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macroeconomics principles

Questions and Answers of Macroeconomics Principles

The accompanying scatter diagram shows the relationship between the unemployment rate and the output gap in Canada from 1996 to 2016. Draw a straight line through the scatter of dots in the figure.
After experiencing a recession for the past two years, the residents of Albernia were looking forward to a decrease in the unemployment rate. Yet after six months of strong positive economic growth,
The accompanying table provides data from Canada on the average annual rates of unemployment and inflation rate. Use the numbers to construct a scatter plot similar to Figure 16-5. Discuss why, in
The economy of Brittania has been suffering from high inflation with an unemployment rate equal to its natural rate. Policy makers would like to disinflate the economy with the lowest economic cost
Who are the winners and losers when a mortgage company lends $100,000 to the Miller family to buy a house worth $105,000 and during the first year prices unexpectedly fall by 10%? What would you
Due to historical differences, countries often differ in how quickly a change in actual inflation is incorporated into a change in expected inflation. In a country such as Japan, which has had very
Since the crash of its stock market in 1989, the Japanese economy has seen little economic growth and some deflation. The accompanying table from the Organization for Economic Cooperation and
The C.D. Howe Institute Business Cycle Council is an arbiter of the chronologyof Canadian business cycles. Go to its website at https://www.cdhowe.org/council /business-cycle-councila. How many
The fall of its military rival, the Soviet Union, in 1989 allowed the United States to significantly reduce its defense spending in subsequent years. Using the data in the following table from the
In the modern world, central banks are free to increase or reduce the money supply as they see fit. However, some people harken back to the “good old days” of the gold standard. Under the gold
The chapter notes that Kenneth Rogoff proclaimed Richard Nixon €œthe all-time hero of political business cycles.€ Using the following table of data from the Economic Report of
The economy of Albernia is facing a recessionary gap, and the leader of that nation calls together its best economists representing the classical, Keynesian, monetarist, real business cycle, Great
Which of the following policy recommendations are consistent with the classical, Keynesian, monetarist, Great Moderation consensus, expansionary austerity, and secular stagnationist views of the
Using a graph like Figure 17-3, show how a monetarist can argue that a contractionary fiscal policy need not lead to a fall in real GDP given a fixed money supply. Explain.Figure 17-3 (a) The
Monetarists believed for a period of time that the velocity of money was stable within a country. However, with financial innovation, the velocity began shifting around erratically after 1980. As
In response to the Great Recession, the Federal Reserve took drastic and largely untested measures to stabilize both the financial system and macro economy. These measures caused the monetary base to
How would the following transactions be categorized in the Canadian balance of payments accounts? Would they be entered in the current account (as a payment to or from a foreigner) or the financial
The accompanying diagram shows Canadian-owned assets abroad and foreign-owned assets in Canada, both as a percentage of Canada€™s GDP. As you can see from the diagram, both have trended
In the economy of Scottopia in 2016, exports equaled $400 billion of goods and $300 billion of services, imports equaled $500 billion of goods and $350 billion of services, and the rest of the world
In the economy of Popania in 2016, total Popanian purchases of assets in the rest of the world equaled $300 billion, purchases of Popanian assets by the rest of the world equaled $400 billion, and
Suppose that Northlandia and Southlandia are the only two trading countries in the world, that each nation runs a balance of payments on both current and financial accounts equal to zero, and that
Based on the exchange rates for the trading days of 2016 and 2017, as shown in the accompanying table, did the Canadian dollar appreciate or depreciate over the year? Did the movement in the value of
Go to http://fx.sauder.ebc.ca. Using the table labelled €œThe Most Recent Cross-Rates of Major Currencies€ to determine whether the British pound (GBP), the Canadian dollar
In January 2001, the Canadian target for the overnight interest rate was 5.75%, falling to 2.5% in November 2004. During the same period, the marginal lending rate at the European Central Bank fell
In each of the following scenarios, suppose that the two nations are the only trading nations in the world. Given inflation and the change in the nominal exchange rate, which nation’s goods become
Starting from a position of equilibrium in the foreign exchange market under a fixed exchange rate regime, how must a government react to an increase in the demand for the nation’s goods and
Suppose that Albernia€™s central bank has fixed the value of its currency, the bern, to the Canadian dollar (at a rate of C$1.50 to 1 bern) and is committed to that exchange rate.
Your study partner asks you, “If central banks lose the ability to use discretionary monetary policy under fixed exchange rates, why would nations agree to a fixed exchange rate system?” How do
Suppose Canada and the Japan are the only two trading countries in the world. What will happen to the value of the Canadian dollar if the following occur, other things equal?a. Japan relaxes some of
Your study partner argues that the distinction between the government's budget deficit and debt is similar to the distinction between consumer savings and wealth. He also argues that if you have
In 2016, the policy makers of the economy of Eastlandia projected the debt-GDP ratio and the ratio of the budget deficit to GDP for the economy for the next 10 years under different scenarios for
You are an economic adviser to a candidate for national office. She asks you for a summary of the economic consequences of a balanced-budget rule for the federal government and for your
Figure 13-10 shows the actual budget deficit and the cyclically adjusted budget deficit as a percentage of GDP in Canada from 1980-1981 to 2015-2016. Assuming that potential output was unchanged, use
The government’s budget surplus in Macroland has risen consistently over the past five years. Two government policy makers disagree as to why this has happened. One argues that a rising budget
In each of the following cases, either a recessionary or inflationary gap exists. Assume that the aggregate supply curve is horizontal, so that the change in real GDP arising from a shift of the
Show why a $10 billion reduction in government purchases of goods and services will have a larger effect on real GDP than a $10 billion reduction in government transfers by completing the
During an interview in 2008, the German Finance Minister Peer SteinbrÃ¼ck said, "We have to watch out that in Europe and beyond, nothing like a combination of downward economic [growth]
An economy is in long-run macroeconomic equilibrium when each of the following aggregate demand shocks occurs. What kind of gap—inflationary or recessionary— will the economy face after the
The accompanying diagram shows the current macroeconomic situation for the economy of Brittania; real GDP is Y1, and the aggregate price level is P1. You have been hired as an economic consultant to
Calculate the change in government purchases of goods and services necessary to close the recessionary or inflationary gaps in the following cases. Assume that the short-run aggregate supply curve is
The accompanying diagram shows the current macroeconomic situation for the economy of Albernia. You have been hired as an economic consultant to help the economy move to potential output, YP.a. Is
An economy has a marginal propensity to consume of 0.6, real GDP equals $500 billion, and the government collects 20% of GDP in taxes. If government purchases increase by $10 billion, show the rounds
In each of the following cases, in the short run, determine whether the events cause a shift of a curve or a movement along a curve. Determine which curve is involved and the direction of the
The late 1990s in Canada was characterized by substantial economic growth with low inflation; that is, real GDP increased with little, if any, increase in the aggregate price level. Explain this
In the accompanying diagram, the economy is in long-run macroeconomic equilibrium at point E1when an oil shock shifts the short-run aggregate supply curve to SRAS2. Based on the diagram, answer the
The economy is in short-run macroeconomic equilibrium at point E1in the accompanying diagram. Based on the diagram, answer the following questions.a. Is the economy facing an inflationary or a
Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, explain the process by which each of the following government policies will move the economy from one
How will planned investment spending change as the following events occur?a. The interest rate falls as a result of Bank of Canada policy.b. Environmental Canada decrees that corporations must
During the early 2000s, the Canadian Real Estate Association (CREA) MLS Home Price Index, a measure of average home prices, rose continuously until it peaked in May 2008. From May 2008 to March 2009,
From 2009 to 2014, Eastlandia experienced large fluctuations in both aggregate consumer spending and disposable income, but wealth, the interest rate, and expected future disposable income did not
Economists observed the only five residents of a very small economy and estimated each one€™s consumer spending at various levels of current disposable income. The accompanying table shows
Assuming that the aggregate price level is constant, the interest rate is fixed, and there are no taxes and no foreign trade, what will be the change in GDP if the following events occur?a. There is
In an economy without government purchases, transfers, or taxes, and without imports or exports, aggregate autonomous consumer spending is $500 billion, planned investment expenditure is $250
Explain the effect on a company’s stock price today of each of the following events, other things held constant.a. The interest rate on bonds falls.b. Several companies in the same sector announce
What are the important types of financial intermediaries in the Canadian economy? What are the primary assets of these intermediaries, and how do they facilitate investment spending and saving?
Suppose that a major city’s main thoroughfare, which is also an interstate highway, will be completely closed to traffic for two years, from January 2014 to December 2015, for reconstruction at a
Why would you expect real GDP per capita in Alberta and Saskatchewan to exhibit convergence but not in Alberta and Nova Scotia? What changes would allow Alberta and Nova Scotia to converge?
The accompanying table shows the annual growth rate for the years 2000€“2014 in per capita emissions of carbon dioxide (CO2) and the annual growth rate in real GDP per capita for selected
You are hired as an economic consultant to the countries of Albernia and Brittania. Each country€™s current relationship between physical capital per worker and output per worker is given
Given the following information about the closed economy of Brittania, what is the level of investment spending and private savings, and what is the budget balance? What is the relationship among the
You have won the provincial lottery. There are two ways in which you can receive your prize. You can either have $1 million in cash now, or you can have $1.2 million that is paid out as follows:
Given the following information about the open economy of Regalia, what is the level of investment spending and private savings, and what are the budget balance and net capital inflow? What is the
The drug company Pfizer Canada is considering whether to invest in the development of a new cancer drug. Development will require an initial investment of $10 million now; beginning one year from
The accompanying table shows the percentage of GDP accounted for by private savings, investment spending, and net capital inflow in the economies of Capsland and Marsalia. Capsland is currently
Suppose CIBC were to package individual car loans into pools of loans and then sell shares of these pools to investors as CIBC car loan bonds. a. What is this process called? What effect will it
Use the market for loanable funds shown in the accompanying diagram to explain what happens to private savings, private investment spending, and the interest rate if each of the following events
Due to an increase in consumer wealth, there is a $40 billion autonomous increase in consumer spending in the economies of Westlandia and Eastlandia. Assuming that the aggregate price level is
Complete the following table by calculating the value of the multiplier and identifying the change in Y* due to the change in autonomous spending. How does the value of the multiplier change with the
Statistics Canada reported that in real terms, overall consumer spending increased by $11.3 billion in the first quarter of 2017.a. If the marginal propensity to consume is 0.50, by how much will
Explain how each of the following actions will affect the level of planned investment spending and unplanned inventory investment. Assume the economy is initially in income–expenditure
In an economy with no government and no foreign sectors, autonomous consumer spending is $250 billion, planned investment spending is $350 billion, and the marginal propensity to consume is 2/3.a.
An economy has a marginal propensity to consume of 0.5, and Y*, income€“expenditure equilibrium GDP, equals $500 billion. Given an autonomous increase in planned investment of $10 billion,
Although Ontario has the highest GDP by province in Canada, it also has one of the largest provincial debt in Canada. We often hear that the problem is the province’s low savings rate. Suppose
The Canadian economy slowed significantly in 2008, and policy-makers were extremely concerned about lack of growth. To boost the economy, the House of Commons adopted the Economic Action Plan in
a. The accompanying table shows gross domestic product (GDP), disposable income (YD), consumer spending (C), and planned investment spending (IPlanned) in an economy. Assume there is no government or
A fall in the value of the Canadian dollar against other currencies makes Canadian final goods and services cheaper to foreigners even though the Canadian aggregate price level stays the same. As a
Your study partner is confused by the upward-sloping short-run aggregate supply curve and the vertical long-run aggregate supply curve. How would you explain this?
Suppose that in Wageland all workers sign annual wage contracts each year on January 1. No matter what happens to prices of final goods and services during the year, all workers earn the wage
The economy is at point A in the accompanying diagram. Suppose that the aggregate price level rises from P1to P2. How will aggregate supply adjust in the short run and in the long run to the increase
Suppose that all households hold all their wealth in assets that automatically rise in value when the aggregate price level rises (an example of this is what is called an “inflation-indexed
Suppose that the economy is currently at potential output. Also suppose that you are an economic policy maker and that a college economics student asks you to rank, if possible, your most preferred
Explain whether the following government policies affect the aggregate demand curve or the short-run aggregate supply curve and how.a. The government reduces the minimum nominal wage.b. The
In Wageland, all workers sign an annual wage contract each year on January 1. In late January, a new computer operating system is introduced that increases labor productivity dramatically. Explain
The Conference Board of Canada publishes the Index of Consumer Confidence every month based on a survey posed to a sample of Canadian households. Many economists use it to track the state of the
The Canadian economy suffered two major shocks in 2008, leading to the severe recession of 2008–2009. One shock was related to oil prices; the other was the slump in the housing market. This
Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, explain the process by which each of the following economic events will move the economy from one long-run
The accompanying table shows data from the World Bank, World Development Indicators, for real GDP per capita (2010 U.S. dollars) in France, Japan, the United Kingdom, and Canada in 1960 and 2015.
Over the next 100 years, real GDP per capita in Groland is expected to grow at an average annual rate of 2.0%. In Sloland, however, growth is expected to be somewhat slower, at an average annual
How have Canadian policies and institutions influenced the country’s long-run economic growth?
What roles do physical capital, human capital, technology, and natural resources play in influencing long-run economic growth of aggregate output per capita?
The country of Androde is currently using Method 1 for its production function. By chance, scientists stumble onto a technological breakthrough that will enhance Androde€™s productivity.
The following table shows the average annual growth rate in real GDP per capita for Argentina, Ghana, and South Korea using data from the World Bank, World Development Indicators, for the past few
The accompanying table shows data from the World Bank, World Development Indicators, for real GDP per capita (in 2010 U.S. dollars) for Argentina, Ghana, South Korea, and Canada for 1960, 1980, 2000,
There is only one labour market in Profunctia. All workers have the same skills, and all firms hire workers with these skills. Use the accompanying diagram, which shows the supply of and demand for
In 1991, the Bank of Canada adopted an inflation-control target. The current target rate of inflation is 2%, with a target range of 1 to 3%. Many Canadians welcome the adoption of the
The accompanying diagram shows the inflation rate in Canada from 1980 to 2017.a. From 1980 to 2017, Canada experienced two periods of disinflation€”the first between 1980 and 1985 and the
The accompanying table provides the inflation rate in the year 2005 and the average inflation rate over the period 2006€“2015 for eight different countries.a. Given the expected
The accompanying diagram shows the interest rate on one-year loans and inflation during 2001€“2016 in the economy of Albernia. When would one-year loans have been especially attractive and
In the following examples, is inflation creating winners and losers at no net cost to the economy or is inflation imposing a net cost on the economy? If a net cost is being imposed, which type of
With its tradition of a job for life for most citizens, Japan once had a much lower unemployment rate than that of Canada; from 1960 to 1995, the unemployment rate in Japan exceeded 3% only once.

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