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modern principles of economics

Questions and Answers of Modern Principles Of Economics

Consider two hypothetical nations: Wahooland and Wildcat Island. Initially, these nations are identical in every way. In particular, they are the same with regard to population size and age, income
Use the Fisher equation to fill in the blanks in the following table: Inflation rate Real interest rate Nominal interest rate 2% 7% 0% 7% 70 2% 6% 9% 6% 2% 2% 10% 2%
Many interest rates in the United States have fallen over the past couple of decades. Which of the following factors could have been the cause?a. increase in the demand for loanable fundsb. decrease
Assume that the residents of a nation become more patient (experience a reduction in their time preferences).a. What will happen to the interest rate in that nation? What will happen to the
Many people believe that a high interest rate is bad for the economy. Of course, all else equal, a higher interest rate means greater borrowing costs for firms. But a high interest rate is also
Why does inflation have a positive effect on the nominal interest rate?
List the factors that affect the demand side of the loanable funds market. Which factors shift the curve?
List the factors that affect the supply side of the loanable funds market. Which factors shift the curve?
Consider two alternatives to prepare for retirement:(1) saving in a bank where your funds earn interest and (2) buying fine art that rises in value over time. Each grows your retirement account over
All else equal, what does a lower interest rate mean for firms? What does a lower interest rate mean for savers?
Explain the importance of the loanable funds market to basic GDP in a macroeconomy.
In the following chart, which of these prices would be included in the CPI? Which would be included in the GDP deflator? Which would be included in both or neither? Mark the correct option for each
Let’s say you graduate from college and accept a job in 2018. You decide to compare your starting salary with your grandfather’s and mother’s starting salaries. The salaries you compare are:•
The equation of exchange is helpful for determining the effect of money supply changes on the price level. Use the equation of exchange to answer each of the following questions.a. Real GDP grows at
If healthcare costs make up 10% of total expenditures and they rise by 15% while the other components in the consumer price index remain constant, by how much will the price index rise?
Suppose that the residents of Greenland play golf incessantly. In fact, golf is the only thing that they spend their money on. They buy golf balls, clubs, and tees. In 2016, they bought 1,000 golf
While rooting through the attic, you discover a box of old tax forms. You find that your grandmother made $75 working part-time during December 1964, when the CPI was 31.3. How much would you need to
Visit the Bureau of Labor Statistics web site for the CPI (www.bls.gov/cpi), and find the latest news release. Table 1 in that release presents CPI data for all items and also for many individual
In 1991, the Barenaked Ladies released their hit song “If I Had a Million Dollars.” How much money would the group need in 2015 to have the same amount of real purchasing power they had in 1991?
Inflation causes a lot of problems for the macroeconomy.a. What is the key misconception people have about inflation, and why does this problem generally not accompany inflation?b. In this chapter,
Following is a list of potential problems that inflation might cause. Use the space on the left to name each of these with the terms used in this chapter.a. ________ Lenders and workers are reluctant
Wage agreements and loan contracts are two types of multiperiod agreements that are important for economic growth. Suppose you sign a two-year job contract with Wells Fargo stipulating that you will
In a sentence or two, evaluate the accuracy of the following statement, including a clear and precise statement of historical comparison:Inflation in the United States last year was 0%.This is close
If a country is experiencing a relatively high rate of inflation, what impact will this have on the country’s long-term rate of economic growth?
If the prices of homes go up by 5% and the prices of concert tickets rise by 10%, which will have the larger impact on the CPI? Why?
What three issues are at the center of the debate regarding the accuracy of the CPI? Give an example of each issue.
The price of a typical laptop computer has fallen from $2,000 in 1985 to $800 today. At the same time, the consumer price index has risen from 100 to 238.Adjusting for inflation, how much did the
The table below presents real data from the U.S. labor market in January 2015. Fill in any numbers that are missing.Civilian, noninstitutionalized, 16+ population Labor force Employed 148,201,000
In each of the following situations, determine whether or not the person would be considered unemployed.a. A 15-year-old offers to pet-sit, but no one hires her.b. A college graduate spends the
Consider the following hypothetical data from the peaceable nation of Adirolf, where there is no military, the entire population is over the age of 16, and no one is institutionalized for any reason.
Consider a country with 300 million residents, a labor force of 150 million, and 10 million unemployed. Answer the following questions.a. What is the labor force participation rate?b. What is the
Visit www.bls.gov and search through the tables on unemployment to answer the following questions.a. What is the current national unemployment rate for the United States?b. What is the current
A country with a civilian (work-eligible)population of 90,000 (all over age 16) has 70,000 employed and 10,000 unemployed persons.Of the unemployed, 5,000 are frictionally unemployed and another
In January 2015, the U.S. economy added 257,000 new jobs. Yet the unemployment rate rose from 5.6% to 5.7%. How is this possible?
In his song “Allentown,” Billy Joel sings about the demise of the steel and coal industries in Pennsylvania. Why do you think the loss of manufacturing jobs was so difficult on the workers in
What can cause an increase in frictional unemployment?Give at least one example. What can cause an increase in structural unemployment?Give at least one example.
What does an increase in the natural rate of unemployment imply about each of the three types of unemployment?
What groups does the Bureau of Labor Statistics count in the labor force? Explain why the official unemployment rate tends to underestimate the level of labor market problems.
What type of unemployment is affected when online job search engines reduce the time necessary for job searches? Does this outcome affect the natural rate of unemployment? If so, how?
Until the late 1960s, most economists assumed that less unemployment was always preferable to more unemployment. Define and explain the two types of unemployment that are consistent with a dynamic,
The table below presents GDP data for an imaginary economy.a. Fill in the blanks.b. Compute both nominal and real GDP growth rates from the end of 1960 to the end of 1970.Note that your result is not
Consider an economy that only produces two goods: strawberries and cream. Use the table below to compute nominal GDP, real GDP, and the GDP deflator for each year. (Year 2015 is the base year.) Price
Fill in the missing data in the following table. Nominal GDP Real GDP Year (thousands of $) (thousands of $) GDP Deflator 2013 $100 100.0 2014 $110 108.0 2015 $130 $117 2016 $150 120.0 2017 $136 125.0
Leisure time is not included in GDP, but what would happen if it was included? Would highwork countries like South Korea fare better in international comparisons of well-being, or worse?
Many goods and services are illegally sold or legally sold but not reported to the government.How would increased efforts to count those goods and services affect GDP data?
In this chapter, we used nominal GDP data from Table 19.5 to compute 2015 GDP in 2009 dollars. Using the same steps, use the data from Table 19.5 to compute 2014 GDP in 2009 dollars.
A mechanic builds an engine and then sells it to a customized body shop for $7,000. The body shop installs the engine in a car and sells the car to a dealer for $20,000. The dealer then sells the
To which component of GDP expenditure(C, I, G, or NX) does each of the following belong?a. Swiss chocolates imported from Europeb. a driver’s license you receive from the Department of Motor
In the following situations, explain what is counted (or is not counted) in this year’s GDP.a. You bought a new Wii at GameStop last year and resold it on eBay this year.b. You purchase a new copy
A friend who knows of your interest in economics comes up to you after reading the latest GDP data and excitedly exclaims, “Did you see that nominal GDP rose from $19 trillion to $19.5 trillion?”
What are the four shortcomings with using GDP as a measure of well-being?
Real GDP for 2015 is less than nominal GDP for that year. But real GDP for 2000 is more than nominal GDP for that year. Why?
Phil owns an old set of golf clubs that he purchased for $1,000 seven years ago. He decides to post them on Craigslist and quickly sells the clubs for $250. How does this sale affect GDP?
A friend of yours is reading a financial blog and comes to you for some advice about GDP.She wants to know whether she should pay attention to nominal GDP or real GDP. Which one do you recommend, and
A farmer sells cotton to a clothing company for $1,000, and the clothing company turns the cotton into T-shirts that it sells to a store for a total of $2,000. How much did GDP increase as a result
What is the largest component (C, I, G, or NX)of GDP? Give an example of each component.
What characteristics make the market for health care different from other markets?
“To economists, human life is not of infinite value.” Explain this statement and its economic implications for end-of-life care.
For each of the following situations, determine whether adverse selection, moral hazard, or the principal-agent problem is at work.a. You decide to buy a scalped ticket before a concert, but you are
One insurance plan costs $100 a month and has a $50 copayment for all services. Another insurance plan costs $50 a month and requires patients to pay a 15% coinsurance. A consumer is trying to decide
An isolated community has one hospital. The next closest hospital is 2 hours away. Given what you have learned about monopoly, what prices would you expect the hospital to charge? How much care would
Most people have two working kidneys, but humans need only one working kidney to survive.If the sale of kidneys were legalized, what would happen to the price and the number of kidneys sold in the
Indicate whether the following medical services have elastic or inelastic demand.a. an annual physical for someone between the ages of 20 and 35b. an MRI used to detect cancerc. the removal of a
A customer wants a new life insurance policy.Even though the customer’s medical records indicate a good health history, the insurance company requires a physical exam before coverage can be
Newer automobiles have many safety features, including antilock brakes, side air bags, traction control, and rear backup sensors, to help prevent accidents. Do these safety features lead the drivers
Suppose that a medical specialist charges $300 per consultation. If your insurance charges you a $25 copay, what is the marginal cost of your consultation? Suppose that a second patient has a
What are two primary reasons healthcare demand has increased dramatically over the last 20 years?
For each of the examples you gave in question 2, discuss a solution that lessens the asymmetric information problem.
What is asymmetric information? How is it relevant to medical care?
A researcher asks you the following question:“Would you rather have a 10% chance of mortality or a 90% chance of survival?” What concept from behavioral economics is illustrated here? What is the
Given a choice of an extra $1,000 or a gamble with the same expected value, a person prefers the $1,000. But given a choice of a loss of$1,000 or a gamble with the same expected value, the same
Many people give to charity and leave tips.What prediction does traditional economic theory make about each of these activities?(Hint: Think of the person’s narrow self-interest.)What concept from
Ray likes his hamburgers with American cheese, lettuce, and ketchup. Whenever he places an order for a burger, he automatically orders these three toppings. What type of behavior is Ray exhibiting?
Suppose that a university wishes to maximize the response rate for teaching evaluations.The administration develops an easy-to-use online evaluation system that each student can complete at the end
Your instructor is very conscientious and always makes sure that exam answers are randomly distributed. However, you notice that the first five answers on the true/false section are all “true.”
Many voters go to the polls every four years to cast their ballot for president. The common refrain from those who vote is that their vote“counts” and that voting is important. A skeptical
Suppose that Danny Ocean decides to play roulette, one of the most popular casino games. Roulette is attractive to gamblers because the house’s advantage is small (less than 5%). If Danny Ocean
You have a choice between two jobs. The first job pays $50,000 annually. The second job has a base pay of $40,000 with a 30% chance that you will receive an annual bonus of $25,000.You decide to take
What is prospect theory? Have you ever suffered a setback early in a process (for example, seeking a job or applying for college) that caused you to alter your behavior later on?
Frank’s indifference curves for movies and bowling look like the figure to the right.Each game of bowling costs $4, and each movie costs $8. If Frank has $24 to spend, how many times will he go
When you head home for dinner, your mother always sets the table with one spoon, two forks, and one knife. Draw her indifference curves for forks and knives.
Kate has $20. Fish sandwiches cost $5, and a cup of espresso costs $4. Draw Kate’s budget constraint. If espresso goes on sale for $2 a cup, what does her new budget constraint look like?
A friend mentions to you that the campus coffee shop offers a 10% discount each Thursday morning before 10 a.m. Is this discount more likely to cause a significant substitution effect or a
Describe what happens to your budget constraint if the price of one item in your budget decreases. Show the result on a graph.
What is the difference between an economic“good” and an economic “bad”?
If your budget increases, is it possible for your utility to fall? Explain your response.
If your budget increases, what generally happens to the amount of utility you experience?
1.Question 2 GDP calculations do not include the production of illegal drugs. Why is their production not included?
1.Question 1 Goods and services that are produced and consumed within the same household are not included in GDP calculations. Economists refer to the production of these goods and services as
1.[Related to the Economics in Practice ] A World Bank brief entitled Natural Capital Accounting contains the following statement: “(A) major limitation of GDP is the limited representation of
1.GDP calculations do not directly include the economic costs of environmental damage—for example, global warming and acid rain. Do you think these costs should be included in GDP? Why or why not?
1.Evaluate the following statement: Even if the prices of a large number of goods and services in the economy increase dramatically, the real GDP for the economy can still fall, but if the prices of
1.The following table contains nominal and real GDP data, in billions of dollars, from the U.S. Bureau of Economic Analysis for 2016 and 2017. The data is listed per quarter, and the real GDP data
1.Gorgonzola is a small island nation with a simple economy that produces only six goods: sugar cane, yo-yos, rum, peanuts, harmonicas, and peanut butter. Assume that one-quarter of all the sugar
1.By mid-2009, many economists believed that the recession had ended and the U.S. economy had entered an economic expansion. Define recession and expansion. Go to www.bea.gov and look at the growth
1.Look at a recent edition of The Economist. Go to the section on economic indicators. Go down the list of countries and make a list of the ones with the fastest and slowest GDP growth. Look also at
1.The following table gives some figures from forecasts of real GDP (in 2009 dollars) and population done in 2018 According to the forecasts, approximately how much real growth will there be between
1.What are some of the problems in using fixed weights to compute real GDP and the GDP deflator? How does the BEA’s approach attempt to solve these problems?
1.As the following table indicates, GNP and real GNP were almost the same in 1972, but there was a $300 billion difference by mid-1975. Explain why. Describe what the numbers here suggest about
1.[Related to the Economics in Practice ] Depreciation, or the amount by which an asset’s value falls in a given period, is a term primarily used for tangible assets, such as computers. For

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