Questions and Answers of Macroeconomics Canada In The Global Environment

The economy of Freedonia is currently faced with negative net exports and high unemployment. Explain two measures that the Freedonian central bank could take to increase net exports and lower
Explain how an increase in the real interest rate affects the GDP in an open economy.
“Holding all else constant, a nominal depreciation of the U.S. dollar against the Japanese yen leads to a real depreciation of the U.S. dollar against the Japanese yen.” Is this statement true or
How did George Soros benefit from the overvaluation of the British pound?
What does it mean to say that, at an exchange rate of 1 USD = 60 INR, the U.S. dollar is overvalued and the Indian rupee is undervalued?
How is the equilibrium exchange rate determined under a flexible exchange rate regime?
Suppose that the price of a car manufactured in the U.S.remains unchanged. If the U.S. dollar depreciates against the South Korean won, will the price of the car, in terms of the won, become higher
The coffee market is one of the most globalized and volatile commodity markets in existence. In terms of the value of trade, it is second only to oil. Coffee is produced in over seventy countries,
Foreign direct investment (FDI) in several sectors in India is still heavily regulated. After much debate, the government of India recently relaxed restrictions on FDI in the retail sector. For
Throughout the 1950s and 1960s, many poor countries pursued a policy called “import-substituting industrialization,”or ISI for short. India, and many nations in Africa and Latin America, closed
Recall the national income accounting identity(in Chapter 5): Y = C + I + G + X − M, where Y, X, and M denote GDP, export, and import, respectively.a. Use the equation to derive the relationship
Suppose the following table shows data on transactions between the United States and the rest of the world for the month of May 2013. Assuming the list is exhaustive, use the information given to
Suppose that there are two countries, X and Y, both of which have experienced trade deficits for a few years. To finance trade deficits, the countries have to borrow foreign funds, but their fund
Tire production in the United States has been on the decline, in both absolute and relative terms. Imported tires are replacing most of the domestically manufactured tires in the market. Trade unions
David Ricardo, the British political economist, used the example of two commodities—wine and cloth—produced by England and Portugal to explain trade. The following table shows the number of labor
Assume that an American worker can produce 5 cars per year or 10 tons of grain per year, whereas a Japanese worker can produce 15 cars per year or 5 tons of grain per year. Assume labor is the only
Suppose that the United States and Chile are the only two countries in the world, and that labor is the only productive input. In the United States, a worker can produce 15 bushels of corn or 10
If you do outlining instead of typing, in the same 8 hours you could produce 6 summary outlines of the course readings, while your roommate could produce only 2.a. Who has the absolute advantage in
Consider the economy of country Smiley in 2014. Its exports of merchandise and imports of merchandise are$500,000 and $300,000, respectively. Its exports of services and imports of services are
“Trade deficit must lead to a current account deficit.” Is this statement true or false? Explain your answer.
The international accounting system maintains a clear distinction between residency and citizenship.a. Who would be considered a domestic resident of the United States, according to the international
How is the trade balance defined? When is a country said to be running a trade deficit or a trade surplus?
Has trade been increasing or decreasing over the past few decades? What could explain why the ratio of imports to GDP in the United States fell sharply after 1929 before rebounding shortly thereafter?
Define the terms in terms of payments into and out of a country: (a) net exports; (b) net factor payments from abroad; and (c) net transfers from abroad.
Is it possible to have a country that has absolute disadvantage in both goods, but still trade with another country?Explain your answer.
Suppose that you pay more to have a meal in the university cafeteria than to cook for yourself. As a student, you still choose to eat out before the exam. Explain your choice in terms of absolute
Why is the Troubled Asset Relief Program (TARP) considered an example of a countercyclical policy that represents a mix of fiscal and monetary effects?
Explain why an increase in government expenditure could lead to a more-than-proportionate or a less-thanproportionate increase in output.
How can expansionary expenditure-based fiscal policy lead to crowding out in the economy?
Given the zero nominal interest rate, if people are expecting deflation, what is the effect on the labor demand curve?
What do countercyclical policies mean? During an economic boom, what countercyclical fiscal and monetary policies are used?
What is quantitative easing? Why do central banks undertake quantitative easing programs?
Briefly explain how expansionary monetary policy shifts the labor demand curve to the right.
How do expansionary policies differ from contractionary policies?
What are the tools used by the government and the central bank in their conduct of fiscal and monetary policies?
Between 2000 and 2006, housing prices in the United States increased by about 90 percent. As detailed in the chapter, this increase abruptly reversed.a. Why is the rise in housing prices between the
How can the 2007–2009 recession be explained?
What are two important mechanisms that reverse the effects of a recession in a modern economy?
Write a general equation of Okun’s Law for a country.What growth rate of real GDP is required to keep the constant unemployment rate?
The concept of multipliers was one of the key elements of John Maynard Keynes’s theory of fluctuations. What is a multiplier? Explain with an example.
How did John Maynard Keynes use the concepts of animal spirits and sentiments to explain economic fluctuations?
What are the major sources of fluctuations identified by each of these three schools of thought—real business cycle theory, Keynesian theory, and financial and monetary theories?
How do wage flexibility and downward wage rigidity affect the extent of unemployment in the economy when the demand for labor shifts to the left?
Why is only the 1929 contraction qualified as depression among all the recessions that the U.S. has experienced?How did the economic aggregates—real consumption and real investment—co-move with
The duration of an economic fluctuation is completely unpredictable.Explain whether this statement is true or false.
What does it mean to say that an economic fluctuation involves the co-movement of many aggregate macroeconomic variables? Name four variables that exhibit co-movement during an economic expansion.
Comparing GDP growth with its trend, what do the deviations from the trend reflect? How is recession informally defined?
How do people form inflation expectations?
How does the growth rate of money supply affect the real interest rate?
Why is the Federal Reserve referred to as the “lender of last resort”?
How can the central bank reduce the level of reserves?What happens to the supply curve for reserves?
What is the federal funds rate? What are the factors that would shift the demand curve for reserves?
Does inflation have any benefits? Explain.
What are the costs associated with inflation?
What is the most common cause of hyperinflation?
What is the difference between inflation, deflation, and hyperinflation?
Recall the discussion in the chapter about the “quantity theory of money.”a. Explain the quantity theory of money.b. Explain how predictions of the quantity theory of money are borne out by
How is the M2 money supply defined?
How does fiat money differ from commodities like gold and silver that were used as money?
Use the three functions of money to determine whether credit cards constitute money.
Banks fail when they invest in long-term assets that subsequently fall in price. What are the two views on why asset prices fluctuate so much that they lead to financial crises and bank failures?
As the Choice and Consequence box on “Too Big to Fail” notes, bank regulators worry about the prospect of the failure of large financial institutions, dubbed “systemically important financial
What is the difference between a solvent and an insolvent bank?
What is a bank run?
What is stockholders’ equity? Who bears the risk that a bank faces when stockholders’ equity is greater than zero?
How does diversifying portfolio and shifting risk to stockholders help in protecting depositors’ savings?
What functions do banks perform as financial intermediaries in the economy?
What is the shadow banking system?
What are the key categories on a bank’s balance sheet?Illustrate using a table.
Households and firms with savings lend money to banks and other financial institutions. The credit supply curve shows the relationship between the quantity of credit supplied and the real interest
What factors explain why people save for the future?
Firms, households, and governments use the credit market for borrowing. The credit demand curve shows the relationship between the quantity of credit demanded and the real interest rate.a. Why does
Under what condition will the nominal interest rate be equal to the real interest rate?
What is wage rigidity? List and explain two factors that can increase wage rigidity in the labor market.
Sometimes new technology in production reduces the time that a worker takes to complete a task. Technological innovations can also completely replace a factory worker.Does this mean that
What is the difference between efficiency wage and market-clearing wage?
What is meant by job search? How does it lead to frictional unemployment?
Define the natural rate of unemployment and cyclical unemployment. What types of unemployment do they both reflect?
Why does the labor supply curve slope upward and what can cause the labor supply curve to shift?
Change in market wage leads to a shift in the labor demand curve. Is this statement true or false? Explain your answer.
As an economic advisor, you observe that a firm’s total revenue is greater than its total cost. Will you recommend the firm to employ more workers to maximize profits?Explain your answer.
What could explain why unemployment is lower among workers with a relatively higher level of education?
Consider Exhibit 9.2. What were the two highest rates of unemployment since 1948? When did they occur?
Explain whether each of these individuals will be counted as a part of the labor force.a. Jane is working full-time toward a Ph.D. in philosophy but volunteers at nursing homes during her spare
Unemployment statistics are measured and released by the Bureau of Labor Statistics (BLS), a division of the U.S. Department of Labor.a. When does the Bureau of Labor Statistics (BLS) officially
Parts of the world that were relatively more prosperous 500 years ago have experienced a reversal of fortune and are relatively poorer today. What factors could explain this?
Based on Schumpeter’s idea of creative destruction, explain why some rulers adopt extractive economic institutions that prevent countries from being wealthy.
Suppose a country has well-enforced private property rights for entrepreneurs, but a large fraction of the population does not have access to education and thus cannot become entrepreneurs. Moreover,
How does the existence of extractive institutions discourage entrepreneurship in an economy?
What does the return-to-entrepreneurship curve show?What is meant by the opportunity cost of entrepreneurship?
How do inclusive economic institutions differ from extractive economic institutions?
What does it mean to say that private property rights are well-enforced in an economy? How does it foster economic development?
Based on the chapter, how does institution hypothesis explain the difference, in terms of economic growth, between North and South Korea?
In the context of this chapter, what is meant by an institution?What are the three important elements that define institutions?
Do you think cultural differences help explain the economic growth in different countries? Give an example to illustrate your answer.
According to the geography hypothesis, what could be done in order to improve incomes in poor countries?
What does the geography hypothesis state?
Why do some countries have more physical capital, higher quality of human capital, and better technology?
What factors explain the dramatic increases in life expectancy that we saw in most countries in the twentieth century?
Based on your understanding of the chapter, how can poverty best be reduced?

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