Questions and Answers of Macroeconomic Theory

If the European euro were to decline in value (depreciate) in the foreign exchange market, would it be easier or harder for the French to sell their wine in the United States? Suppose you were
KEY QUESTION True or False? “U.S. exports create a demand for foreign currencies; foreign imports of U.S. goods create a supply of foreign currencies.” Explain. Would a decline in U.S. consumer
Suppose that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the hypotheti cal nations of Canswicki and Tunata:Canswicki: 1 can baby formula 2 cans tuna
KEY QUESTION The following are production possibilities tables for China and the United States. Assume that before specialization and trade the optimal product mix for China is alternative B and for
Describe the four major economic flows that link the United States with other nations. Provide a specific example to illustrate each flow. Explain the relationships between the top and bottom flows
How and why government sometimes interferes with free international trade.
STATE TAXES AND EXPENDITURES PER CAPITA—WHERE DOES YOUR STATE RANK? Go to the Census Bureau site, www.census.gov/govs/www/state.html, and find the table that ranks the states by tax revenue and
PERSONAL DISTRIBUTION OF INCOME—WHAT IS THE TREND? Visit the U.S. Census Bureau Web site at www.census.gov/hhes/income/midclass/index.html and select Data Highlights. Since 1970, how has the share
LAST WORD What do economists mean when they refer to Social Security as a pay-as-you-go plan? What is the Social Security trust fund? What is the nature of the long-run fiscal imbalance in the Social
KEY QUESTION Suppose in Fiscalville there is no tax on the first $10,000 of income, but a 20 percent tax on earnings between $10,000 and $20,000 and a 30 percent tax on income between $20,000 and
Use the circular flow diagram to show how each of the following government actions simultaneously affects the allocation of resources and the distribution of income:a. The construction of a new high
Use the distinction between the characteristics of private and public goods to determine whether the following should be produced through the market system or provided by government: (a) French
KEY QUESTION What are the two characteristics of public goods? Explain the significance of each for public provision as opposed to private provision. What is the free-rider problem as it relates to
What divergences arise between equilibrium output and efficient output when (a) negative externalities and (b) positive externalities are present? How might government correct these divergences? Cite
CHANGES IN DEMAND—BABY DIAPERS AND RETIREMENT VILLAGES Other things equal, an increase in the number of buyers for a product or service will increase demand. Baby diapers and retirement villages
FARM COMMODITY PRICES—SUPPLY AND DEMAND IN ACTION The U.S. Department of Agriculture, www.nass.usda.gov/, publishes charts on the prices of farm products.Go to the USDA home page and select “Find
KEY QUESTION Refer to the table in question 8.Suppose that the government establishes a price ceiling of $3.70 for wheat. What might prompt the government to establish this price ceiling? Explain
Supply curve S:a. reflects an inverse (negative) relationship between price and quantity supplied.b. reflects a direct (positive) relationship between price and quantity supplied.c. depicts the
Demand curve D is downsloping because:a. producers offer less of a product for sale as the price of the product falls.b. lower prices of a product create income and substitution effects that lead
BARTER AND THE IRS Bartering occurs when goods or services are exchanged without the exchange of money. For some, barter’s popularity is that it enables them to avoid paying taxes to the
DIAMONDS—INTERESTED IN BUYING ONE? Go to the Internet auction site eBay at www.ebay.com and select the category Jewelry and Watches and then Loose Diamonds and Gemstones. How many loose diamonds
Which of the following would be determined in the product market?a. a manager’s salary.b. the price of equipment used in a bottling plant.c. the price of 80 acres of farmland.d. the price of a new
The resource market is the place where:a. households sell products and businesses buy products.b. businesses sell resources and households sell products.c. households sell resources and businesses
KEY APPENDIX QUESTION The following table contains data on the relationship between saving and income. Rearrange these data into a meaningful order and graph them on the accompanying grid. What is
KEY APPENDIX QUESTION Indicate how each of the following might affect the data shown in the table and graph in Figure 2of this appendix:a. GSU’s athletic director schedules higher-quality
Briefly explain the use of graphs as a way to represent economic relationships. What is an inverse relationship? How does it graph? What is a direct relationship? How does it graph? Graph and explain
MORE LABOR RESOURCES—WHAT IS THE EVIDENCE FOR THE UNITED STATES AND JAPAN ? Go to the Bureau of Labor Statistics’ Web site at www.bls.gov/ and select Get Detailed Statistics. Look for Labor Force
NORMATIVE ECONOMICS—REPUBLICANS VERSUS DEM- OCRATS Visit both the Republicans’ www.rnc.org/ and the Democrats’ www.democrats.org/ Web sites. Identify an economic issue that both parties
KEY QUESTION Below is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts):a. Show these data graphically. Upon what specific assumptions is this production
KEY QUESTION Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. The price of candy bars is$.75 and the price of
What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greatest opportunity cost: Allocating a square block in the
Permanent and Temporary Shocks: Expectations Several Steps Ahead We studied in appendix 3.1 how to predict the next realization of a stochastic process, which is the sum of two nonobservable
Learning and Sunspots We investigate whether a modification of the model that we studied in. section 3.7 can give rise to sunspots, and whether learning can lead to such. sunspots. We replace
y=m-p+bE-1 (Pt+1 - P) + E AD Y = y +E (P-P) AS with: P-E-1Pt The AD curve comes from an IS-LM system where demand is a negative function of the expected real interest rate, and thus a positive
Policy Ineffectiveness We consider an extension of the AD-AS system that we saw in section
The Poole Model with Endogenous Prices We extend the model that we saw in appendix 2.3 by endogenizing prices. So we have the same IS-LM equations: Y = -bi IS LM We add an AS curve: y = (Pt-w) AS As
International Trade and the Multiplier We want to show how trade with foreign economies modifies the multipliers. 1. We first consider as a benchmark a closed economy with rigid wages and flexible
Steady Growth and Labor Augmenting Technical Progress We want to show that, to have steady-state growth, technical progress must be of the labor augmenting type (see, notably, Barro and
Transition in a Dual Economy The economy comprises two sectors, 1 and 2. They produce the same good, which can be both consumed or invested. The "modern" sector, 1, uses capitalistic techniques

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