is the FOMC?2. Who is the Fed’s chief executive, and what are the Fed’s main policy tools?3. What is the monetary base?4. Suppose that at the end of December 2009, the
Central banks—the Fed, the Bank of Japan, the European Central Bank, the People’s Bank of China, and others—have bought trillions of dollars of bonds. The Fed alone has bought $4 trillion
Calculate the banking system’s excess reserves. If the banks use all of these excess reserves to make loans, what is the quantity of loans and the quantity of total deposits immediately after the
1. How do banks create new deposits by making loans, and what factors limit the amount of deposits and loans that they can create?2. If the Fed makes an open market sale of $1 million of securities,
During the fourth quarter of 2008, the Fed doubled the monetary base but the quantity of money (M2) increased by only 5 percent.Why did M2 not increase by much more than 5 percent? What would have
1. If the quantity of money is $4 trillion, what is the supply of money and the nominal interest rate?2. If the quantity of money is $4 trillion and real GDP increases, how will the interest rate
Money in the bank earns almost nothing. Even so, in the second half of 2015 an additional $208 billion was added to bank deposits and money market funds and billions of dollars were moved from
1. Calculate the real interest rate. If the real interest rate remains unchanged and the inflation rate increases to 2 percent a year and then remains constant, explain how the nominal interest rate
Argentina’s consumer prices increased by 3.1 percent in June and the government forecasts that the 2016 inflation rate will be 40 to 42 percent.The quantity of money in Argentina is growing at a
1. Ben has $1,000 in his savings account and the bank pays an interest rate of 5 percent a year. The inflation rate is 3 percent a year. The government taxes the interest that Ben earns on his
On July 1, 2016, the minimum wage will increase in 14 U.S. cities, states, and counties, and in the District of Columbia. In San Francisco, the minimum wage will rise to $13.00 by 2018.Explain how
Table 1 shows the distribution of money income in Canada and Table 20.1(a) on p. 512 shows the distribution of money income in the United States.1. Create a table that shows the cumulative
1. Use the expenditure approach to calculate U.S. GDP in 2015.2. What was U.S. GDP as measured by the income approach in 2015? What was net domestic product at factor cost in 2015?3. Calculate U.S.
From April to July 2015, the number of employed youth 16 to 24 years old rose by 2.1 million to 20.3 million and youth unemployment increased from 2.1 million to 2.8 million. In July, the youth labor
1. Figure 1 shows the unemployment rate in the United States from 1960 to 2016. In which decade—the 1960s, 1970s, 1980s, 1990s, or 2000s—was the average unemployment rate the lowest and what
Unemployment is 4.9 percent—less than half of the Great Recession peak—but Bernie Sanders got a big cheer when he dismissed the official unemployment rate as not reflecting those who are
Despite some optimism about the seeds of recovery, the Congressional Budget Office (CBO) sees joblessness rising. The CBO sees unemployment peaking at 10.4% next year from an average of 9.3% this
Describe how the labor force participation rate in the United States changed between 1960 and 2016. Contrast and explain the different trends in the labor force participation rates of women and men.
The U.S. CPI fell 0.1 percent in December 2015. The price of gasoline fell by 3.9 percent. Rents increased 0.2 percent, and medical care costs increased 0.1 percent.Did the United States experience
In 2015, the CPI increased by 0.7 percent, the CCPI increased by 0.3 percent, and the PCEPI increased by 0.4 percent.Why do these three measures of the price level give different inflation rates?
1. Table 1 shows the price of gasoline and the CPI for four years. The reference base period is 1982–1984. Calculate the real price of gasoline each year. In which year was this real price highest
The Federal Reserve has held interest rates close to zero percent for the past seven years. Even with low inflation, “real” interest rates have been negative.Explain why with a zero interest
Table 1 describes an economy’s production function and demand for labor.Use the data in Tables 1 and 2 to make graphs of the labor market and production function. What are the equilibrium real wage
Electric car maker Tesla is recruiting Nevadans with a high school diploma or equivalent to work in the battery gigafactory the company is building.Explain how Tesla’s huge project will influence
During the past 50 years, Singapore has seen huge changes: rapid population growth and the introduction of newer and newer technologies. Singapore has modest unemployment benefits, no minimum wage,
On July 1, the minimum wage will rise in Washington D.C., Los Angeles County, Chicago, and in cities in California, Kentucky, Maryland, and Oregon. San Francisco’s minimum wage will rise to $13.00
1. Mexico’s real GDP was 13,769 billion pesos in 2014 and 14,120 billion pesos in 2015. Mexico’s population growth rate in 2015 was 1.2 percent. Calculate Mexico’s economic growth rate in 2015
China’s growth rate slowed to an annual rate of 6.8 percent in the fourth quarter of 2015, down from 7.3 percent in 2014.If China’s growth rate has slowed from 9 percent a year and remains at 6.8
1. Calculate the growth rate of real GDP in 2016.2. Calculate labor productivity in 2015 and 2016, and the growth rate of labor productivity in 2016. TABLE 1 Item Aggregate labor hours
The U.S. economy is at full employment when the following events occur:• A deep recession hits the world economy.• The world oil price rises by a large amount.• U.S. businesses expect future
International Monetary Fund managing director Christine Lagarde says that a falling labor force participation rate and falling productivity will slow U.S. real GDP growth. IMF economists say business
1. Suppose that the marginal propensity to consume is 0.8. If disposable income increases by $0.5 trillion, by how much will consumption expenditure change?2. Explain how each of the following events
Personal disposable income increased $68.6 billion in April and $33.9 billion in May. Personal consumption expenditures increased $141.2 in April and $53.5 billion in May.How can consumers increase
Figure 1 shows a short-run Phillips curve and a long-run Phillips curve.1. Identify the curves and label them. What is the expected inflation rate and what is the natural unemployment rate?2. If the
1. Mexico trades with the United States. Explain the effect of each of the following events on Mexico’s aggregate demand.• The government of Mexico cuts income taxes.• The United States
The BEA announced that nonresidential investment and federal government spending decreased in the first quarter of 2016 while U.S. exports increased and U.S. imports decreased.Explain how the items
Table 1 gives real GDP (Y) and its components in billions of dollars.1. Calculate aggregate planned expenditure when real GDP is $200 billion and when real GDP is $600 billion.2. Calculate
Big retailers are lowering inventories built up earlier this year. Economists say the buildup of inventories increased economic growth and a pullback by retailers and manufacturers may slow economic
1. Calculate the multiplier and the change in real GDP.An economy has no imports and no income taxes, MPC is 0.80, and real GDP is $150 billion. Businesses increase investment by $5 billion.2.
Government infrastructure spending has a large multiplier. Expenditure on construction projects goes directly back into the economy through wages. And improved infrastructure boosts productivity and
An economy has the following aggregate expenditure schedules:1. Make a graph of the AE curve at each price level. On the graph, mark the equilibrium expenditure at each price level.2. Construct the
Read Eye on the Multiplier on p. 792. Why do multiplier estimates differ? What conditions would be consistent with a large multiplier? EYE on the MULTIPLIER How Big Is the Government Expenditure
Table 1 describes five possible outcomes in a country for 2017, depending on the level of aggregate demand in that year. Potential GDP is $10 trillion, and the natural unemployment rate is 5
Brazil’s inflation rate was 9.28 percent in the past twelve months. Food and beverage prices rose more than one percent per month.Explain the effect of a rise in the price level on Brazil’s
The unemployment rate in the United Kingdom fell to 4.9 percent in the three months to May, its lowest level since 2005. In the same three months, wages rose by 2.3 percent, their biggest increase
Figure 1 shows the Phillips curves. Suppose that the current inflation rate is 5 percent a year and the Fed announces that it will slow the money growth rate so that inflation will fall to 2.5
The number of Americans filing for unemployment benefits in June was unchanged at a 43-year low of 248,000. Producer prices recorded their biggest gain in a year in June.Did the U.S. economy move
The FOMC expects inflation to remain low in the near term, but to rise to 2 percent over the medium term.Where on the short-run Phillips curve does the Fed believe the economy to be?What is the Fed
1. What are the tax revenues and outlays in the federal budget, and what was the projected budget balance for Fiscal 2017?2. At the end of Fiscal 2016 national debt was $19.4 trillion. If the budget
Over the year to June 2016, the U.S. federal government deficit totaled $523 billion, which is 20.6 percent higher than a year earlier.Given the information in the news clip, by how much did U.S.
1. Classify the following items as automatic fiscal policy, discretionary fiscal policy, or not part of fiscal policy.• A decrease in tax revenues in a recession• Additional government
In the 2016 Presidential election campaign, both Hillary Clinton and Donald Trump committed to big government infrastructure spending and tax cuts.What policy will change aggregate demand the most:
1. The government cuts the income tax rate. Explain the effects of this action on the supply of labor, demand for labor, equilibrium employment, the real wage rate, and potential GDP.2. What is the
1. What are the objectives of U.S. monetary policy?2. What is core inflation and how does it differ from total PCEPI inflation?3. What is the Fed’s monetary policy instrument and what influences
Currently the 12.4 percent Social Security tax applies only on earnings up to $118,500. The House of Representatives wants to expand the tax and make it apply to higher earnings and eventually, by
The FOMC announced that it judges a 2 percent inflation rate to be consistent with the Fed’s statutory mandate. The committee did not think it appropriate to specify a fixed goal for
1. List the sequence of events in the transmission from a rise in the federal funds rate to a change in the inflation rate.2. What action does the Fed take? Illustrate the effects of the Fed’s
The U.S. economy added more jobs than expected in both June and July. Wages increased more rapidly and real GDP was expected to grow faster. These developments raise the likelihood of a Fed interest
1. What is the Fed’s monetary policy strategy and what are the alternative strategies that it could have adopted?2. Why does the Fed not target the quantity of money?3. Which countries practice
For nearly a decade, central bankers have been promising to raise growth and create jobs. The oracles of monetary policy have failed. We need some new ones.One such alternative is offered by John
Imports of goods and services: $2,000 billion; interest paid to the rest of the world: $500 billion; interest received from the rest of the world: $400 billion; decrease in U.S. official reserves:
The U.S. current account deficit in 2015 was $484 billion, up from $390 billion in 2014, and the highest since 2008. Some politicians say the deficit is the result of bad trade deals with nations
Suppose that yesterday, the U.S. dollar was trading in the foreign exchange market at 100 yen per dollar. Today, the U.S. dollar is trading at 105 yen per dollar.1. Which currency appreciated and
One U.S. dollar bought ¥113.885 on Tuesday and ¥114.600 on Monday. One euro bought $1.1143 on Tuesday and $1.1155 on Monday. The Fed has raised interest rates and the European Central Bank is
There is a new reason why GDP is a poor measure of economic wellbeing: It doesn’t measure the benefits we gain from free apps and lots of other free stuff on the Internet. And none of the other
If the base year is 2016, use the chaineddollar method to calculate real GDP in 2015 and 2016. In terms of what dollars is each of these two real GDPs measured?
The United Nations Human Development Report gives the data for 2014 in Table 1. Other information suggests that household production is similar in Canada and the United States and smaller than in
Facebook’s WhatsApp is free and it sells no advertising. So WhatsApp’s value of production in GDP is zero. Assume that WhatsApp’s services are produced by 300 people all of whom earn $100,000 a
GDP increased at an annual rate of 0.7 percent in the final quarter of 2015. Government expenditure grew at the same 0.7 percent rate, but consumption expenditure grew at a rate of 2.2 percent.
1. Classify each of the items in List 1 as a final good or service or as an intermediate good or service and identify which is a component of consumption expenditure, investment, or government
Bernie Sanders wants free tuition at public colleges and universities, free healthcare, and a transportation infrastructure program that creates 1 million jobs for disadvantaged youth. Without
Table 1 shows the distribution of market income in an economy and Table 2 shows how the government taxes and redistributes income.1. Calculate the income shares of each quintile after taxes and
Paul Minton, a 26-year-old math major, made $20,000 a year as a waiter. After completing a three-month course at Galvanize, a coding school in San Francisco, his starting salary at a web start-up was
In the United States in 2010, 30 million people had full-time managerial jobs that paid an average of $1,200 a week and 10 million people had full-time sales jobs that paid an average of $600 a
Home prices in 20 U.S. cities increased 5.8 percent from a year earlier, the biggest advance since July 2014. Rising property values are increasing household wealth for homeowners and offsetting some
Look at the list to the left. In what type of market is each good or service in the list sold? Explain your answers. LIST Wheat Jeans Printer cartridges . Toothpaste Gym membership in a town with one
Table 1 shows Jerry’s total utility from burgers and magazines. The price of a burger is $2, the price of a magazine is $4, and Jerry has $12 a week to spend.1. Calculate Jerry’s marginal utility
Minnie’s Mineral Springs is a single-price monopoly. Table 1 shows the demand schedule for Minnie’s spring water (columns 1 and 2) and the firm’s total cost schedule (columns 2 and 3).1.
a. Coca-Cola cuts its price below that of Pepsi-Cola to increase profit.b. A single firm, protected by a barrier to entry, produces a personal service that has no close substitutes.c. A barrier to
On the graph, show the long-run effects of the pollution crackdown. 3- 2- for Price and cost (dollars per box) 6 -00 8 MCO 10 ATGO MRO 12 14
Tulip growing is perfectly competitive and all growers have the same costs. The market price is $25 a bunch, and each grower maximizes profit by producing 2,000 bunches a week. Average total cost is
The price elasticity of demand for Pete’s chocolate chip cookies is 1.5. Pete wants to increase his total revenue. Would you recommend that Pete raise or lower his price of cookies? Explain your
Enrollment increased from 15,539,000 in 2000 to 20,618,000 in 2013. The net cost of college (average for all types) increased from $12,357 to $14,860.Calculate the price elasticity of supply of
1. Economics studies choices that arise from one fact. What is that fact?2. Provide three examples of wants in the United States today that are especially pressing but not satisfied.3. In the

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