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foundations of modern macroeconomics

Questions and Answers of Foundations Of Modern Macroeconomics

Use supply and demand analysis to explain why hotel room rental rates near your campus during parents’ weekend and graduation weekend might differ from the rates charged during the rest of the
What will happen to the equilibrium price and quantity of beef if the price of chickenfeed increases? (LO4)
What will happen to the equilibrium price and quantity of fish if fish oils are found to help prevent heart disease? (LO4)
How will an increase in the birth rate affect the equilibrium price of land? (LO4)
What will happen to the equilibrium price and quantity of oranges if the wage paid to orange pickers rises? (LO4)
An Arizona student claims to have spotted a UFO over the desert outside of Tucson. How will his claim affect the supply (not the quantity supplied) of binoculars in Tucson stores? (LO2)
Indicate how you think each of the following would shift demand in the indicated market: (LO1)a. Incomes of buyers in the market for Adirondack vacations increase.b. Buyers in the market for pizza
How would each of the following affect the U.S. market supply curve for corn? (LO2)a. A new and improved crop rotation technique is discovered.b. The price of fertilizer falls.c. The government
State whether the following pairs of goods are complements or substitutes. (If you think a pair is ambiguous in this respect, explain why.) (LO1)a. Tennis courts and squash courts.b. Squash racquets
Explain the distinction between the horizontal and vertical interpretations of the demand curve. (LO1)
Last year a government official proposed that gasoline price controls be imposed to protect the poor from rising gasoline prices. What evidence could you consult to discover whether this proposal was
Distinguish between the meaning of the expressions“change in demand” and “change in the quantity demanded.” (LO4)
Why isn’t knowing the cost of producing a good sufficient to predict its market price? (LO3)
Explain and apply The Equilibrium Principle(also called “The NoCash-on-the-Table Principle”), which says that a market in equilibrium leaves no unexploited opportunities for individuals but may
Explain and apply The Efficiency Principle, which says that efficiency is an important social goal because when the economic pie grows larger, everyone can have a larger slice.
How shifts in supply and demand curves cause prices and quantities to change.
Describe how the supply and demand curves interact to determine equilibrium price and quantity.
Describe how the supply curve summarizes the behavior of sellers in the marketplace.
Describe how the demand curve summarizes the behavior of buyers in the marketplace.
(LO1)a. Is the point at 30 pounds of coffee per day, 12 pounds of nuts per day an attainable point? Is it an efficient point? What about the point at 24 pounds of coffee per day, 24 pounds of nuts
Refer to the two-person economy described in the Problem
Susan can pick 4 pounds of coffee in an hour or gather 2 pounds of nuts. Tom can pick 2 pounds of coffee in an hour or gather 4 pounds of nuts. Each works 6 hours per day. (LO2)a. What is the maximum
Refer to Problems 5 and 7 to explain what is meant by the following statement: “An increase in productivity with respect to any one good increases our options for producing and consuming all other
Suppose that in Problem 5 a sewing machine is introduced that enables Helen to sew 8 dresses per hour rather than only
Which of the points listed below is efficient? Which is attainable? (LO3)a. 28 dresses per day, 16 loaves per day.b. 16 dresses per day, 32 loaves per day.c. 18 dresses per day, 24 loaves per day.
Refer to the Problem
Consider a society consisting only of Helen, who allocates her time between sewing dresses and baking bread. Each hour she devotes to sewing dresses yields 4 dresses and each hour she devotes to
Nancy and Bill are auto mechanics. Nancy takes 4 hours to replace a clutch and 2 hours to replace a set of brakes. Bill takes 6 hours to replace a clutch and 2 hours to replace a set of brakes. State
Toby can produce 5 gallons of apple cider or 2.5 ounces of feta cheese per hour.Kyle can produce 3 gallons of apple cider or 1.5 ounces of feta cheese per hour.Can Toby and Kyle benefit from
Ted can wax a car in 20 minutes or wash a car in 60 minutes. Tom can wax a car in 15 minutes or wash a car in 30 minutes. What is each man’s opportunity cost of washing a car? Who has a comparative
What is each man’s opportunity cost of washing a car? Who has a comparative advantage in washing cars? (LO1)
What factors have helped the United States to become the world’s leading exporter of movies, books, and popular music? (LO3)
How will a reduction in the number of hours worked each day affect an economy’s production possibilities curve? (LO3)
Describe why some jobs are more vulnerable to outsourcing than others.
Explain and apply the role of comparative advantage in international trade.
Explain and apply the principle of increasing opportunity cost (also called the low-hanging fruit principle).
The meal plan at university A lets students eat as much as they like for a fixed fee of $500 per semester. The average student there eats 250 pounds of food per semester. University B charges $500
For each long-distance call anywhere in the continental United States, a new phone service will charge users 30 cents per minute for the first 2 minutes and 2 cents per minute for additional minutes
You and your friend Joe have identical tastes. At 2 p.m., you go to the local Ticketmaster outlet and buy a $30 ticket to a basketball game to be played that night in Syracuse, 50 miles north of your
Martha and Sarah have the same preferences and incomes. Just as Martha arrived at the theater to see a play, she discovered that she had lost the $10 ticket she had purchased earlier. Sarah also just
Suppose that in the last few seconds you devoted to question 1 on your physics exam you earned 4 extra points, while in the last few seconds you devoted to question 2 you earned 10 extra points. You
Tom is a mushroom farmer. He invests all his spare cash in additional mushrooms, which grow on otherwise useless land behind his barn. The mushrooms double in weight during their first year, after
Once a week, Smith purchases a six-pack of cola and puts it in his refrigerator for his two children. He invariably discovers that all six cans are gone on the first day. Jones also purchases a
Residents of your city are charged a fixed weekly fee of $6 for garbage collection. They are allowed to put out as many cans as they wish. The average household disposes of three cans of garbage per
To earn extra money in the summer, you grow tomatoes and sell them at the farmers’ market for 30 cents per pound. By adding compost to your garden, you can increase your yield as shown in the table
The most you would be willing to pay for having a freshly washed car before going out on a date is $6. The smallest amount for which you would be willing to wash someone else’s car is $3.50. You
Is the nonrefundable tuition payment you made to your university this semester a sunk cost? How would your answer differ if your university were to offer a full tuition refund to any student who
Why might someone who is trying to decide whether to see a movie be more likely to focus on the $10 ticket price than on the $20 she would fail to earn by not babysitting? (LO5)
True or false: Your willingness to drive downtown to save $30 on a new appliance should depend on what fraction of the total selling price $30 is.Explain. (LO4)
A friend of yours on the tennis team says, “Private tennis lessons are definitely better than group lessons.” Explain what you think he means by this statement. Then use the Cost-Benefit
Discuss the pitfall of failing to weigh costs and benefits at the margin.
Discuss the pitfall of ignoring implicit costs.
Discuss the pitfall of measuring costs and benefits as proportions rather than as absolute dollar amounts.
Explain and apply the Incentive Principle, which says that if you want to predict people’s behavior, a good place to start is by examining their incentives.
Explain and apply the Cost-Benefit Principle, which says that an action should be taken if, but only if, its benefit is at least as great as its cost.
Explain and apply the Scarcity Principle, which says that having more of any good thing necessarily requires having less of something else.
6.a. Nominal GDP equals real GDP times the GDP deflator (see Section 2.4). Suppose that nominal GDP growth is 12% and real GDP growth is 4%. What is inflation (the rate of growth of the GDP
5. Use a calculator to find each of the following:a. 50.3b. 5 5 0.3 0.2c. ( ) 50.25 2d. ( ) 5 5 5 0.5 0.3 2 0.4e. 5 5 0.2 0.5f. − 5 0.5
4. Suppose that the amount of output, Y, that a firm can produce depends on its amount of capital, K, and the number of workers employed, N, according to the function= Y K N . 0.3 0.7a. Suppose that
3. For the function = + Y X 2, 2 use Eq. (A.4) to write a general expression for the slope. This expression for the slope will depend on the initial value of X X , , 1 and on the change in ∆ X X ,
2. Graph the function = + ≤ ≤ Y X X 2 for 0 5. 2 Starting from the point at which = X 1, find the slope of the function for ∆ = X 1 and ∆ =− X 1. What is the slope of the line tangent to
1. Graph the function = + ≤ ≤ Y X X 3 5 for 0 5. What is the slope of this function?
4. In Section 15.4, we discuss the potential relationship between government deficits and inflation. In this question, you will investigate the data on govern ment debt as a share of GDP and the
3. Go to the website of the Congressional Budget Office(www.cbo.gov) and find projections for the govern ment budget deficit for the coming five years.Compare the size of the deficit and the
2. Using quarterly data since 1948, graph the Federal deficit as a percentage of GDP. What is the cyclical behavior of the Federal deficit?Repeat this exercise for the deficits of state and local
1. Using quarterly data since 1959, graph Federal govern ment expenditures and receipts as a percentage of GDP.Separately, graph state and local government expendi tures and receipts as a percentage
4. A constitutional amendment has been proposed that would force Congress to balance the budget each year(that is, outlays must equal revenues in each year).Discuss some advantages and disadvantages
3. a Use the fact that the nominal deficit equals the nominal primary deficit plus nominal interest payments on government debt to rewrite Equation (15.4) showing the change in the debt–GDP ratio
2. Both transfer programs and taxes affect incentives.Consider a program designed to help the poor that promises each aid recipient a minimum income of$10,000. That is, if the recipient earns less
9. Consider an economy in which the money supply con sists of both currency and deposits. The growth rate of the monetary base, the growth rate of the money sup ply, inflation, and expected inflation
8. Real money demand in an all-currency economy with fixed real output and real interest rate, and constant inflation rate and money growth rate is 0.2 L Y i= −500 , where Y is real income and i is
7. In this problem you are asked to analyze the ques tion: By issuing new bonds and using the proceeds to pay the principal and interest on its old bonds, can government avoid ever repaying its
5. Suppose that all workers value their leisure at 90 goods per day. The production function relating output per day, Y, to the number of people working per day, N, is 2250 Y N N=
4. Suppose that the income tax law exempts income of less than $8000 from the tax, taxes income between$8000 and $20,000 at a 25% rate, and taxes income greater than $20,000 at a 30% rate.a. Find the
3. Because of automatic stabilizers, various components of the government’s budget depend on the level of output, Y.The following are the main components of that budget:Tax revenues Transfers
2. At the beginning of year one, there is no government debt outstanding. The government runs a $100 billion deficit in year one. Interest at a nominal rate of 10% must be paid starting in year two.
1. The following budget data are for a country having both a central government and provincial governments:Central purchases of goods and services 200 Provincial purchases of goods and services
9. Discuss four reasons why the Ricardian equivalence proposition isn’t likely to hold exactly.
7. How is real seignorage revenue related to inflation?How does the quantity of real seignorage revenue change as inflation rises from zero to a positive level, to still higher levels?
6. Give a numerical example that shows the difference between the average tax rate and the marginal tax rate on a person’s income. For a constant before-tax real wage, which type of tax rate most
1. What are the major components of government out lays? What are the major sources of government rev enues? How does the composition of the Federal government’s outlays and revenues differ from
15. 4 Explain the link between deficits and inflation.
15. 3 Discuss the economic effects of government deficits and debt.
15. 2 Describe how government spending and taxing decisions affect the macroeconomy.
15. 1 Use the measures of government outlays and taxes to measure government surpluses and deficits.
2. Suppose the current price level in the United Kingdom is 128.40, and one year ago the price level was 126. Output is currently £2900, and potential out put is £3000 (both in billions of 2015
1. The monetary base is $1,000,000. The public always holds half its money supply as currency and half as deposits. Banks hold 20% of deposits in the form of reserves. Starting with the initial
14. 5 Discuss whether monetary policy should be conducted by rules or discretion.
14. 4 Discuss the difficulties of making monetary policy.
14. 3 Explain the Fed’s setting of monetary policy targets.
14. 2 Describe the policy tools used by the Federal Reserve to control the money supply.
14. 1 Explain how the nation’s money supply is determined.
6. (Appendix 13.B)a. For the economy described in Numerical Problem 4, find the values of all the parameters of Eqs.(13.B.1), (13.B.2), and (13.B.3). Use Eqs. (13.B.8)and (13.B.9) to derive the
5. Consider the following classical economy:= +AD Y MP 400 50 .AS Y Y= =1000.This economy produces only wine, its output is measured in terms of wine, and its currency is francs.a. What is the
4. Consider the following Keynesian economy:Desired consumption Desired investment dI d200 0.6( )300 300 .Taxes 2 0Government purchases Net exports 152.0.2 .It trades with a country that produces
3. Consider the following classical economy:a. What are the equilibrium values of the real inter est rate, real exchange rate, consumption, invest ment, and net exports?b. Now suppose that
2. Japan produces and exports only cameras, and Saudi Arabia produces and exports only barrels of oil.Initially, Japan exports 40 cameras to Saudi Arabia and imports 64 barrels of oil. The real
1. West Bubble makes ordinary soap bars that are sold for 5 guilders each. East Bubble makes deluxe soap bars that are sold for 100 florins each. The real exchange rate between West and East Bubble
10. What is the fundamental value of a currency? What does it mean to say that a currency is overvalued? Why is an overvalued currency a problem? What can a country do about an overvalued currency?
9. What effects does expansionary monetary policy have on the nominal exchange rate in both the short and long run? Explain.

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