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microeconomics principles
Questions and Answers of
Microeconomics Principles
According to Statistics Canada, Canada’s exports and imports of energy (combined totals of fossil fuels, hydro, and nuclear, all measured in petajoules) over a five-year period were as follows:a.
The table below shows the total daily output for a firm producing specialty cakes and operating with a fixed amount of capital. The cost of labour is $100 per unit per day and the fixed cost of the
Find the equilibrium price and quantity for each of the following pairs of demand and supply functions. = a. QP = 10 – 2p 1270 – 10p 100 – 0.25p b. = 6. d. .. = = 6000 - 0.2p 10 000 –
Fill in the blanks to make the following statements correct.a. An important insight by early economists was that an economy based on free-market transactions is_______-organizing. Adam Smith
Fill in the blanks to make the following statements correct.a. The allocation of different jobs to different people is referred to as the ________of labour. The specialization within the production
Imagine a hypothetical world in which all Canadian families had $80 000 of after-tax income.a. In such a world, would poverty exist in Canada?b. In such a world, would scarcity exist in Canada?c.
During the first few weeks of the COVID-19 pandemic in March 2020, the demand for baking flour increased sharply as millions of people isolated in their homes. The price of flour skyrocketed, but
Consider each of the following scenarios for profit maximizing firms operating in perfectly competitive markets. For each firm, state whether the firm should produce nothing, or increase, decrease,
In each case, identify any divergence between social and private costs or social and private benefits.a. Cigarette smokingb. Weather forecastingc. Private ownership of gunsd. Drilling for offshore
In the text we defined public goods as goods (or services) that are both non-rivalrous and non-excludable. Yet in common language most people use the term “public goods” to refer to any good or
What is the effect of an ad valorem tax of α (the share of the price that goes to the government) on a competitive firm’s profit-maximizing output?
If you spend $4 a day on a latte (in real dollars) for the rest of your life (essentially forever), what is your present discounted value at a 3% interest rate?
A grocery advertises a low price on its milk as a “loss leader” to induce customers to shop there. It finds that some people buy only milk there and do their other grocery shopping elsewhere. Is
Suppose that the velocity of circulation of money is constant and real GDP is growing at 3 percent a year.a. To achieve an inflation target of 2 percent a year, at what rate would the central bank
Eurozone Unemployment Hits Record High as Inflation Rises Unexpectedly Eurozone unemployment rose to 10.7 percent. At the same time, Eurozone inflation unexpectedly rose to 2.7 percent a year, up
How does cost-push inflation begin?
Members expected real GDP growth to be moderate over coming quarters and then to pick up very gradually, with the unemployment rate declining only slowly. With longer-term inflation expectations
The United States is planning to push Europe towards new and more aggressive efforts to boost aggregate demand given a renewed risk of deflation in the Eurozone.a. Explain the process by which
How does the quantity theory of money help us to understand the process of deflation?
How can deflation be ended?
If the natural unemployment rate increases, what happens to the short-run Phillips curve and the long-run Phillips curve?
After you have studied Economics in the News on pp. 694 – 695 , answer the following questions.a. What are the macroeconomic problems in the Eurozone economy that the ECB is seeking to address?b.
Under what circumstances does the government have a budget surplus?
Explain the connection between a government budget deficit and a government debt.
How does the tax wedge influence potential GDP?
Why are consumption taxes relevant for measuring the tax wedge?
What is the amount of tax revenue? What is the government budget balance?Suppose that investment is $160 billion, saving is $140 billion, government expenditure on goods and services is $150 billion,
Explain how lowering taxes on employment will create jobs. Use a graph to illustrate your answer.William Watson, an economics professor at McGill University, Montreal, says there’s nothing magical,
Explain why fiscal stimulus was needed in 2008 but not in 2012.China’s economy is slowing from its normal 9 percent or higher economic growth rate to just below 9 percent. The source of the
Explain the effects of the Bank of Canada’s low interest rates on business investment. Draw a graph to illustrate your explanation.With low interest rates, business investment and trade are
Explain the effects of business investment on aggregate demand. Would you expect it to have a multiplier effect? Why or why not?With low interest rates, business investment and trade are expected to
On September 15, 2014, the OECD predicted that global growth would continue at a moderate rate and that Canada’s economic growth will strengthen. If the OECD forecasts turn out to be correct, what
How do the Bank of Canada’s actions change the exchange rate?
If the Bank of Canada started to raise the overnight loans rate in 2015, explain the process by which this policy action would change real GDP.
How does a government get funds to cover a budget deficit? How does financing a budget deficit affect the central bank’s monetary policy?In the 1980s, it was Argentina, Mexico, and the Philippines
How was Canada’s budget deficit of 2013 influenced by the Bank of Canada’s low interest rate policy?In the 1980s, it was Argentina, Mexico, and the Philippines that struggled with unsustainable
a. How would the budget deficit change in 2015 and 2016 if the Bank of Canada moved interest rates up?b. How would the budget deficit change in 2015 and 2016 if the Bank of Canada’s monetary policy
Why might the Bank of Canada decide to raise the overnight rate in 2015?At the end of 2009, the unemployment rate was 8.3 percent, the inflation rate was 0.8 percent, and the overnight loans rate
Why might the Bank of Canada decide to lower the overnight rate in 2015?At the end of 2009, the unemployment rate was 8.3 percent, the inflation rate was 0.8 percent, and the overnight loans rate
High Food and Energy Prices Here to Stay On top of rising energy prices, a severe drought, bad harvests, and a poor monsoon season in Asia have sent grain prices soaring. Globally, this is the third
Some events occur and the economy experiences a demand-pull inflation. What might those events have been? Describe their initial effects and explain how a demand-pull inflation spiral results.The
Some events occur and the economy experiences a cost-push inflation. What might those events have been? Describe their initial effects and explain how a cost-push inflation spiral develops.The
Some events occur and the economy is expected to experience inflation. What might those events have been? Describe their initial effects and what happens as an expected inflation proceeds.The economy
After you have studied Economics in the News, answer the following questions.a. What happened to the foreign exchange value of the U.S. dollar in July and August 2014?b. What could the Bank of Canada
How does demand-pull inflation begin?
What type of inflation process does John Cochrane warn could happen? Explain the role that inflation expectations would play if the outbreak of inflation were to “happen with little warning.”John
Explain why the inflation that John Cochrane fears would “bring stagnation rather than prosperity.”John H. Cochrane, a professor of finance at the University of Chicago, thinks we face the risk
What are the consequences of deflation?
The 2011 inflation control target agreement between the Government of Canada and the Bank of Canada runs to the end of 2016.a. What role does the inflation control agreement say about the Bank’s
Does Canada have a stable short-run Phillips curve? Explain why or why not.
What would be the effect of the budget deficit of 2011 on real GDP and jobs?Jim Flaherty tabled a 2011 budget with a deficit for this year gradually falling to a surplus in 2015. Mr. Flaherty said
Explain the effect on real GDP and jobs of the government’s commitment to cut its budget deficit over the next four years. Jim Flaherty tabled a 2011 budget with a deficit for
After the first two months of the current fiscal year, Canada’s deficit sits at $4.4 billion, compared with $7.5 billion in the same period of 2009 when the economy was still in recession. The
Suppose that capital income taxes are based (as they are in Canada and most countries) on nominal interest rates. If the inflation rate increases by 5 percent a year, explain and use appropriate
Does William Watson think that job creation is primarily a problem that needs an increase in aggregate demand or aggregate supply?William Watson, an economics professor at McGill University,
Would you expect automatic fiscal policy to be having an effect in 2012? If so, what effects might it have?China’s economy is slowing from its normal 9 percent or higher economic growth rate to
Why might stimulus come too late? What are the potential consequences of stimulus coming too late?China’s economy is slowing from its normal 9 percent or higher economic growth rate to just below 9
After you have studied Economics in the News on pp. 720 – 721 , answer the following questions.a. What was the state of the Japanese economy in 2013?b. Explain the effects of Japan’s high level
In The New York Times articles and in blogs, economists Paul Krugman and Joseph Stiglitz say that, with slow recovery from recession, there is a need for more fiscal stimulus in both the United
What are the two parts of the inflation-control target?
Explain the situation faced by the Bank of Canada in 2011.During 2011, Canada is in an environment of substantial headwinds from Europe and the United States, and monetary policy may need to maintain
What is the operating band?
a. How would the Bank of Canada “maintain stimulus”?b. Why might the Bank of Canada decide to lower the interest rate in the face of “headwinds”?During 2011, Canada is in an environment of
What actions might the Bank of Canada take to stimulate business investment further?With low interest rates, business investment and trade are expected to bring growth through 2016.
Do interest rates fluctuate in response to the Bank of Canada’s actions?
Explain how inflation targeting promotes full employment in the long run.The Bank of Canada and the Government of Canada have agreed that the Bank will achieve an inflation rate target.
Explain the conflict between inflation targeting and unemployment targeting in the short run.The Bank of Canada and the Government of Canada have agreed that the Bank will achieve an inflation rate
Why was the U.S. recovery from the 2008–2009 recession so slow?
How might inflation targeting improve U.S. monetary policy?
If a tariff of $25 per container is imposed on imports of roses, explain how the price of roses, the quantity of roses bought, the quantity produced in North America, and the quantity imported
How might the Bank of Canada’s decisions that raised the overnight loans rate from 0.25 percent to 1 percent have been influenced by the unemployment rate and the inflation rate?At the end of 2009,
Explain the dilemma that rising inflation and high unemployment poses for the Bank of Canada.At the end of 2009, the unemployment rate was 8.3 percent, the inflation rate was 0.8 percent, and the
Why might the Bank of Canada decide to keep the overnight loans rate at 1 percent in 2014?At the end of 2009, the unemployment rate was 8.3 percent, the inflation rate was 0.8 percent, and the
If an import quota of 5 million containers is imposed on roses, what happens to the North American price of roses, the quantity of roses bought, the quantity produced in North America, and the
Who gains and who loses from this import quota?Wholesalers buy and sell roses in containers that hold 120 stems. The table provides data about the wholesale market for roses in North America. The
Who gains and who loses from this tariff?Wholesalers buy and sell roses in containers that hold 120 stems. The table provides data about the wholesale market for roses in North America. The demand
What role does the long-term real interest rate play in the monetary policy transmission process?From 2007 to 2009, the long-term real interest rate paid by the safest corporations increased from 2.3
Draw a graph of the North American market for roses to illustrate the effects of the tariff. On the graph, identify the tariff revenue from imported roses.Wholesalers buy and sell roses in containers
How does the overnight loans rate influence the long-term real interest rate?From 2007 to 2009, the long-term real interest rate paid by the safest corporations increased from 2.3 percent to 3.8
Traders continued to make bets in favour of the yen, sending the U.S. dollar to a record low against the Japanese currency.a. How do “bets in favour of the yen” influence the exchange rate?b. How
What is inflation targeting and how do “well-anchored inflation expectations” help to achieve more stable output as well as low inflation?Inflation targeting promotes well-anchored inflation
Draw a graph to illustrate the effects of the import quota. On the graph, identify the the importers’ profit.Wholesalers buy and sell roses in containers that hold 120 stems. The table provides
Draw a graph of the market for corn in the poor developing country in Problem 15(b) to show the changes in the price of corn, the quantity produced, and the quantity consumed by people in that
Explain how South Korea’s import ban on Canadian beef affected beef producers and consumers in South Korea. Draw a graph of the beef market in South Korea to show how this ban changed the price of
Assuming that South Korea is the only importer of Canadian beef, explain how South Korea’s import ban on beef affected beef producers and consumers in Canada. Draw a graph of the Canadian beef
Explain how the price that Canadian consumers pay for goods from Mexico and the quantity of Canadian imports from Mexico have changed. Who are the winners and who are the losers from this free
Explain how the quantity of Canadian exports to Mexico and the Canadian government’s tariff revenue from trade with Mexico have changed.Before 1995, trade between Canada and Mexico was subject to
Suppose that in 2014 tomato growers in Ontario lobby the Canadian government to impose an import quota on Mexican tomatoes. Explain who in Canada would gain and who would lose from such an import
Explain who in Canada gains from the quota on beef imports and who loses.With free trade between Australia and Canada, Australia would export beef to Canada. But Canada imposes an import quota on
The Bank of Canada sells $20 million of securities to the Bank of Nova Scotia. Enter the transactions that take place to show the changes in the following balance sheets: Bank of
Money in Canada today includes which of the following items? Cash in CIBC’s cash machines; Bank of Canada dollar bills in your wallet; your Visa card; your loan to pay for school fees.
Europe’s Banks Must Be Forced to Recapitalize E.U. banks must hold more capital. Where private funding is not forthcoming, recapitalization must be imposed by E.U. governments.What is the
What are the main components of money in Canada today?
Why are cheques and credit cards not money?
The People’s Bank of China announces it will cut the required reserve ratio. Explain how lowering the required reserve ratio will impact banks’ money creation process.
What are the functions of depository institutions?
How have depository institutions made innovations that have influenced the composition of money?
Starbucks customers can now pay for their coffee using their smartphone. Does this mean the move to electronic payments is finally coming? If people can use their smartphones to make payments, will
What are the Bank of Canada’s two main policy tools?
How does an open market operation change the monetary base?
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