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business
modern principles of economics
Questions and Answers of
Modern Principles Of Economics
What is a steady-state economy?
What are “green Keynesian” policies? Give some examples.
What are some examples of local sustainability?
How do environmental impacts differ across the three global income classes?
What is the idea of sufficiency?
What is a debt-for-nature swap?
What are tradable permit systems?
What are “green” taxes?
What is the environmental Kuznets curve (EKC)hypothesis? What is the evidence regarding this hypothesis?
What are some of the projected effects of future climate change?
What are some of the environmental issues related to economic growth?
What is the evidence regarding the performance of the Washington Consensus recommendations?
What are the main principles of the Washington Consensus?
What has been the most significant source of foreign capital for economic development in recent years?
In what different methods can foreign capital be provided to promote economic development?
How can export development both promote and threaten economic growth?
Is an abundance of natural capital a prerequisite for economic development?
How can investment be used to promote economic development?
What is the evidence for and against economic convergence?
What is the concept of convergence in economic growth?
About how much of the world’s income goes to the richest 20 percent? How much goes to the world’s poorest 40 percent?
What factors are generally considered responsible for GDP growth in developed countries? Have the factors responsible for growth been the same in all developed countries?
How evenly has economic growth been distributed among different countries in recent decades?
What was the Industrial Revolution? What factors were essential in creating the Industrial Revolution?
How can economic growth be represented using the AS/AD graphs discussed in Chapter 28?
Which two variables can be added together to obtain the growth rate of GDP in a country?
What are the pros and cons of a balanced budget amendment?
According to the Congressional Budget Office, what are some possible budgetary reforms that could reduce the deficit?
According to the Simpson-Bowles plan, what are six broad ideas for cutting deficits over the next 10 years?
How do European policies of austerity differ from U.S. policies reading debt and deficits?
What does it mean to monetize the debt?
Summarize some of the potential problems with government debt.
What factors contributed to the federal surplus during the Clinton administration, and why did it turn into a deficit in the following Bush administration?
How did the national debt picture change with the New Deal and World War II?
What was the role of the national debt in the early period of U.S. history? What was Hamilton’s vision for the U.S national debt?
What years were debt/GDP levels the highest in the United States? What years were the lowest?
What is the difference between the national debt and a deficit?
What is the Tobin tax? What would be its effect on financial transactions?
What is the purpose of the Dodd-Frank bill? What are its main provisions? Has it been favorably received?
What have been the principal fiscal and monetary responses to the recession to date? What have been the results thus far?
In what ways did globalization contribute to the financial crisis?
Are short-term individual incentives for corporate officers consistent or in conflict with long-run interests of their companies and the economy as a whole?
Explain “too big to fail” and why it is a potential economic problem in any economic setting. How is “too big to fail” related to moral hazard?
What is financial deregulation? How important is it in explaining the financial crisis?
Did social inequality play a part in inflating the bubble that led to the 2007 financial crisis? If so, how?
What are mortgage-backed securities? Collateralized debt obligations? Credit default swaps? Are these “investments” in the traditional sense?
How is the recent economic downturn similar to the Great Depression? How is it different?
How can a collapse of the U.S housing market and weakness in the banking system cause an economic recession and unemployment?
What is “subprime” lending? How did it contribute to the bubble and the subsequent financial crisis?
What was the nature of the housing bubble experienced in the early to mid-2000s? What were its main causes?
What reforms have been suggested for the international financial system?
What is the “Washington Consensus”?
How and why might a central bank “intervene” on a foreign exchange market?
Distinguish between floating and fixed exchange rate systems.
What is the effect of an open economy on fiscal policy?
Does having an open economy make monetary policy stronger or weaker? Why?
How and why is an imbalance (surplus or deficit)in the current account related to an imbalance in the capital account?
What are the two accounts in the balance of payment account, and what do they reflect?
Draw a carefully labeled graph illustrating a depreciation of the dollar against the euro.
Who creates the supply of a currency on the foreign exchange market? Who creates the demand?
What is the theory of “purchasing power parity”?
List six reasons why countries often limit trade.
What are some international organizations and agreements dealing with trade relations?
Briefly describe the recent history of United States and world trade, and list the major U.S. trading partners.
List two policies related to international capital transactions.
List four policies related to international trade.
In what seven ways are economies connected internationally?
Match each concept in Column A with a definition or example in Column B.
Empirical data on the macroeconomy can be found in the Economic Report of the President. Go to www.gpoaccess.gov/eop/ and download statistical tables for the “civilian unemployment rate”and
Check recent inflation rates in Figure 28.15 and at http://usinflation.org/us-inflation-rate/ What do you think explains the recent pattern of inflation? How does this relate to AS/AD analysis, and
Suppose that an economy is in a deep recession.a. Draw and carefully label an AS/AD diagram that illustrates this case. Label the point representing the state of this economy E0.b. If no policy
Suppose that an economy is currently experiencing full employment, and inflation is only slightly higher than had been expected.a. Draw and carefully label an AS/AD diagram that illustrates this
Suppose the inflation rate in an economy is observed to be falling. Sketching an AS/AD model for each case, determine which of the following phenomena could be the cause. (There may be more than
For each of the following, indicate which curve in the AS/AD model shifts (initially), and in which direction(s):a. A beneficial supply shockb. An increase in government spendingc. A monetary
What underlying dynamic did Keynes believe is behind the business cycle? Illustrate with an ASIAD graph.
What does the AS curve look like in the classical model, and why?
Describe, using the AS/AD model, the effects of a series of positive supply shocks.
Describe, using the AS/AD model, how Federal Reserve policy might bring down inflation over time.
Describe, using the AS/AD model, the impact of an adverse supply shock.
Describe, using the AS/AD model, a combination of events that might cause an economy to suffer from“stagflation.”
What shifts the AS curve?
What does the AS curve represent, and why does it have the shape that it has?
What shifts the AD curve?
What does the AD curve represent, and why does it slope downward?
Suppose that the level of nominal GDP in Estilvania is $30 billion and the level of the money supply is$10 billion.a. What is the velocity of money in Estilvania?b. Suppose that the money supply
Suppose that investor confidence falls, and the Fed is aware of this fact. Using the model presented in this chapter, show (a)–(c) below graphically:a. How a fall in investor confidence affects the
Suppose that the Fed makes an open market sale of$15 million in bonds to HIJ Bank.a. What is the effect on the Fed’s balance sheet?b. What is the initial effect on HIJ Bank’s balance sheet?c.
Suppose that the Fed makes an open market purchase of $200,000 in bonds from QRS Bank.a. Show how this affects the Fed balance sheet.b. Show how this affects the balance sheet of QRS Bank.c. Assume
What are some of the problems with using a monetary rule?
Discuss how monetary expansion can lead to high inflation, using the quantity equation.
What is monetarism?
What is the quantity equation? What is the quantity theory of money?
Describe how Fed policy operated during the 2000–2012 period.
Show the effects of an expansionary monetary policy in a Keynesian cross diagram.
How is investment related to the interest rate? What other factors affect investment? Use a graphical analysis to show these relationships.
Describe how a Fed open market purchase changes the federal funds rate.
Describe two tools the Fed can use to affect the money supply, other than open market operations.
Describe how a Fed open market purchase leads to a sequence of loans and deposits and thus a multiplier effect.
Show what happens to the Fed’s balance sheet and the balance sheet of a bank, when the bank sells bonds to the Fed.
Draw up and explain the components of the balance sheet of the Federal Reserve.
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