Principles Of Economics A Streamlined Approach 4th Edition Robert H. Frank , Ben Bernanke , Kate Antonovics , Ori Heffetz - Solutions

Discover a comprehensive collection of questions and answers for "Principles Of Economics: A Streamlined Approach, 4th Edition" by Robert H. Frank, Ben Bernanke, Kate Antonovics, and Ori Heffetz. Access online solutions and answers key with our complete solution manual, including chapter solutions and solved problems. Our solutions PDF offers step-by-step answers for each problem, making it easy to master the textbook material. Enhance your learning experience with the instructor manual and test bank, available for free download. Perfect for students and educators seeking detailed explanations and efficient study tools.

11. The annual demand for and supply of shekels in the foreign exchange market is as given in Problem 10.The shekel is fixed at 0.30 dollars per shekel. The country’s international reserves are $600. Foreign financial investors hold checking accounts in the country in the amount of 5,000 shekels.
10. The demand for and supply of shekels in the foreign exchange market are Demand = 30,000 − 8,000e, Supply = 25,000 + 12,000e, where the nominal exchange rate is expressed as U.S. dollars per shekel. (LO3, LO5)a. What is the fundamental value of the shekel?b. The shekel is fixed at 0.30 U.S.
Why have 19 European countries adopted a common currency?Effective January 1, 1999, eleven western European nations, including France, Germany, and Italy, adopted a common currency, called the euro. In several stages, the euro replaced the French franc, the German mark, the Italian lira, and other
How did policy mistakes contribute to the Great Depression?We introduced the study of macroeconomics with the claim that policy mistakes played a major role in causing the Great Depression. Now that we are close to completing our study of macroeconomics, we can be more specific about that claim.
What is the IMF, and how has its mission evolved over the years?The International Monetary Fund (IMF) was established after World War II. An international agency, the IMF is controlled by a 24-member executive board. Eight executive board members represent individual countries (China, France,
Diagram a case in which a fixed exchange rate is undervalued rather than overvalued.Show that to maintain the fixed exchange rate, the central bank must use domestic currency to purchase foreign currency in the foreign exchange market. With an undervalued exchange rate, is the country’s central
Repeat Example 21.6 under the assumption that the fixed value of the peso is 0.15 dollars per peso. What do you conclude about the relationship between the degree of currency overvaluation and the resulting balance-of-payments deficit?
Why did the dollar appreciate nearly 50 percent in the first half of the 1980s and nearly 40 percent in the second half of the 1990s?Figure 21.1 showed the strong appreciation of the U.S. dollar in 1980–1985, followed by a sharp depreciation in 1986–1987. It also showed a strong appreciation in
What is a safe haven currency?Certain currencies, such as the U.S. dollar, the Swiss franc, and the Japanese yen, are in high demand during times of global uncertainty. The tendency of individuals to “pull their wealth out” of other currencies (i.e., to sell assets denominated in other
The U.S. goes into a recession, and real GDP falls. All else equal, how is this economic weakness likely to affect the value of the dollar?
How would increased demand for German washing machines affect the euro–dollar exchange rate?Suppose German firms come to dominate the washing machine market, with washing machines that are more efficient and reliable than those produced in the United States. All else being equal, how will this
The price of gold is $900 per ounce in New York and 7,500 kronor per ounce in Stockholm, Sweden. If the law of one price holds for gold, what is the nominal exchange rate between the U.S. dollar and the Swedish krona?
How does inflation affect the nominal exchange rate?Suppose India experiences significant inflation so that the price of a bushel of grain in Mumbai rises from 150 to 300 rupees. Australia has no inflation, so the price of grain in Sydney remains unchanged at 5 Australian dollars. If the law of one
How many Indian rupees equal 1 Australian dollar?Suppose that a bushel of grain costs 5 Australian dollars in Sydney and 150 rupees in Mumbai. If the law of one price holds for grain, what is the nominal exchange rate between Australia and India?
Which computer is the better buy, the import or the domestic computer?A U.S.-made computer costs $2,400, and a similar Japanese-made computer costs 242,000 yen. If the nominal exchange rate is 110 yen per dollar, which computer is the better buy?
From the business section of the newspaper or an online source (try The Wall Street Journal, www.wsj.com), find recent quotations of the value of the U.S.dollar against the British pound, the Canadian dollar, and the Japanese yen.Based on these data, find the exchange rate (a) between the pound and
What is the exchange rate between the British pound and Canadian dollar?Based on Table 21.1, find the exchange rate between the British and Canadian currencies.Express the exchange rate in both Canadian dollars per pound and pounds per Canadian dollar.
1. We have seen that short-run equilibrium output falls when the Fed raises the real interest rate.Suppose the relationship between short-run equilibrium output Y and the real interest rate r set by the Fed is given by Y = 1,000 − 1,000r.Suppose also that the Fed’s reaction function is the one
2. State how each of the following affects the AD curve and explain. (LO1)a. An increase in government purchases.b. A cut in taxes.c. A decline in investment spending by firms.d. A decision by the Fed to lower the real interest rate at each level of inflation.
Can inflation be too low?As the last section points out, the Federal Reserve is normally focused on keeping inflation from rising too fast, but by late 2002, some Fed policymakers began to worry that inflation might actually be too low. Why?
How was inflation conquered in the 1980s?After reaching double-digit levels in the late 1970s, inflation in the United States declined sharply in the 1980s. After peaking at 13.5 percent in 1980, the inflation rate fell all the way to 3.2 percent in 1983, and it remained in the 2–5 percent range
Show the typical time paths of output, inflation, and the real interest rate when the Fed employs an anti-inflationary monetary policy. Draw a separate graph for each variable, showing time on the horizontal axis. Be sure to distinguish the short run from the long run. Specific numerical values are
How will output, unemployment, and inflation react to a monetarypolicy tightening?Suppose that, although the economy is at full employment, the inflation rate is 10 percent—too high to be consistent with economic efficiency and long-term economic growth. The Fed decides to tighten monetary policy
What if productivity hadn’t increased in the late 1990s? How would the economy have been different in 2000?
Why was the United States able to experience rapid growth and low inflation in the latter part of the 1990s?The second half of the 1990s was a boom period in the U.S. economy. As Table 20.2 shows, real GDP growth during the 1995–2000 period was 4.3 percent per year, significantly higher than the
Inflation shocks can also be beneficial for the economy, such as when oil prices declined by 50 percent in late 2014. What effect would a decrease in oil prices have on output and inflation, if the public did not believe that the Fed would immediately act to keep inflation stable?
Why did oil price increases cause U.S. inflation to escalate in the 1970s but not in the 2000s and 2010s?Having risen in the second half of the 1960s, inflation continued to rise in the 1970s. Already at 6.2 percent in 1973, inflation jumped to 11.0 percent in 1974. After subsiding from 1974 to
In Example 20.1, we found that a decline in consumer spending tends to reduce the rate of inflation. Using the AD-AS diagram, illustrate the short-run and longrun effects of a fall in consumer spending on inflation. How does the decline in spending affect output in the short run and in the long run?
How did inflation get started in the United States in the 1960s?In the United States from 1959 through 1963, inflation hovered around 1 percent per year. Beginning in 1964, however, inflation began to rise, reaching nearly 6 percent in 1970. Why did inflation become a problem in the United States
Can the Fed do anything to prevent inflation caused by wars or military buildups?Wars and military buildups are sometimes associated with increased inflation.Explain why, using the AD-AS diagram. Can the Fed do anything to prevent the increase in inflation caused by a military buildup?
How will a fall in consumer confidence affect the rate of inflation?In Chapter 18, Short-Term Economic Fluctuations and Fiscal Policy, and Chapter 19, Stabilizing the Economy: The Role of the Fed, we saw that changes in spending can create expansionary or recessionary gaps. Therefore, based on the
Based on Figure 20.4, discuss why the Federal Reserve has a strong incentive to maintain a low inflation rate in the economy. FIGURE 20.4 A Virtuous Circle of Low Inflation and Low Expected Inflation. Low inflation leads people to expect low inflation in the future. As a result, they agree to
Assume that employers and workers agree that real wages should rise by 2 percent next year.a. If inflation is expected to be 2 percent next year, what will happen to nominal wages next year?b. If inflation is expected to be 4 percent next year, rather than 2 percent, what will happen to nominal
What is the difference, if any, between the following?a. An upward shift in the Fed’s policy reaction function.b. A response by the Fed to higher inflation, for a given policy reaction function.How does each scenario affect the AD curve?
Explain why a shift in monetary policy like that shown in Figure 20.3 can be interpreted as a decline in the Fed’s long-run “target” for the inflation rate. (Hint:In the long run, the real interest rate set by the Fed must be consistent with the real interest rate determined in the market for
12. In mid-2002, with inflation at 2 percent, some economists estimated the size of the recessionary gap to be about 2 percent of potential output. At that time, the Fed was holding the (nominal) federal funds rate at 1.75 percent. How does the Fed’s setting of the federal funds rate compare with
11. Supposing that the Fed follows the Taylor rule (The Economic Naturalist 19.6), find the real interest rate and the nominal interest rate that the Fed will set in each of the following situations. (LO5)a. Inflation of 4 percent and an expansionary gap equal to 1 percent of potential output.b.
10. An economy with a potential output Y* of 4,000 is described by the equation below. (LO5)Y = 5,800 −12,000ra. If real interest rate is 0.10 (10%), compute the numerical value for aggregate expenditure and output Y, and determine if the economy is at its potential or experiencing an output
9. An economy is described by the following information.(LO5)C = 260 + 0.8(Y − T) − 1,000r, I = 200 − 1,000r, G = 180, NX = 0, T = 300.a. State the relationship between aggregate expenditure and output Y to the real interest rate r for this economy in the format of an equation. [Hint:it
2. The following table shows Uma’s estimated annual benefits of holding different amounts of money.(LO1)a. How much money will Uma hold on average if the nominal interest rate is 9 percent? 5 percent?3 percent? Assume that she wants her money holding to be a multiple of $100. (Hint: Make a table
6. Why does the real interest rate affect aggregate expenditure?Give examples. (LO5)
This exercise asks you to apply the Taylor rule. Suppose inflation is 3 percent and the output gap is zero. According to the Taylor rule, at what value should the Fed set the real interest rate? The nominal interest rate? Suppose the Fed were to receive new information showing that there is a 1
What is the Taylor rule?In 1993, economist John Taylor proposed a “rule,” now known as the Taylor rule, to describe the behavior of the Fed.14 What is the Taylor rule? Does the Fed always follow it?
Why does news of inflation hurt the stock market?Financial market participants watch data on inflation extremely closely. A report that inflation is increasing or is higher than expected often causes stock prices to fall sharply. Why does bad news about inflation hurt the stock market?
Why did the Fed raise interest rates 17 times in a row between 2004 and 2006?The Fed began tightening monetary policy in June 2004 when it increased the federal funds rate from 1.0 to 1.25 percent. (See Figure 19.5.) It continued to tighten by raising the federal funds rate by 0.25 percent at each
How can monetary policy eliminate an expansionary gap?For the economy studied in Examples 19.4 and 19.5, assume that potential output is 4,600 rather than 5,000. At the initial real interest rate of 5 percent, short-run equilibrium output is 4,800, so this economy has an expansionary gap of 200.How
Continuing Example 19.5, suppose that potential output is 4,850 rather than 5,000. By how much should the Fed cut the real interest rate to restore full employment?You may take as given that the multiplier is 5.
How did the Fed respond to recession and the terror attacks in 2001?The U.S. economy began slowing in the fall of 2000, with investment in high-tech equipment falling particularly sharply. According to the National Bureau of Economic Research, a recession began in March 2001. To make matters worse,
How can monetary policy eliminate a recessionary gap?For the economy described in Example 19.4, suppose potential output Y* equals 5,000. As before, the Fed has set the real interest rate equal to 5 percent. At that real interest rate, what is the output gap? What should the Fed do to eliminate the
For the economy described in Example 19.4, suppose the Fed sets the real interest rate at 3 percent rather than at 5 percent. Find short-run equilibrium output
How does the interest rate translate to a specific level of short-run equilibrium output?In the economy described in Example 19.3, the real interest rate r is set by the Fed to equal 0.05 (5 percent). Find short-run equilibrium output.
Describe the adjustment process in the market for money if the nominal interest rate is initially above rather than below its equilibrium value. What happens to the price of bonds as the money market adjusts toward equilibrium?
The interest rate on government bonds falls from 6 percent to 4 percent. How much cash should Kim’s restaurants hold now?
How much money should Kim’s restaurants hold?Kim owns several successful restaurants. Her accountant informs her that on a typical day, her restaurants are holding a total of $50,000 in cash on the premises.The accountant points out that if Kim’s restaurants reduced their cash holdings, Kim
What is Consuelo’s demand for money, and how could she increase or reduce her money holdings?Consuelo’s balance sheet is shown in Table 19.1. What is Consuelo’s demand for money? If she wanted to increase her money holdings by $100, how could she do so? What if she wanted to reduce her money
10. Give three examples of automatic stabilizers of the economy. (LO8)
9. For each of these hyperbolized statements, identify the fiscal policy qualification to which it is related. (LO8)a. Fiscal policy is just as likely to impact a nation’s actual GDP as its potential GDP.b. Given the average duration of recent recessions, fiscal policy is destined to provide help
8. An economy is described by the following equations.(LO7)a. What is aggregate expenditure when Y = 600?b. Consumers and businesses alike become more pessimistic about the future and reduce their expenditures by 10 each. Immediately following this change, what is aggregate expenditure if Y is
7. Data on before-tax income, taxes paid, and consumption spending for the Simpson family in various years are given below. (LO6)a. Find the Simpson household’s marginal propensity to consume.b. How much would you expect the Simpsons to consume if their income was $32,000 and they paid taxes of
6. According to Keynes’s assumption about the short run, firms that are experiencing a reduction in sales due to a recession will respond by (LO5)a. lowering pries to bring sales in line with their production capacity.b. reducing production to meet demand at the existing price.c. charging higher
13. Discuss three reasons why the use of fiscal policy to stabilize the economy is more complicated than suggested by the basic Keynesian model. (LO8)
12. The government is considering two alternative policies, one involving increased government purchases of 50 units, the other involving a tax cut of 50 units.Which policy will stimulate aggregate expenditure by more? Why? (LO7)
11. Define the multiplier. In economic terms, why is the multiplier greater than one? (LO6)
10. Define aggregate expenditure and list its components.Why does spending change when output changes?(LO6)
9. Give an example of a good or service whose price changes very frequently and one whose price changes relatively infrequently. What accounts for the difference? (LO5)
8. What is the key assumption of the basic Keynesian theory? Explain why this assumption is needed if one is to accept the view that aggregate spending is a driving force behind short-term economic fluctuations.(LO5)
7. True or false: When output equals potential output, the unemployment rate is zero. Explain. (LO3)
6. True or false: All recessions are the result of output gaps. Explain. (LO2)
2. Why is the traditional term business cycles a misnomer?How does your answer relate to the ease of difficulty of forecasting peaks and troughs? (LO1)
Does military spending stimulate the economy?An antiwar poster from the 1960s bore the message “War is good business,” referring to the uncomfortable fact that there are sectors in the economy that can do quite well during wars. War itself poses too many economic and human costs to be good
Consider the economy in Example 18.1, but now suppose that instead of becoming more pessimistic, consumers and investors become more optimistic about the future, leading to an initial increase of $10 billion in C and $5 billion in I. Discuss how a change in government purchases G could be used to
By how much should the government increase its purchases in order to eliminate a recessionary gap?Consider an economy that starts in equilibrium with Y = Y*. Suppose, though, that consumers become more pessimistic about the future, so that they begin to spend less at every level of current
Will new technologies eliminate menu costs?Thanks to new technologies, changing prices and informing customers about price changes is becoming increasingly less costly. Will technology eliminate menu costs as a factor in price setting?
Why has the natural rate of unemployment in the United States declined?According to the Congressional Budget Office, which regularly estimates the natural rate of unemployment in the United States, the long-term natural rate has been falling almost steadily since 1978, when it was 6.2 percent (this
Using the National Bureau of Economic Research website (www.nber.org/cycles.html), is the U.S. economy currently in recession or expansion? How much time has elapsed since the last peak or trough? Explore the NBER website to find additional useful information about current conditions in the U.S.
How was the 2020 recession called?The Business Cycle Dating Committee of the National Bureau of Economic Research determined that a recession began in February 2020. What led the committee to choose that date?
7. Shares in Brothers Grimm Inc., manufacturers of gingerbread houses, are expected to pay a dividend of $5.50 in one year and to sell for $99.00 per share at that time. How much should you be willing to pay today per share of Grimm if the safe rate of interest(LO4)a. is 5.1 percent and you believe
2. Redo the example of Gorgonzola in the text (see Tables 17.2 to 17.6), assuming that (1) initially, the Gorgonzolan central bank puts 5,000,000 guilders into circulation, and (2) commercial banks desire to hold reserves of 20 percent of deposits. As in the text, assume that the public holds no
6. Suppose you are much less concerned about risk than the typical person. Are stocks a good financial investment for you? Why or why not? (LO4, LO5)
5. Arjay plans to sell a bond that matures in one year and has a principal value of $1,000. Can he expect to receive$1,000 in the bond market for the bond?Explain.(LO4)
4. Give two ways that the financial system helps improve the allocation of savings. Illustrate with examples. (LO4)
Why is the U.S. trade deficit so large?As shown by Figure 17.1, U.S. trade was more or less in balance until the mid-1970s.Since the late 1970s, however, the United States has run large trade deficits, particularly in the mid-1980s and even more so since the latter part of the 1990s.Indeed, from
A U.S. saver purchases a $20,000 Japanese government bond. Explain why Equation 17.3 is satisfied no matter what the Japanese government does with the $20,000 it receives for its bond.
Why did the U.S. stock market rise sharply and fall sharply in the 1990s and again in the 2000s?Stock prices soared during the 1990s in the United States. The Standard & Poor’s(S&P) 500 index, which summarizes the stock price performance of 500 major companies, rose 60 percent between 1990 and
What are the benefits of diversification?Vikram has $1,000 to invest and is considering two stocks, the Smith Umbrella Company and the Jones Suntan Lotion Company. The price of Smith Umbrella stock will rise by 10 percent if it rains but will remain unchanged if the weather is sunny. The price of
What is the relationship between risk and stock prices?Continuing Example 17.5, suppose that FortuneCookie.com is expected to pay a$1.00 dividend and have a market price of $80.00 per share in one year. The interest rate on government bonds is 6 percent per year. However, to be willing to hold a
As in Example 17.5, you expect a share of FortuneCookie.com to be worth$80.00 per share in one year and also to pay a dividend of $1.00 in one year. What should you be willing to pay for the stock today if the prevailing interest rate, equal to your required rate of return, is 4 percent? What if
How much should you pay for a share of FortuneCookie.com?You have the opportunity to buy shares in a new company called FortuneCookie.com, which plans to sell gourmet fortune cookies over the Internet. Your stockbroker estimates that the company will pay $1.00 per share in dividends a year from now
Three-year government bonds are issued at a face value (principal amount) of 100 and a coupon rate of 7 percent, interest payable at the end of each year.One year prior to the maturation of these bonds, a headline reads, “Bad Economic News Causes Prices of Bonds to Plunge,” and the story
What is the relationship between bond prices and interest rates?On January 1, 2020, Tanya purchases a newly issued, two-year government bond with a principal amount of $1,000. The coupon rate on the bond is 5 percent, paid annually. Hence Tanya, or whoever owns the bond at the time, will receive a
According to Table 17.7, the U.S. money supply fell from $44.1 billion to $37.3 billion over the course of 1931. The Fed did use open-market purchases during 1931 to replenish bank reserves in the face of depositor withdrawals. Find (a) the quantity of reserves that the Fed injected into the
Using the data from Table 17.7, confirm that the relationship between the money supply and its determinants is consistent with Equation 17.2. Would the money supply have fallen in 1931–1933 if the public had stopped withdrawing deposits after December 1930 so that currency held by the public had
Continuing Example 17.3, suppose that instead of an open-market purchase of 100 shekels the central bank conducts an open-market sale of 50 shekels’worth of government bonds. What happens to bank reserves, bank deposits, and the money supply?
How do open-market operations affect the money supply?In a particular economy, currency held by the public is 1,000 shekels, bank reserves are 200 shekels, and the desired reserve-deposit ratio is 0.2. What is the money supply? How is the money supply affected if the central bank prints 100 shekels
How does Christmas shopping affect the money supply?During the Christmas season people choose to hold unusually large amounts of currency for shopping. With no action by the central bank, how would this change in currency holding affect the national money supply?
What is the money supply in Gorgonzola when there are both currency and bank deposits?Suppose that the citizens of Gorgonzola choose to hold a total of 500,000 guilders in the form of currency and to deposit the rest of their money in banks. Banks keep reserves equal to 10 percent of deposits. What
Find deposits and the money supply in Gorgonzola if the banks’ desired reserve-deposit ratio is 5 percent rather than 10 percent. What if the total amount of currency circulated by the central bank is 2,000,000 guilders and the desired reserve-deposit ratio remains at 10 percent?
Determine what the balance sheet of the banking system of Gorgonzola will look like after a third round of lending to farmers and redeposits of guilders into the commercial banking system. What is the money supply at that point?
From Ithaca Hours to Bitcoin: What is private money, communally created money, and open-source money?Since money is such a useful tool, why is money usually issued only by governments?Are there examples of privately issued, or communally created, money?
Suppose the general public becomes more “grasshopper-like” and less “antlike”in their saving decisions, becoming less concerned about saving for the future. How will the change in public attitudes affect the country’s rate of capital formation and economic growth?

Showing 1 - 100 of 5365

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Last

Principles Of Economics A Streamlined Approach 4th Edition Robert H. Frank , Ben Bernanke , Kate Antonovics , Ori Heffetz - Solutions

Step by Step Answers