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modern principles of economics

Questions and Answers of Modern Principles Of Economics

1.Beginning in 2005, the housing market, which had been booming for years, turned. Housing construction dropped sharply in 2006. Go to www.bea.gov. Look at the GDP release and at past releases from
1.Explain why imports are subtracted in the expenditure approach to calculating GDP.
1.If you buy a new car, the entire purchase is counted as consumption in the year in which you make the transaction.Explain briefly why this is in one sense an “error” in national income
1.From July 2017 to July 2018, real GDP in Germany rose about 2.1 percent. During the same period, retail sales in Germany fell 1.6 percent in real terms.
1.How do we know that calculating GDP by the expenditure approach yields the same answer as calculating GDP by the income approach?
1.[Related to the Economics in Practice ] In a simple economy, suppose that all income is either compensation of employees or profits. Suppose also that there are no indirect taxes. Calculate gross
1.Anissa makes custom bird houses in her garage and she buys all her supplies from a local lumber yard. Last year she purchased $3,500 worth of supplies and produced 250 bird houses. She sold all 250
1.Tobias, a classic car enthusiast in Phoenix, occasionally offers for sale one of his classic automobiles at the Barrett-Jackson collector car auction in neighboring Scottsdale. In January 2019,
1.[Related to the Economics in Practice ] Which of the following transactions would not be counted in GDP? Explain your answers.a. You buy a new pair of Lucchese Cowboy boots at the Lucchese factory
1.Explain what double counting is and discuss why GDP is not equal to total sales.
1.1. Why do you think we have not counted pollution in GDP measures in the past? The national income and product accounts include all market activities. So purchased child care is included, but child
1.1. The articles emphasize the importance of being able to measure an economy’s output to improve government policy. Looking at recent news, can you identify one economic policy debate or action
1.1. If a computer is initially worth $1,000 and loses half of its value per year, what is its value after three years of depreciation? How much depreciation takes place in the third year? As we
1.2. If Sarah is an automobile dealer, does that change your answer to Question 1 at all? eBay runs an online marketplace with more than 220 million registered users who buy and sell 2.4 billion
1.1. Sarah has a 2009 Honda Civic. In 2013, she sells it to Mary for $10,000. Is that $10,000 counted in the GDP for 2013? eBay runs an online marketplace with more than 220 million registered users
1.Question 2 Figure 20.5 shows that unemployment rate often continues to rise even after a recession has ended. Why might this occur?
1.Question 1 Economic policies are often designed to “soften” the business cycle. These policies are meant to raise toughs and reduce the peaks.Why might economic policy be designed to reduce
1.[Related to the Economics in Practice ] The Economics in Practice describes prosperity and recession as they are depicted in literature. In mid-2009, there was a debate about whether the U.S.
1.Explain why the length and severity of the Great Depression necessitated a fundamental rethinking of the operations of the macroeconomy.
1.Assume that the demand for flight attendants increases significantly as a result of an increase in demand for air travel.Explain what will happen to unemployment using both classical and Keynesian
1.John Maynard Keynes was the first to show that government policy could be used to change aggregate output and prevent recession by stabilizing the economy. Describe the economy of the world at the
1.Many of the expansionary periods during the twentieth century occurred during wars. Why do you think this is true?
1.In which of the three market arenas is each of the following goods traded?a. The athletic skills of the Green Bay Packers’quarterback Aaron Rodgersb. Shares of Nike stockc. The hair-braiding
1.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
1.In 1974, the price of a first-class postage stamp was 10 cents, a loaf of bread averaged 28 cents, gasoline was 53 cents per gallon, and the average price of a new car was $3,500. In 2017, the
1.Explain briefly how macroeconomics is different from microeconomics. How can macroeconomists use microeconomic theory to guide them in their work, and why might they want to do so?
1.Describe the economy of your state. What is the most recently reported unemployment rate? How has the number of payroll jobs changed over the last 3 months and over the last year?How does your
1.According to the National Bureau of Economic Research(NBER), what has been dubbed the Great officially began in December 2007 and ended in June 2009. During this recession, national output of goods
1.Define unemployment. Should everyone who does not hold a job be considered “unemployed”? To help with your answer, draw a supply and demand diagram depicting the labor market.What is measured
1.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, 2018, cashews sold for $12.50
1.2. What economics textbook is featured in The Great Gatsby? As you know, the language of economics includes a heavy dose of graphs and equations. But the underlying phenomena that economists study
1.1. As we indicate in the introduction to this chapter, macroeconomics focuses on three concerns. Which of these concerns is covered in The Grapes of Wrath excerpt? As you know, the language of
1.Question 2 Many taxes in the United States are collected according to the“ability-to-pay” principle. Can you think of a government service that is taxed according to the “benefits-received”
1.Question 1 When excise taxes are levied on any good, the burden is shared between consumers and producers. The burden, however, typically falls on the less elastic group. Why is this?
1.The town of Mt. Pilot has a three-member town council that is considering new infrastructure projects for the town: building a new park, buying a new fire truck, and repaving Main Street.The town
1.Annie, Blake, and Cornelia are triplets who are trying to decide on a name for their new bakery. They have narrowed their decision down to three choices, and the preferences of each are listed in
1.Suppose a special tax was introduced that used the value of one’s automobile as the tax base. Each person would pay taxes equal to 10 percent of the value of his or her car. Would the tax be
1.For each of the following statements, do you agree or disagree?Why?a. Taxing for externalities causes distortions that always result in excess burdens.b. It is possible for a distorting tax to
1. Assume that at a price of $12 per pound, the quantity of cashews demanded is 50 pounds. Now assume that the government imposes an excise tax on cashews of $3 per pound.Draw a graph showing demand
1.You are given the following information on a proposed “cigar tax” in the Republic of Panatela. Panatela collects no other specific excise taxes, and all other government revenues come from a
1.Taxes on necessities that have low demand elasticities impose large excess burdens because consumers can’t avoid buying them. Do you agree or disagree with that statement? Explain.
1.[Related to the Economics in Practice ] With the passage of the Tax Cuts and Jobs Act of 2017, the corporate tax rate was reduced from 35 percent to 21 percent beginning in 2018. Also in 2018, the
1.The market demand for product X is given by Qd = 6 − 1/2P and the market supply for good X is given by Qd = 2P − 14, where P = price per unit.a. Draw a supply-and-demand graph with these
1.The graph below represents equilibrium in a competitive labor market both before and after a payroll tax, which is levied on the employer, has been implemented. Before the payroll tax, the
1.In calculating total faculty compensation, the administration of Doughnut University includes payroll taxes (Social Security taxes) paid as a benefit to faculty. After all, those tax payments are
1.For each of the following statements, do you agree or disagree?Why?a. Economic theory predicts unequivocally that a payroll tax reduction will increase the supply of labor.b. Corporate income taxes
1.A citizens’ group in the Pacific Northwest has the following statement in its charter:“Our goal is to ensure that large, powerful corporations pay their fair share of taxes in this
1.Each year around April 15, discussions heat up regarding the tax system in the United States. A number of people are in favor of replacing the current federal income tax with either a flat tax or a
1.In the United States, 44 states have passed legislation to legalize lotteries, and the states use the lottery proceeds to raise revenue. If you view the price of a lottery ticket as a tax, do you
1.[Related to the Economics in Practice ] Using the tax brackets and rates for 2014 from here, compute the total tax for each of the following income levels for a single taxpayer. In each case,
1.Suppose that in 2019, Congress passed and the president signed a new simple income tax with a flat rate of 20 percent on all income greater than $35,000 (no tax on the first $35,000).Assume that
1.1. The tax incidence of the Corporate Profits Tax determines whether the proposed tax cut was likely to reduce or increase income inequality. Why is this?
1.1. If you are considering increasing your work hours, would you be more interested in your marginal tax rate or your average tax rate? One way to get a sense of the structure of the U.S. income tax
1.Question 2 When a minimum wage is imposed, the number of people who lose their job will be less than the amount of any unemployment that may be created. Why is this?
1.Question 1 Many workers who move to New York City for a new job get a raise in their pay, but this raise in pay does not completely cover the increased cost of living. What does this say about the
1.The following table contains data compiled by the Organisation for Economic Co-operation and Development (OECD). The data reflects the average annual percentage change in real household income by
1.Wealth distribution is not only calculated for households throughout the United States, but also by state. According to a 2010 study by Insidermonkey.com, Washington, D.C. ranked highest among all
1.Suppose the prevailing equilibrium wage in a labor market is$24.00 per hour. What would be the impact of a minimum wage law that sets the minimum wage in this market at $32.00 per hour? What if the
1.One of the issues that is debated in virtually every election is whether to raise the federal minimum wage, which stood at$7.25 per hour in 2018. Suppose that you are married with a child, working
1.The 2018 federal poverty guidelines used to determine eligibility for Medicaid and the Children’s Health Insurance Program (CHIP) set a poverty line of $25,100 for a family of four in the 48
1.Explain how a state government transfer program such as unemployment compensation may actually result in a higher unemployment rate than would occur if the program did not exist.
1.Poverty among the elderly has been sharply reduced in the last quarter-century. How has this reduction been accomplished?
1.“Income inequality is evidence that our economic system is working well, not poorly.” Do you agree or disagree? Defend
1.[Related to the Economics in Practice ] Executive compensation remains a much-debated topic in the United States. Over the past four decades, compensation for CEOs of U.S. corporations has risen
1.[Related to the Economics in Practice ] The U.S. Bureau of Labor Statistics publishes employment data based on many demographic characteristics, including gender. Go to
1.Should welfare benefits be higher in California and New York than in Mississippi? Defend your answer.
1.New PhDs in economics entering the job market find that academic jobs (jobs teaching at colleges and universities) pay about 30 percent less than nonacademic jobs such as working at a bank or a
1.Following is a list of establishment categories and average weekly earnings for nonsupervisory employees in a recent year.Using the concepts of “human capital” and “compensating
1.Economists call education “an investment in human capital.”Define capital. In what sense is education capital?Investments are undertaken to earn a rate of return. Describe the return to an
1.[Related to the Economics in Practice ] Some employers offer tuition reimbursement for their employees who wish to further their education. Do a Web search to find a list of companies that
1.The tiny Kingdom of Arugula has five residents, and the following table lists the annual income of each of these people.Fill in the table and draw a Lorenz curve showing the distribution of income
1.Refer to the following Lorenz curve to answer the questions.a. Explain whether the distribution of income was more equal in 2017 or 2018.b. If area A = 2, 450 and area B = 450, what is the value of
1.By using the data in the following table, create two graphs. The first graph should plot the Lorenz curves for left-handed people and right-handed people. The second graph should plot the Lorenz
1.Identify which of the three basic sources of income is represented by each of the following:a. Sally receives $240 per week in unemployment compensation.b. Damon receives $100 in dividend payments
1.1. Executive compensation is much higher in the United States than elsewhere in the world. Can you think of any causes for this?
1.1. In academic disciplines where few women earn a Ph.D., there are considerably fewer women professors. How does this affect the gender imbalance in these fields? One of the persistent
1.1. What does this study tell us about one of the possible sources for wage inequality in the United States? We describe in the text the role played by education on an individual’s earnings. But
1.Question 2 Economists worry that salaried employees who work more or less independently do not have a strong incentive to work hard at their jobs. Their level of effort is not easily observed by
1.Question 1 Some economists argue that people who buy fire insurance should never buy lottery tickets, and that people who buy lottery tickets should never buy fire insurance. Why would these
1.Most casino game dealers in Las Vegas are paid minimum wage, and therefore rely on tips for a large portion of their income. Within the past few years, a majority of Las Vegas casinos have
1.Simon likes to watch movies and his Internet service provider offers streaming movies on a pay-per-view basis for $3 each.The provider also offers a service for unlimited streaming of movies for
1.[Related to the Economics in Practice ] The Economics in Practice discusses a new iPhone app that allows skiers to report snow conditions directly from a ski resort, and this app has dramatically
1.Mona Stangley owns an organic egg farm just outside of Gilbert, Texas. At present, she pays her workers an hourly wage to inspect and package her organic eggs in egg cartons. She is considering
1.[Related to the Economics in Practice ] Included in the Tax Cuts and Jobs Act of 2017 was the elimination of the individual mandate penalty for not having health insurance. Starting in 2019,
1.One way insurance companies reduce adverse selection problems is by offering group medical coverage to large firms and requiring all employees to participate in the coverage.Explain how this
1.Valentino wants to purchase a classic motorcycle and sees a 1974 Triumph Bonneville T140 listed on Cycletrader.com for$5,950. He is willing to pay $7,500 if the motorcycle is reliable, but only
1.[Related to the Economics in Practice ] Do you think companies that issue health insurance should be allowed to inquire about family medical history and the results of genetic testing before
1.[Related to the Economics in Practice ] Find a product advertisement in a magazine, in a newspaper, or on a Web site, for which the missing information tells you something important about this
1.Signals are also used in social settings. In a new place, what signals do you look for to find people who share your interests?
1.Many colleges offer pass/fail classes. Use the ideas of adverse selection and moral hazard to explain why teachers in these classes find that pass/fail students rarely score at the top of the class.
1.Explain how imperfect information problems such as adverse selection and moral hazard might affect the following markets or situations:a. The market for wireless internet connectivity at large
1.Video poker is a popular form of gambling in casinos, second only to slot machines. Some video poker games offer a “doubleup”feature, where players receiving a paying hand are offered the
1.At the beginning of 2018 I bought a fire insurance policy for my vacation home in Aspen; at the end of the year, my vacation home had not burned down. Was my purchase a mistake?Explain.
1.Your current salary is a fixed sum of $115,600 per year. You have an offer for another job. The salary there is a flat $75,000 plus a chance to earn $350,000 if the company does well.Assume that
1.The following table shows the relationship between utility and income for three individuals. Show each relationship graphically and explain whether each person is risk-averse, risk-neutral, or
1.1. If a box of raisins claims it contains at least 100 raisins, do you think it is likely that there are 200? Many high-end magazines, including alumni magazines for colleges, have a section at the
1.1. If emergency rooms decided to only serve people with health insurance, regardless of their condition, what would you expect that to do to the problem of adverse selection in the health insurance
1.1. Economists have found that many young single people do not buy healthcare insurance. Why not? Health care is one area in which insurers worry about the problem of adverse selection. A recent
1.Question 2 Congested highways are congested specifically because they are a common resource. Identify a public policy or pricing mechanism that could solve this problem.
1.Question 1 Referring to Panel B of Figure 16.1, would you expect the equilibrium price of the good to rise by the full value of the externality if the externality were internalized?

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