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macroeconomics principles

Questions and Answers of Macroeconomics Principles

During 1993 when the economy was growing slowly, President Clinton recommended a series of spending cuts and tax increases designed to reduce the deficit. These were passed by Congress in the Omnibus
Define inflation. Assume that you live in a simple economy in which only three goods are produced and traded: cashews, pecans, and almonds. Suppose that on January 1, 2015, cashews sold for $12.50
The following graph represents the market for wheat. The equilibrium price is $20 per bushel and the equilibrium quantity is 14 million bushels.a. Explain what will happen if the government
Lines for free tickets to see free Shakespeare in Central Park are often long. A local politician has suggested that it would be a great service if the park provided music to entertain those who are
Many cruise lines offer 5-day trips. A disproportionate number of these trips leave port on Thursday and return late Monday. Why might this be true?
In April 2015, the U.S. Energy Information Administration projected that the average retail price for regular-grade gasoline would be $2.45 per gallon for the remainder of the year. Do some research
The feature states that in New Jersey, a law against price gouging prohibits price increases of more than 10 percent in an emergency situation. Assume that prior to Sandy the equilibrium price for
Illustrate the following with supply or demand curves:a. A situation of excess labor demand caused by a salary cap in the National Basketball Association (NBA).b. The effect of a sharp decrease in
Illustrate the following with supply or demand curves:a. In Joseph Heller’s iconic novel, Catch 22, one of the characters was paid by the government to not grow alfalfa. According to the
The rent for 2-bedroom apartments in Detroit has fallen from an average of $796 in September 2014 to $717 in March 2015. Demand for 2-bedroom apartments in Detroit was falling during this period as
The following graph represents the market for DVDs.a. Find the values of consumer surplus and producer surplus when the market is in equilibrium, and identify these areas on the graph.b. If
In an effort to “support” the price of some agricultural goods, the Department of Agriculture pays farmers a subsidy in cash for every acre that they leave unplanted. The Agriculture Department
On April 20, 2010, an oil-drilling platform owned by British Petroleum exploded in the Gulf of Mexico, causing oil to leak into the gulf at estimates of 1.5 to 2.5 million gallons per day for well
When excess demand exists for tickets to a major sporting event or a concert, profit opportunities exist for scalpers. Explain briefly using supply and demand curves to illustrate. Some argue that
Suppose the market demand for a cup of cappuccino is given by QD = 24 – 4P and the market supply for a cup of cappuccino is given by QS = 8P – 12, where P = price (per cup).a. Graph the supply
Use the data in the preceding problem to answer the following questions. Now suppose that the United States allows no oil imports.a. What are the equilibrium price and quantity for oil in the United
Every demand curve must eventually hit the quantity axis because with limited incomes, there is always a price so high that there is no demand for the good. Do you agree or disagree? Why?
Use the following diagram to calculate total consumer surplus at a price of $12 and production of 500 thousand flu vaccinations per day. For the same equilibrium, calculate total producer surplus.
Suppose that the world price of oil is $60 per barrel and that the United States can buy all the oil it wants at this price. Suppose also that the demand and supply schedules for oil in the United
Illustrate the following with supply and demand curves:a. In November 2014, Andy Warhol’s silkscreen artwork Triple Elvis [Ferus Type] was sold at Christie’s Auction House in New York for $81.9
Analyst 1 suggested that the demand curve for newspapers in Baltimore might have shifted to the right because people were becoming more literate. Think of two other plausible stories that would
The following table represents the market for solar wireless keyboards. Plot this data on a supply and demand graph and identify the equilibrium price and quantity. Explain what would happen if the
The growing popularity of quinoa has had an impact on the market for brown rice. With its higher fiber, protein, and iron content, quinoa is replacing brown rice as a staple food for many
Suppose the market demand for pizza is given by Qd = 300 - 20P and the market supply for pizza is given by Qs = 20P - 100, where P = price (per pizza).a. Graph the supply and demand schedules for
Housing policy analysts debate the best way to increase the number of housing units available to low-income households. One strategy—the demand-side strategy—is to provide people with housing
Suppose the demand and supply curves for eggs in the United States are given by the following equations:Qd= 100 - 20PQs= 10 + 40Pwhere Qd= millions of dozens of eggs Americans would like to buy each
During the period 2006 through 2010, housing production in the United States fell from a rate of more than 2.27 million housing starts per year to a rate of less than 500,000, a decrease of greater
Through October 2014, the U.S. government administered two programs that affected the market for cigarettes. Media campaigns and labeling requirements, which are still in place, aim at making the
In the town of Hurley, Wisconsin, an unseasonably warm summer saw temperatures rising into the mid-90s for a weeklong stretch in July. This was almost 20 degrees above the average high temperature of
Do you agree or disagree with each of the following statements? Briefly explain your answers and illustrate each with supply and demand curves.a. The price of a good rises, causing the demand for
For each of the five statements (a–e) in the previous question, draw a demand graph representing the appropriate change in quantity demanded or change in demand.
On Saturday, September 13, the Los Angeles Dodgers and the San Francisco Giants played baseball at AT&T Park in San Francisco. Both teams were in pursuit of league championships. Tickets to the
The following sets of statements contain common errors. Identify and explain each error:a. Supply decreases, causing prices to rise. Higher prices cause supply to increase. Therefore, prices fall
Explain whether each of the following statements describes a change in demand or a change in quantity demanded, and specify whether each change represents an increase or a decrease.a. Julio believes
Illustrate the following with supply and demand curves:a. With increased access to wireless technology and lighter weight, the demand for tablet computers has increased substantially. Tablets have
The market for fitness trackers is made up of five firms, and the data in the following table represents each firm€™s quantity supplied at various prices. Fill in the column for the
Merchandise sales for professional sports leagues is a multibillion dollar business, and leagues such as the NBA, NFL, and MLB have strict licensing rules for official league merchandise. Suppose you
Identify whether each of the following transactions will take place in an input market or in an output market, and whether firms or households are demanding the good or service or supplying the good
List three examples of entrepreneurs in the tech industry and the firms they created. Explain how these people fit the definition of entrepreneur.
Explain how each of the following situations would affect a nation’s production possibilities curve. a. A law is passed which makes community college tuition-free for all U.S. citizens.b. An
The nation of Billabong is able to produce surfboards and kayaks in combinations represented by the data in the following table. Each number represents thousands of units. Plot this data on a
High school football is arguably more popular in West Texas than in any other region of the country. During football season, small towns seem to shut down on Friday nights as local high school teams
At the end of the 2014 NFL regular season, the Louisiana Lottery allowed customers to enter their non-winning New Orleans Saints scratch-off lottery game tickets in a final second-chance drawing,
Betty Lou has a car washing and detailing business. She charges $20 to wash a car, a process that takes her 20 minutes and requires no help or materials. For car detailing, a process requiring 1
An analysis of a large-scale survey of consumer food purchases by Mark Aguiar and Erik Hurst indicates that retired people spend less for the same market basket of food than working people do. Use
A nation with fixed quantities of resources is able to produce any of the following combinations of carpet and carpet looms:Yards of carpet (Millions) Carpet looms
Match each diagram in Figure 1 with its description here. Assume that the economy is producing or attempting to produce at point A and that most members of society like meat and not fish. Some
The countries of Orion and Scorpius are small mountainous nations. Both produce granite and blueberries. Each nation has a labor force of 800. The following table gives production per month for each
Briefly describe the trade-offs involved in each of the following decisions. Specifically, list some of the opportunity costs associated with each decision, paying particular attention to the
Alexi and Tony own a food truck that serves only two items, street tacos and Cuban sandwiches. As shown in the table, Alexi can make 80 street tacos per hour but only 20 Cuban sandwiches. Tony is a
You are an intern to the editor of a small-town newspaper in Mallsburg, Pennsylvania. Your boss, the editor, asks you to write the first draft of an editorial for this week’s paper. Your assignment
Suppose that a simple society has an economy with only one resource, labor. Labor can be used to produce only two commodities—X, a necessity good (food), and Y, a luxury good (music and
“As long as all resources are fully employed and every firm in the economy is producing its output using the best available technology, the result will be efficient.” Do you agree or disagree
For each of the following, describe some of the potential opportunity costs:a. Going home for Thanksgiving vacationb. Riding your bicycle 20 miles every dayc. The federal government using tax revenue
Describe a command economy and a laissez-faire economy.Do any economic systems in the world reflect the purest forms of command or laissez-faire economies?Explain.
Calculate the slope of the demand curve at point A and at point B in the following figure. Price per unit 34 24 12 Demand 20 45 90 140 Quantity
Explain the pitfalls in the following statements.a. People who eat kale on a regular basis are more likely to exercise every day than people who do not eat kale.Therefore, exercising daily causes
The following table shows the relationship between the price of organic turkeys and the number of turkeys sold by Godfrey€™s Free-Range Gobblers.a. Is the relationship between the price of
On the Forbes 2015 list of the World’s Billionaires, Bill Gates ranks at the top with a net worth of $79.2 billion.
For each of the graphs in Figure 1, determine whether the curve has a positive or negative slope. Give an intuitive explanation for what is happening with the slope of each curve.(a)(b)(c)(d)(e)(f)
In 2012, Colorado and Washington became the first states to legalize marijuana for recreational use, and have since been joined by Oregon, Alaska and Washington, D.C. In 2014, Colorado is reported to
For each of the following situations, identify the full cost (opportunity cost) involved:a. Monique quits her $50,000 per-year job as an accountant to become a full-time volunteer at a women’s
Plot the income and consumption data in the following table on a graph, with income on the X-axis. Does the data indicate a positive or negative relationship between income and consumption? Average
Which of the following statements are examples of positive economic analysis? Which are examples of normative analysis?a. A devaluation of the U.S. dollar would increase exports from the United
Explain whether each of the following is an example of a macroeconomic concern or a microeconomic concern.a. The Federal Aviation Administration (FAA) is considering increasing the number of takeoff
Every Friday night, Gustavo pays $39.99 to eat nothing but crab legs at the all-you-can-eat seafood buffet at the M Resort in Las Vegas. On average, he consumes 28 crab legs each Friday. What is the
Graph each of the following sets of numbers. Draw a line through the points and calculate the slope of each line. 3 х х х х х 25 40 0.1 100 2 10 20 10 10 10 30 10 10 0.2 75 3 3 15 15 20 20 20 20
One of the scarce resources that constrain our behavior is time. Each of us has only 24 hours in a day. How do you go about allocating your time in a given day among competing alternatives? How do
From Figures 1.11 and 1.12, determine and discuss how fluctuations in the nominal interest rate and inflation have contributed to fluctuations in the real interest rate from 2000 to 2015.Figure
In Figure 1.13, discuss the severity of the 2008€“2009 recession relative to previous recessions.Figure 1.13: 1991-1992 2001 2008–2009 1974-1975 1981-1982 -6 -8 1940 1950 1960 1970 1980
Determine how increases in the interest rate spread in Figure 1.14 match with recessions in Figure 1.13. Does an increase in the interest rate spread always occur when there is a recession? Does a
In Figure 1.15, there were two periods prior to 2006€“2012 when the relative price of housing declined. Examine some of the other data figures in this chapter and determine what other
In this chapter, we learned that the quantity of U.S. currency outstanding per U.S. resident was $4,390 in February 2016. Suppose that we were to try to use this number to estimate the amount of
Part of gross domestic product consists of production in the so-called FIRE sector (finance, insurance, and real estate). Value added is notoriously difficult to measure in the FIRE sector, as it is
In the United States, a large fraction of transactions among banks takes place over Fed-wire, which is an electronic payments system operated by the Federal Reserve System. In December 2015, the
Suppose that, in the basic one-period model, there is no government spending and no taxes. Production by the representative firm produces pollution in proportion to the amount of output produced.
Change the model of public goods in the following fashion. Suppose that Tunits of goods acquired as taxes from the private sector produces T1/2/a units of public goods, where a > 0. Determine the
Determine the effects of an increase in the separation rate, s, on the reservation wage and on the long-run unemployment rate in the one-sided search model of unemployment. Explain your results.
Suppose that the government makes it more difficult to qualify for unemployment insurance, for example, by increasing the duration of employment required before collecting UI benefits during an
What does the two-sided search model predict would be the effects of laborsaving devices in the home, for example dishwashers, washing machines, and vacuum cleaners? Use diagrams to show the effects
Suppose that there is technological change that reduces the cost of recruiting for firms. Using the two-sided search model, deter-mine the effects on the unemployment rate, the vacancy rate, the
Suppose a pay-as-you-go social security system where social security is funded by a proportional tax on the consumption of the young. That is, the tax collected by the government is sc, where sis the
Suppose that there is an increase in the number of ATM machines in service. What are the effects of this innovation on the demand for money and on the price level?
Suppose that, in a liquidity trap, bank re-serves are less liquid than government debt. If the central bank conducts an open market purchase of government debt, what will be the effect on the price
Suppose that the central bank observes a drop in real GDP, but does not know what caused this drop.(a) How would the central bank respond if it believed that GDP dropped because of a decline in total
Suppose there is a liquidity trap. In the real business cycle model, what does this imply about the comovements we should observe between money, the price level, and output? Discuss, with the aid of
Suppose a liquidity trap . We know that conventional monetary policy does not matter in a liquidity trap. However, show that, in the coordination failure model, monetary policy could act as a signal
Suppose that the central bank could convince the public to expect more inflation in the future. If the economy is currently in a liquidity trap, what effects would this have? Use a diagram, and
If there is a liquidity trap, what will happen in the long run as prices adjust? Use a diagram, and discuss.
Suppose initially that inflation is at the central bank’s target and the output gap is zero. Then, government spending goes down. Deter-mine, with the aid of diagrams, how the degree of price
Suppose that the natural rate of interest has gone down, and that the central bank is con-strained by the zero lower bound, with inflation below the central bank’s target, and a positive output
In the NKRE model, suppose a Taylor rule as in Equation (15-8), with -d/a < h < 1. What does this imply for: (i) steady state equilibria; (ii) the whole set of equilibria that we could see?
Now, suppose in the NKRE model that the central bank follows a Taylor rule as in Equation (15 - 8), and h < -d/a.Show what this implies for steady state equilibria, and for the whole set of
Assume a two-period model where national income is 100 in the current period, and 120 in the future period. The world real interest rate is assumed to be 10% per period. The representative consumer
In Figure 3.12, what do you observe during the 1970s? Explain the significance of this.Figure 3.12: Inflation Rate 4 -2 GDP -4 -6 1940 1950 1960 1970 1980 1990 2000 2010 2020 Year 6. 2. Percentage
Average labor productivity tends to be a coincident variable. Examine Figure 3.15 care-fully. During the 1991€“1992, 2001, and 2008€“2009 recessions, how do you observe average
Consumption of durables is more variable relative to trend than is consumption of nondurables, and consumption of nondurables is more variable relative to trend than is consumption of services.
In Figure 3.11, after the 1981€“1982 recession, does the price level appear to be procyclical, countercylical, or acyclical? Why is this important?Figure 3.11: 4 Price Level -2 GDP -8 1940
The Great Moderation in part refers to the moderate variability in real GDP that occurred after the 1981€“1982 recession and before the 2008€“2009 recession. In Figure 3.12, what
Because of the economic slowdown associated with the 2008-2009 recession, the Governing Council of the Bank of Canada, between December 4, 2007 and April 21, 2009, lowered its target for the

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