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introduction to economic

Questions and Answers of Introduction To Economic

9. What is the annual rate of productivity advance implied by Moore’s Law (News, p. 367)?
8. The real (inflation-adjusted) value of U.S. manufacturing output and related manufacturing employment was Output Employment 1998 $1,356 billion 17,560,000 2008 $1,685 billion 13,431,000(a) How
7. If output per worker is now $100,000 per year, how much will the average worker produce 10 years from now if productivity improves by(a) 1.0 percent per year?(b) 2.0 percent per year?
6. In 2008, approximately 62 percent of the adult population (230 million) was employed. If the employment rate increased to 64 percent,(a) How many more people would be working?(b) By how much would
5. If the labor force increases by 1.1 percent each year and productivity increases by 2.6 percent, how fast will output grow?
4. According to Figure 17.3 , in how many years since 1970 has GDP grown(a) Faster than the population?(b) Slower than the population?
3. If real GDP is growing at 2 percent a year, how long will it take for(a) Real GDP to double?(b) Real GDP per capita to double if the population is increasing each year by(i) 0 percent?(ii) 1
2. According to the Rule of 72 ( Table 17.1 ) and recent growth rates (World View, p. 365) how long will it be before GDP doubles in(a) The United States?(b) China?(c) Ivory Coast?
1. According to the Rule of 72 ( Table 17.1 ), how many years will it take for GDP to double if the economy is growing at:(a) 2 percent a year?(b) 3.5 percent a year?
10. Why do some nations grow and prosper while others stagnate? LO1
9. Is limitless growth really possible? What forces do you think will be most important in slowing or halting economic growth? LO3
8. Fertility rates in the United States have dropped so low that we’re approaching zero population growth, a condition that France has maintained for decades.How will this affect our economic
7. In 1866, Stanley Jevons predicted that economic growth would come to a halt when England ran out of coal, a doomsday that he reckoned would occur in the mid1970s. How did we avert that projection?
6. Should fiscal policy encourage more consumption or more saving? Does it matter? LO2
5. How would a growing federal budget surplus affect the prospects for long-run economic growth? Why might a growing surplus not be desirable? LO2
4. Should we grant immigration rights based on potential con tributions to economic growth as Canada does? LO2
3. Why don’t we consume all our current output instead of sacrificing some present consumption for investment ? LO1
2. Why do productivity gains slow down in recessions?(See Figure 17.5 .) LO1
1. In what specific ways (if any) does a college education increase a worker’s productivity? LO1
LO3. Discuss the pros and cons of continued growth.
LO2. Describe policy tools for accelerating growth.
LO1. Identify the principal sources of economic growth.
11. Suppose an economy is characterized by the AS/AD curves in the accompanying graph. A decision is then made to increase infrastructure spending by $10 billion a year.(a) Illustrate the direct
10. If the tax elasticity of supply is 0.10, by how much do tax rates have to be reduced to increase the labor supply by 2 percent?
9. If the tax elasticity of labor supply is 0.20, by how much will the quantity of labor supplied increase in response to(a) A $500 per person income-tax rebate?(b) A 4-percent reduction in marginal
8. On the following graph, plot the unemployment and inflation rates for the years 2000–2008. Is there any evidence of a Phillips curve trade-off?
7. According to Figure 16.6 , what inflation rate would occur if the unemployment rate rose to 6 percent, with(a) PC1?(b) PC2?
6. By how much did the disposable income of rich people increase as a result of the 2001–4 reduction in the top marginal tax rate from 39.6 to 35 percent? Assume they have $1 trillion of income in
5. Suppose households supply 430 billion hours of labor per year and have a tax elasticity of supply of 0.20. If the tax rate is increased by 10 percent, by how many hours will the supply of labor
4. Suppose taxpayers are required to pay a base tax of $50 plus 30 percent on any income over$100, as in the initial tax system B in Table 16.1 . Suppose further that the taxing authority wishes to
3. The Economy Tomorrow section provides estimates of time spent in traffic delays. If the average worker produces $80 of output per hour, what is the opportunity cost of(a) Current traffic delays?
2. Which AS curve ( a , b , or c ) in Figure 16.1 causes the least unemployment when fiscal or monetary restraint is pursued?
1. On the graph below, draw the ( A ) Keynesian, ( B ) monetarist, and ( C ) hybrid AS curves, all intersecting AD at point E . If AD shifts rightward, which AS curve ( A , B , or C ) generates(a)
11. Why would anyone object to President Obama’s proposed infrastructure spending? LO2
10. How might the inflationary flashpoint affect policy decisions? How would you represent the flashpoint on the Phillips curve? LO2
9. How would the volume and timing of capital investments be affected by (a) a permanent cut in the capital-gains tax, and ( b ) a temporary 10-percent tax credit? LO3
8. How do each of the following infrastructure items affect aggregate supply? (a) highways, (b) schools, ( c ) sewage systems, and ( d ) courts and prisons. LO3
7. If all workplace-safety regulations both ( a ) improve workers’ well-being and (b) raise production costs, how should the line between “good” regulations and “bad”regulations be drawn?
6. OSHA predicted that its proposed ergonomics rules(text, p. 349) would have cut repetitive-stress injuries by 50 percent. Was Congress correct in repealing those rules? LO1
5. How is the aggregate supply curve affected by ( a ) minimum wage laws, and ( b ) Social Security payroll taxes and retirement benefits? LO3
4. Which of the following groups are likely to have the highest tax elasticity of labor supply? (a) college students,( b ) single parents, ( c ) primary earners in two-parent families, and ( d )
3. Why would a Gulf Coast hurricane have national impact on aggregate supply? (News, p. 342). LO1
2. What were the unemployment and inflation rates last year? Where would they lie on Figure 16.6 ? Can you explain the implied shift from curve PC 2? LO2
LO3. Identify the tools of supply-side policy.
LO2. Discuss how an unemployment-infl ation trade-off arises.
LO1. Explain why the short-run AS curve slopes upward.
12. Use the data on the end covers of this text to determine for 2008:(a) The interest rate on 10-year Treasury bonds.(b) The U.S. inflation rate.(c) The real rate of interest.
11. Use the accompanying graphs to show what happens in the economy when M increases from$300 billion to $400 billion.(a) By how much does PQ change if V is constant?(b) If aggregate supply were
10. The following data describe market conditions:Money supply (in billions) $100 $200 $300 $400 $ 500 $ 600 $ 700 Interest rate 8.0 7.5 7.0 6.5 6.0 5.5 5.5 Rate of investment (in billions) $ 12 $ 12
9. According to Greenspan’s rule of thumb, how much fiscal stimulus would be equivalent to a 2-point reduction in long-term interest rates?
8. Suppose the Fed decided to purchase $30 billion worth of government securities in the open market. What impact would this action have on the economy? Specifically, answer the following
7. If the nominal rate of interest is 7 percent and the real rate of interest is 3 percent, what rate of inflation is anticipated?
6. Suppose that an economy is characterized by M ⫽ $6,000 billion V ⫽ 2.5 P ⫽ 100(a) What is the real value of output ( Q )?Now assume that the Fed increases the money supply by 10 percent and
5. Is the value of the short-term multiplier in the News on page 314 greater or less than 1.0?
4. Illustrate the effects on investment of:(a) An interest-rate hike (point A ).(b) An interest-rate hike accompanied by increased sales expectations (point B ).
3. If all of the “cash out” described in the News on page 314 was spent on consumption, by how much did AD shift(a) initially?(b) cumulatively?
2. Suppose homeowners owe $6 trillion in mortgage loans.(a) If the mortgage interest rate is 8 percent, approximately how much are homeowners paying in annual mortgage interest?(b) If the interest
1. In Table 15.1 , what is the implied price of holding money in a checking account rather than in Treasury bonds?
11. Does inflation targeting resolve uncertainties about Fed policy? LO1
10. If mortgage rates fell to 0 percent (“free money”), why might consumers still hesitate to borrow money to buy a home? LO2
9. Why were banks reluctant to use their lending capacity in 2008? (See News, p. 316.) What did they do with their increased reserves? LO2
8. In the News on p. 314, what starts the multiplier process? When will it stop? LO1
7. Could long-term interest rates rise when short-term rates are falling? What would cause such a pattern? LO3
6. When prices started doubling (see News, p. 323), why didn’t the Continental Congress print even more money so Washington’s army could continue to buy supplies?What brings an end to such
4. Can there be any inflation without an increase in the money supply? How? LO3
LO3. Identify the differences between Keynesian and monetarist monetary theories.
LO2. Summarize the constraints on monetary-policy impact.
LO1. Describe how monetary policy affects macro outcomes.
11. Suppose a banking system with the following balance sheet has no excess reserves. Assume that banks will make loans in the full amount of any excess reserves that they acquire and will
10. If the GM bond described on pages 297–298 was resold for $1200, what would its yield be?
9. What was the Fed’s target for the fed funds rate in December 2008 (News, p. 300)
7. Assume that a $1,000 bond issued in 2009 pays $100 in interest each year. What is the current yield on the bond if it can be purchased for(a) $1,200?(b) $1,000?(c) $800?8. Suppose a $1,000 bond
6. Assume the banking system contains Total reserves $ 80 billion Transactions deposits $800 billion Cash held by public $100 billion Reserve requirement 0.10(a) Are the banks fully utilizing their
5. According to the News on page 294, and World View on page 303, what was the money multiplier in(a) The United States?(b) China?
4. In Problem 3, suppose the Fed wanted to stop further lending activity. To do this, what reserve requirement should the Fed impose?
3. Assume that the following data describe the condition of the banking system:Total reserves $200 billion Transactions deposits $700 billion Cash held by public $100 billion Reserve requirement
2. In Table 14.1 , what would the following values be if the required reserve ratio fell to 0.10?(a) Total deposits(b) Total reserves(c) Required reserves(d) Excess reserves(e) Money multiplier( f )
1. What is the money multiplier when the reserve requirement is:(a) 0.10(b) 0.12
9. If bondholders expect the Fed to raise interest rates, what action might they take? How would this affect the Fed’s goal? LO3
8. In 2008, the Fed reduced both the discount and federal fund rates dramatically. But bank loan volume didn’t increase. What considerations might have constrained the market’s response to Fed
7. In early 2009, short-term bond yields in the United States fell to less than 0.5 percent. Yet, relatively few people moved their assets out of bonds into banks. How might this failure of open
6. Why did bond prices decline at the February 2009 auction? (See News, p. 298.) LO3
5. Why might the Fed want to decrease the money supply? LO2
4. Why did China raise reserve requirements in 2007? How did they expect consumers and businesses to respond?(See World View, p. 303.) LO2
3. What is the current price and yield of 10-year U.S. Treasury bonds? Of General Motors bonds? (Check the financial section of your daily newspaper.) What accounts for the difference? LO3
2. Why do people hold bonds rather than larger savings account or checking account balances? Under what circumstances might they change their portfolios, moving their funds out of bonds and into bank
1. Why do banks want to maintain as little excess reserves as possible? Under what circumstances might banks want to hold excess reserves? ( Hint: See Figure 14.2 .) LO2
LO3. Explain how open market operations work.
LO2. Identify the Fed’s major policy tools.
LO1. Describe how the Federal Reserve is organized.
8. Suppose that a lottery winner deposits $20 million in cash into her transactions account at the Bank of America (B of A). Assume a reserve requirement of 25 percent and no excess reserves in the
7. In Table 13.2 , how much unused lending capacity does Eternal Savings have at step 4?
6. (a) When the reserve requirement changes, which of the following will change for an individual bank (answer “change” or “no change”).Transactions deposits Total reserves Required reserves
5. In December 1994, a man in Ohio decided to deposit all of the 8 million pennies he’d been saving for nearly 65 years. (His deposit weighed over 48,000 pounds!) With a reserve requirement of 5
4. What is the value of the money multiplier when the required reserve ratio is(a) 5 percent?(b) 4 percent?
3. Suppose a bank’s balance sheet looks like this:Assets Liabilities Reserves Deposits $500 Excess $ 75 Required 25 Loans 400 Total $500 Total $500 What is the required reserve ratio?
2. Suppose a bank’s balance sheet looks as follows:Assets Liabilities Reserves $450 Deposits $5,000 and banks are required to hold reserves equal to 10 percent of deposits.(a) How much excess
1. If you cash a $100 traveler’s check at a bank, by how much do(es)(a) M1 change?(b) M2 change?(c) bank reserves change?If you deposit the traveler’s check in your bank account, by how much
10. Why is the failure of a major bank (News, p. 286) so frightening? LO3
9. How does federal deposit insurance encourage greater risk-taking by banks? Could the banking system function without government deposit insurance? How? LO2

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