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macroeconomics

Questions and Answers of Macroeconomics

The list below provides some national income figures for the country of Econoland. All figures are in millions of dollars.a. Using the expenditure approach, what is the value of GDP for Econoland?b.
As we saw in the text, the expenditure approach to measuring GDP shows thata. Is this equation a causal relationship, suggesting that an increase in any one of the right-hand-side terms causes an
A company's wages and salaries are part of its value added. Suppose, however, that the cleaning and machinery maintenance that its own employees used to do are now contracted out to specialist firms
For each of the following events, describe the likely effect on real GDP in Canada.a. A major ice storm in Quebec damages homes and thus increases the demand for building materials.b. A flood on the
The table below shows data for real and nominal GDP for a hypothetical economy over several years.a. Compute the GDP deflator for each year.b. Compute the total percentage change in nominal GDP from
Would inflation, as measured by the rate of change in the GDP deflator, ever be different from inflation as measured by the rate of change in the Consumer Price Index? Would it ever be the same?
Consider the following data for a hypothetical economy that produces two goods, milk and honey.a. Compute nominal GDP for each year in this economy.b. Using year 1 as the base year, compute real GDP
In 201 4, the United Nations ranked Norway first on the Human Development Index-a ranking of the "quality of life" in many countries. Yet Norway was not ranked first in terms of real per capita GDP.
Fill in the blanks to make the following statements correct.a. The equation for actual national income from the expenditure side is written as GDP = __________ .b. The equation for desired aggregate
Fill in the blanks to make the following statements correct.a. If actual national income is $200 billion and desired aggregate expenditure is $180 billion, inventories may begin to ________ , firms
Consider the following table showing aggregate consumption expenditures and disposable income. All values are expressed in billions of constant dollars.a. Compute the average propensity to consume
This question relates to desired saving, and is based on the table in Question 3 .a. Compute desired saving at each level of disposable income. Plot the saving function on a scale diagram. What is
Relate the following newspaper headlines to shifts in the \(C, S, I\), and \(A E\) functions and to changes in equilibrium national income.a. "Revival of consumer confidence leads to increased
In the chapter we explained the difference between desired expenditures and actual expenditures.a. Is national income accounting based on desired or actual expenditures? Explain.b. Suppose there were
Consider the following diagram of the \(A E\) function and the \(45^{\circ}\) line.a. Suppose the level of actual national income is \(Y_{1}\). What is the level of desired aggregate expenditure? Is
Consider a simple model like the one developed in this chapter. The following equations show the levels of desired consumption and investment:a. Complete the table above.b. What is the equilibrium
Suppose you are given the following information for an economy without government spending, exports, or imports. \(C\) is desired consumption, \(I\) is desired investment, and \(Y\) is income. \(C\)
For each of the following aggregate expenditure \((A E)\) functions, identify the marginal propensity to spend (z) and calculate the simple multiplier.a. \(A E=150+0.4 Y\)b. \(A E=900+0.62 Y\)c. \(A
Consider an economy characterized by the following equations:where \(C\) is desired consumption, \(I\) is desired investment, \(W\) is household wealth, and \(Y\) is national income.a. Suppose wealth
The "Paradox of Thrift" is a famous idea in macroeconomics-one that we will discuss in later chapters. The basic idea is that if every household in the economy tries to increase its level of desired
In the simple model of this chapter, aggregate investment was assumed to be autonomous with respect to national income. The simple multiplier was \(1 /(1-z)\), where \(z\) was the marginal propensity
Fill in the blanks to make the following statements correct.a. In our macro model, government purchases ( G ), is __________ with respect to national income.b. G does not include ____________ . Net
Fill in the blanks to make the following statements correct.a. In our macro model exports ( X ) are _________ with respect to domestic national income, but the X function will shift in response to
Fill in the blanks to make the following statements correct.a. Our simple macro model in Chapters 21 and 22 has made an important assumption that the price level is ___________ . We say that output,
Consider the following table showing national income and government net tax revenues in billions of dollars. Assume that the level of government purchases is \(\$ 155 \) billion.a. Compute the
Consider the following table showing national income and imports in billions of dollars. Assume that the level of exports is \(\$ 300 \) billion.a. Compute the level of net exports for each level of
Each of the following headlines describes an event that will have an effect on desired aggregate expenditure. What will be the effect on equilibrium national income? In each case, describe how the
The following diagram shows desired aggregate expenditure for the economy of Sunset Island. The \(A E\) curve assumes a net tax rate \((t)\) of 10 percent, autonomous exports of \(\$ 25 \) billion,
The economy of Sunrise Island has the following features:- fixed price level- no foreign trade- autonomous desired investment \((I)\) of \(\$ 20 \) billion- autonomous government purchases \((G)\) of
The following table shows alternative hypothetical economies and the relevant values for the marginal propensity to consume out of disposable income (MPC), the net tax rate \((t)\), and the marginal
This question requires you to solve a macro model algebraically. Reading the appendix to this chapter will help you to answer this question. But, just in case, we lead you through it step by step.
This question repeats the exercise of Question 10 , but for specific numerical values. The equations of the model area. Compute the \(A E\) function and plot it in a diagram. What is total autonomous
For the 200 9 and 201 0 Canadian federal budgets, during a major global recession, the minister of finance presented a plan to stimulate the economy.a. Describe the basic fiscal tools at his
Classify each of the following government activities as either government purchases or transfers.a. Welfare payments for the poorb. Payments to teachers in public schoolsc. Payments to teachers at a
In Chapter 20 we examined how national income was measured. By using the expenditure approach, we showed that GDP is always equal to the sum of consumption, investment, government purchases, and net
Fill in the blanks to make the following statements correct.a. In the simple macro model of the previous two chapters, the price level was _______ to the model. In the macro model of this chapter,
Fill in the blanks to make the following statements correct.a. The __________ curve relates the price level to the quantity of output that firms would like to produce and sell.b. Each aggregate
Fill in the blanks to make the following statements correct.a. Macroeconomic equilibrium occurs at the intersection of and rium levels of _______and _______ and determines equilibrium levels of
Consider the effects of an exogenous increase in the domestic price level. For each of the assets listed, explain how the change in the price level would affect the wealth of the asset holder. Then
Consider the following simplified \(A E\) function:where \(A E\) is desired aggregate expenditure, \(Y\) is real GDP, \(M\) is the private sector's nominal wealth, and \(P\) is the price level.
Consider the following diagram showing the \(A D\) curves in two different economies. One economy is Autarkland - it does not trade with the rest of the world (autarky is a situation in which a
The economy of Neverland has the following \(A D\) and \(A S\) schedules. Denote \(\mathrm{Y}_{A D}\) as the level of real GDP along the \(A D\) curve; let \(\mathrm{Y}_{A S}\) be the level of real
Each of the following events caused a shift in the \(A D\) or \(A S\) curve in Canada. Identify which curve was affected and describe the effect on equilibrium real GDP and the price level.a. OPEC's
The following diagrams show the \(A D\) and \(A S\) curves in two different economies.a. Explain what aspect of firms' behaviour might give rise to the horizontal \(A S\) curve in Economy \(A\).b.
This question involves algebraically solving the system of two equations given by the \(A D\) and \(A S\) curves. The equations for the curves are given bya. Explain the various terms in the \(A D\)
Fill in the blanks to make the following statements correct.a. In our short-run macro model, it is assumed that factor prices are ________ and the level of potential output is ________ Changes in
Fill in the blanks to make the following statements correct.a. When actual GDP is higher than potential GDP, we say that there is \(a(n)\)________ gap. When actual GDP is less than potential GDP we
Fill in the blanks to make the following statements correct.a. Beginning with output equal to potential, suppose there is a sudden increase in demand for Canadian exports. This is a(n) __________
Fill in the blanks to make the following statements correct.a. In the long run, total output is determined only by __________. In the long run, aggregate demanddetermines the __________ .b.
The following diagram shows two economies, \(A\) and \(B\). Each are in short-run equilibrium at point \(E\), where the \(A D\) and \(A S\) curves intersect.a. Explain why in Economy \(A\) wages and
The table shows several possible situations for the economy in terms of output gaps and the rate of change of wages. Real GDP is measured in billions of dollars. Assume that potential output is \(\$
Consider an economy that is in equilibrium with output equal to \(Y^{*}\). There is then a significant reduction in the world's demand for this country's goods.a. Illustrate the initial equilibrium
Consider an economy that is in equilibrium with output equal to \(Y^{*}\). There is then a significant reduction in the world price of an important raw material, such as iron ore. (Assume that this
The table below shows hypothetical data for five economies. Real GDP is measured in millions of dollars.a. Fill in the missing data. Which economies have an inflationary gap? Which have a
Consider the following sets of values for MPC, \(t\), and \(m\), and recall that the simple multiplier is given by \(1 /\) \([1-M P C(1-t)-m]\). Assume the \(A S\) curve is upward sloping and
In our discussion of automatic fiscal stabilizers, we argued that income taxes and transfers increased the stability of real GDP in the face of \(A D\) and \(A S\) shocks. Recall from Chapter 22 that
Which of the following would be automatic stabilizers? Explain why.a. Employment-insurance paymentsb. Cost-of-living escalators in government contracts and pensionsc. Income taxesd. Free university
The following diagram shows the \(A D, A S\), and \(Y *\) curves for an economy. Suppose the economy begins at point \(A\). Then the government increases its level of purchases \((G)\).a. Describe
Between 200 6 and 201 2, the Canadian government reduced both personal and corporate income taxes. Is this a demand-side or a supply-side policy? Explain.
Fill in the blanks to make the following statements correct.a. Long-run, sustained increases in potential output are called .b. Increases in material living standards occur with increases in real
In this chapter, we developed a theory of the market for financial capital. Using that theory, fill in the blanks to make the following statements correct.a. An increase in the real interest rate
Fill in the blanks to make the following statements correct.a. An important aspect of Neoclassical growth theory is that increases in the supply of one factor, all else held constant, imply
In the text we said that, over many years, small differences in growth rates can have large effects on the level of income. This question will help you understand this important point. Consider an
The diagram below shows two paths for aggregate consumption. One grows at a rate of 3 percent per year; the other grows at 4 percent per year but begins at a lower level.a. Suppose the economy jumps
The table below shows aggregate values for a hypothetical economy. Real GDP is equal to potential GDP. Figures are billions of dollars.a. What is the level of private saving?b. What is the level of
Consider an economy in the long run with real GDP equal to the level of potential output, \(Y^{*}\).a. Draw the diagram of the market for financial capital. Explain the slopes of the investment
Consider the market for financial capital and the relationship among saving, investment, and the interest rate. In what follows, assume that the economy is in a long-run equilibrium with
The Neoclassical growth theory is based on the existence of an aggregate production function-showing the relationship between labour \((L)\), capital \((K)\), technology \((T)\), and real GDP
In this chapter we discussed four major determinants of growth in real output: increases in the labour force, increases in the stock of physical capital, increases in human capital, and improvements
In the early 197 0s the Club of Rome, extrapolating from the rates of resource use at the time, predicted that the supply of natural resources (especially oil) would be used up within a few decades.
Dr. David Suzuki, an opponent of further economic growth, has argued that despite the fact that "in the twentieth century the list of scientific and technological achievements has been absolutely
Fill in the blanks to make the following statements correct.a. Money serves three functions: __________,________and _________.b. Suppose children at a summer camp are each given a credit of \(\$ 20
Fill in the blanks to make the following statements correct. Answer these questions in the sequence given.a. Suppose the Bank of Canada purchases a \(\$ 100 0\) bond from Bob's Financial Firm, and
Which of the following items can be considered money in the Canadian economy? Explain your answers by discussing the three functions of money-medium of exchange, store of value, and unit of
Sunshine Bank has the following list of entries on its balance sheet. All figures are in millions of dollars.a. Draw the balance sheet for Sunshine Bank and record the entries appropriately in the
The table below shows the balance sheet for the Regal Bank, a hypothetical commercial bank. Assume that the Regal Bank has achieved its target reserve ratio.a. What is the Regal Bank's target reserve
Consider a new deposit to the Canadian banking system of \(\$ 100 0\). Suppose that all commercial banks have a target reserve ratio of 10 percent and there is no cash drain. The following table
Consider a withdrawal of \(\$ 500 0\) from the Canadian banking system. Suppose all commercial banks have a target reserve ratio of 8 percent and there is no cash drain.a. Using a table like that
Consider an individual who immigrates to Canada and deposits \(\$ 300 0\) in Canadian currency into the Canadian banking system. Suppose all commercial banks have a target reserve ratio of 10 percent
Consider an individual who moves to Canada and brings with him \(\$ 400 00\) in Canadian currency, which he deposits in a Canadian bank. For each of the cases below, compute the overall change in
This question is intended to illustrate the similarity between the simple income-expenditure multiplier from Chapters 21 and 22 and the deposit multiplier that we examined in this chapter.a.
Suppose that on January 1 , 201 1, a household had \(\$ 300 \) 000 , which it wanted to hold for use one year later. Calculate, by using resources available online or in your university library,
During 201 1, after the worst of the global financial crisis was over, the governor of the Bank of Canada expressed concern that the commercial banks were still "hoarding" cash rather than extending
Fill in the blanks to make the following statements correctly reflect the theory developed in this chapter.a. Monetary equilibrium occurs when the quantity of _________ equals the quantity of _______
Fill in the blanks to make the following statements correctly reflect the theory developed in this chapter.a. If money is neutral in the long run, then changes in the money supply have no effect on
The following table shows the stream of income produced by several different assets. In each case, \(P_{1}, P_{2}\), and \(P_{3}\) are the payments made by the asset in Years 1 , 2 , and 3 .a. For
The table below provides information for six different bonds: current market price \((P)\), the face value of the bond \((V)\), and the number of years before the bond matures \((N)\).a. In each
Consider a bond that promises to make coupon payments of \(\$ 100 \) one year from now and \(\$ 100 \) two years from now, and to repay the principal of \(\$ 100 0\) three years from now. Suppose
What motives for holding money-transactions, precautionary, or speculative-do you think explain the following holdings? Explain.a. Currency in the cash register of the local grocery store at the
The diagram below shows the demand for money and the supply of money.a. Explain why the \(M_{D}\) function is downward sloping.b. Suppose the interest rate is at \(i_{A}\). Explain how firms and
The following diagrams show the determination of monetary equilibrium and the demand for investment. The economy begins with money supply \(M_{S}\), money demand \(M_{D}\), and investment demand
In the text we discussed why, in an open economy with international capital mobility, there is a second part to the monetary transmission mechanism. (It may be useful to review Figure 27 -7 when
In the text we discussed the historical debate between Keynesians and Monetarists regarding the effectiveness of monetary policy in changing real GDP (see Figure 27 -10 to review). Using the same
In 200 8, stock markets in Canada and other developed countries experienced very large declines, largely in response to the failure of several large U.S. and European banks and the resulting
Consider the effects of events in the U.S. economy on the Canadian economy and on Canadian monetary policy.a. If a serious recession begins in the United States, what is the likely effect on Canadian
Fill in the blanks to make the following statements correct.a. In general, there are two approaches to implementing monetary policy. The central bank can attempt to influence __________ directly or
Fill in the blanks to make the following statements correct.a. The interest rate that commercial banks charge each other for overnight loans is called the _____________b. The bank rate is __________
Fill in the blanks to make the following statements correct.a. The long-run policy target for the Bank of Canada is the _______________. The current target is to keep the inflation rate at
Read Applying Economic Concepts 28 -1, which discusses the Bank of Canada's open-market operations and how these influence the amount of currency in circulation in the Canadian economy. Using
In the text we stated that the Bank of Canada's longrun policy target is the rate of inflation.a. What observations have led many central banks to choose this long-run policy target?b. The Bank of

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