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macroeconomics principles

Questions and Answers of Macroeconomics Principles

What condition is required for equilibrium in the goods market?
How would the interest rate increase mentioned in question 4 affect net exports in the Euro area?
How does an increase in financial frictions affect planned investment spending?
How would the ECB announcing a rise in real interest rate affect investment spending(assume no effect on inflation)?
If Volkswagen invests in a new factory, would it be a fixed or inventory investment?
According to the consumption function, what variables determine aggregate spending on consumer goods and services? How is consumption related to each of these variables?
What are the four components of planned expenditure, and why did Keynesian analysis emphasize this concept?
How do menu costs contribute to sticky prices?
Keynesian and classical economists have different views on prices and wage flexibility.Which one do you think is more appropriate to analyze countries such as the United States and Germany? Also,
Do the fiscal stimulus packages put in place by the governments of most developed countries to counteract the adverse effects of the 2007–09 financial crisis reflect Keynesian or classical views of
What is the difference between the short run and the long run in macroeconomic analysis?Why do macroeconomists differentiate between the two time horizons?
How do macroeconomists distinguish between flexible and sticky prices and wages?
What were the “Great Inflation” and the“Great Moderation”?
Classify the following economic variables as procyclical or countercyclical, and as leading, lagging, or coincident: real consumer spending, real investment spending, unemployment, inflation, stock
Distinguish among leading, lagging, and coincident economic variables.
Distinguish between procyclical and countercyclical economic variables.
What are business cycles?
The International Property Rights Index (IPRI)ranks countries according to the significance and protection of both intellectual and physical property rights. What correlation between income per
What could be the effect of a public program to build a proper sewage infrastructure in the main cities of India on variables such as economic growth and life expectancy?
Uruguay has implemented the One Laptop per Child (OLPC) initiative in which one laptop is given to every child and teacher in a public primary school. Comment on the effects of this program on the
The British government has announced a plan(“Britain’s Superfast Broadband Future”) to build the best broadband network in Europe by 2015, investing significant amounts of money. Is there a
Compare the following factors of production in terms of their rivalry and excludability:a) A robot that welds car frames and the idea of building a car in an assembly lineb) A recipe to make pancakes
What is the impact of an increase in saving in the Romer model?
In the Romer model, how does an increase in total population affect the growth rate of percapita output over time?
Using the Romer model, explain how economic growth responds to developments related to R&D activities.
In the Romer model, what three factors determine an economy’s growth rate?
Why is sustained per-capita growth possible in the Romer model but not in the Solow model?
What shortcoming of the Solow growth model does the Romer model attempt to remedy?
Which are the obstacles to effective property rights? Explain.
How do property rights affect economic growth;in both developing and developed countries.
Explain why building infrastructure could be a good policy for governmental agencies to promote productivity growth.
Assume that the per-worker production function is yt = 2kt 0.5. The saving and depreciation rates are estimated at 0.2 and 0.04, respectively.a) Calculate the capital-labor ratio steady state for
According to the growth accounting equation, what are the three sources that contribute to economic growth?
What are the four basic results of the Solow growth model? What is the model’s chief weakness?
In the Solow growth model, which variables are exogenous and which are endogenous?
How does the Chinese one-child policy affect steady-state levels of capital and output per worker according to the Solow model?
French savings rates are currently above the average rates of developed countries.Assuming that France is at its steady-state, show how a decrease in the savings rate would affect the levels and
Explain the role of savings in determining the steady-state level of capital per worker. Do you expect a higher steady-state level of output per worker in the US or in China, given their different
What determines the amount of investment per worker and capital accumulation in the Solow growth model?
Why does the per-worker production function have its particular shape and slope?
In the per-worker production function, what factors determine the level of output per worker? Which one of these factors does the Solow growth model consider to be exogenous?
During the Great Depression years of 1930–1933, bank panics led to a dramatic rise in the currency and excess reserves ratios, while the monetary base rose by 20%. Explain how banks’ and
Calculate the money multiplier for the following values of the currency, excess reserves, and required reserves ratios (i.e., complete the following table), and explain why the money multiplier
Under very particular conditions, banks would like to borrow from the Fed and, rather than use these borrowed funds to make loans, keep them in the form of excess reserves.What would be the effect on
Suppose the Federal Reserve conducts an open market purchase for $100 million. Assuming the required reserves ratio is 10%, what would be the effect on the money supply in each of the following
The Federal Reserve announced the closing of many lending facilities, like the term auction facility (TAF), that were originally created to extend loans to financial intermediaries during the most
Some developing countries have suffered banking crises in which depositors lost part or all of their deposits (in some countries there is no deposit insurance). This type of crisis decreases
Use the Fed and the banking system T-accounts to describe the effects of a Fed sale of $200 million worth of government bonds to a bank that pays with part of its reserves held at the Fed. What would
Use the following information to determine the Fed’s balance sheet and calculate the Fed’s monetary liabilities:Currency in circulation = $750 billion Reserves of the banking system = $850
Identify the five factors that determine the money supply. For each factor, explain which player(s) in the money supply process—the Federal Reserve, depositors, and banks—control or influence it,
Suppose the Fed buys U.S. Treasury securities from Bank of America. According to the simple model of multiple deposit creation, how does this open market purchase affect the money supply? What are
What are the costs of anticipated and unanticipated inflation?
What is the Fisher effect? What is its significance?
What is hyperinflation? Briefly describe how Zimbabwean inflation reached 1,500% in 2007.
According to the quantity theory of money, what determines inflation? Are the predictions of this theory borne out by the data in Figure 5.3 panel (b)?
What are the classical dichotomy, the quantity theory of money, and the neutrality of money?
What is the relationship between velocity and the equation of exchange?
What key assumption of classical economists provides the basis for their analysis of the relationship between money and other economic variables?
What are the M1 and M2 monetary aggregates?
Central Banks control the money supply.Comment on the similarities between the Federal Reserve System and the European Central Bank.
How are the effects of changes in domestic saving and investment for large open economies similar to those for small open economies and closed economies?
What would happen to the trade balance and the net capital outflows of China should Chinese domestic savings fall?
Would you use the small open economy model developed in the chapter to analyze Switzerland and the Eurozone? Explain.
How does the goods market equilibrium in an open economy differ from that in a closed economy? Which two countries may be labeled as open and closed economies, respectively?
What determines the desired amounts of national saving and investment? What relationship between desired saving and desired investment is required for goods market equilibrium, and how is this
Describe the two components of national saving and explain how saving affects national wealth.
What determines the distribution of national income between payments to labor and payments to capital?
According to many observers, low wages in China are due to excess supply of labor.Explain how the equilibrium factor price is reached in a market with excess supply of the factor.
Explain each term in the profit function for a firm.
Is perfect competition a reasonable assumption both for developed and less developed countries?
The March 2011 earthquake led to the Fukushima Daiichi nuclear disaster in Japan. Can the earthquake be labeled as a supply shock? Explain.
Explain the two characteristics of the Cobb-Douglas production function that make it particularly useful to macroeconomists.
Explain each symbol or term in the Cobb-Douglas production function. Which element in the production function cannot be measured directly? How is it measured?
What relationship does the aggregate production function portray? Which of the production function’s variables are endogenous and which are exogenous?
In France at the beginning of 2008 the nominal long-term interest rate was 4%, and inflation was 3%; higher than the European Central bank target of 2% but expected to remain at that level. If you
Refer to the previous exercise for data and assume that three million unemployed individuals become “discouraged” and decide not to look for a job anymore. Calculate the new unemployment rate for
Use the accompanying table to calculate the following statistics for Brazil:a) Labor forceb) Labor-force participation ratec) Unemployment rate Adult Population (millions) 140 Unemployed (millions) 7
Suppose that Apple Inc. manufactures a new generation of iPhones that can ascertain whether your interlocutor is lying. Assuming that the price of this good will be higher than that of the currently
The British Office of National Statistics decides about the CPI basket of goods and assumes that alcohol and tobacco account for almost 5% of total consumer expenditure in the UK.a) With everything
The nominal GDP of Italy increased by roughly 1% between 2011 and 2012. Is this information sufficient to conclude that the economy grew in that period of time? Given that the inflation rate was 3%,
Use the following table, based on BEA data from the first quarter of 2013 (billions of dollars), to calculate items (a) and (b):a) Other incomeb) Net factor income Compensation of employees 8,737
Consider the expenditure approach to the measurement of GDP. For each of the following situations, decide if the transaction will affect GDP and, if so, in which expenditure category will it be
The inhabitants of Pandora value their natural environment (e.g., forests, springs, breathable air, etc.) twice as much as the inhabitants of Utopia. Suppose that the value added for all goods and
Is it correct to assume that total income equals total expenditure for a household? What about for the whole economy?
The Consumer Price Index (CPI) is constructed using a basket of goods consumed by a typical urban consumer. Do you think that the basket is the same in every country? Explain.
How do macroeconomists distinguish between nominal and real values of variables?Does nominal GDP or real GDP provide a better picture of changes in economic activity and economic well-being? Why?
What are the main types of income included in national income? Why doesn’t national income equal GDP?
Which are the four expenditure components of national income identity? What are your thoughts about those components when comparing Indian and Chinese data (Figure 2.3)?
Why are capital goods and inventories treated differently from intermediate goods in the production approach to measuring GDP?
Define GDP and then answer the following question. How is it possible to compare the GDP of 2 different countries, for example Spain and France, given that they produce not only different quantities
What is stabilization policy? What two important debates occur among macroeconomists regarding its use, and who are the parties to these debates?
Explain the difference between fiscal policy and monetary policy. Which of the two is in the hands of the European Central Bank?
What is a nation’s savings rate? Why are the Chinese and the US savings rates so different from one another (Figure 1.9)?
What happens to the overall level of prices during periods of inflation and deflation?
What is the business cycle? Which part of the business cycle is of particular concern to macroeconomists?Why?
What is the main test that an economic model should pass?
What is the distinction between endogenous variables and exogenous variables in economic models?
9. If the government follows an easy monetary policy and the exchange rate is flexible, which of the following will likely be the result? (LO4) a. A falling real interest rate but higher net exports.
8. Consider an Apple iPod that costs $240. (LO3) a. If the euro–dollar exchange rate is 1 euro per dollar, so that it costs a European 1 euro to buy a dollar, how much will the iPod cost in France?
7. Suppose a French bottle of champagne costs 20.5 euros. (LO3) a. If the euro–dollar exchange rate is 0.8 euros per dollar, so that a dollar can buy 0.8 euros, how much will the champagne cost in

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