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modern principles of economics

Questions and Answers of Modern Principles Of Economics

Calculate GDP in this simple economy:Consumer purchases: $100 per year Investment purchases: $50 per year Government purchases: $20 per year Total exports: $50 per year Total imports: $70 per year:
Since World War II, who were the only three recession-free U.S. presidents? (We’ll revisit the question of how presidents matter for the economy in later chapters.) mk63
Let’s see what fraction of the economic pie goes to workers in the form of wages, and let’s see if it has changed over the years. The “wage share” seems like it should be easy to calculate,
Let’s figure out GDP for Robinson Crusoe.a. Initially, he is stuck on an island without the wisdom and local knowledge of Friday.Because Crusoe is a proper Englishman, he wants to keep his
The underground economy and other nonpriced production make it difficult to accurately measure the precise level of GDP. But GDP could still be very accurate for measuring changes in the economy. If
a. U.S. GDP is approximately $14 trillion. If GDP were divided up equally among all 300 million Americans, what would each person get? If you and your nine best friends took almost all of the GDP for
Let’s sum up some basic facts of U.S. economic history with numbers: mk63a. First, let’s measure the size of the GreatCalculate the percent change in real GDP and the percent change in the
What is the difference between a nation’s wealth and its GDP? How are the two related? mk63
If U.S. government statistics counted education spending as part of investment, which would rise, which would fall, and which would remain unchanged? (Note: You might use rise, fall, and unchanged
Which countries are likely to grow faster:countries doing “cutting-edge” growth or those doing “catch-up” growth? 558
Many say that if people save too much, the economy will be hurt. They often refer to the fact that consumer spending is two-thirds of GDP to make this point. This is sometimes called the “paradox
Many people say that “the rich grow richer and the poor grow poorer.” Is this what Figure 26.11 says about the countries in that graph? Did the rich countries grow more quickly or more slowly
Compared with its fast growth today, is China’s economy likely to grow more quickly or more slowly in the future? 558
What is more important for explaining the standard of living in the rich countries: capital or ideas? 558
According to Thomas Jefferson, how are ideas like flames? 558
What is a patent? 558
When will people work harder to invent new ideas: when they can patent those ideas for 1 year or when they can patent them for 10 years? 558
Which three countries on the list are good examples of “conditional convergence?” 558 China Ireland Argentina North Korea Greece
Let’s keep track of a nation’s capital stock for five years. Mordor starts off with 1,000 machines, and every year, 5% of the machines depreciate or wear out. Fortunately, the people in this land
In the Solow model, you’ve seen that as the total stock of capital equipment gets larger, the number of machines wearing out grows as well. Often, most investment ends up just replacing worn-out
Since ideas can sometimes be copied quite easily, many people think that we should put more effort into creating new ideas. Let’s see if there are trade-offs to having more people creating new
According to economists Robert Barro and Xavier Sala-i-Martin, convergence isn’t just for entire nations: It’s also true for states and regions, as well. They looked at state-level GDP per capita
Which country would you expect to have a higher rate of investment: a catch-up country or a cutting-edge country? 558
The Solow model makes it quite easy to figure out how rich a country will be in its steady state. We already know that you’re in a steady state when investment equals depreciation. In math,
Which of the following goods are nonrivalrous?Sunshine An apple A national park A Mozart symphony The idea of penicillin A dose of penicillin: 558
According to economist Michael Kremer, as human populations have grown over the last million years, so has the human population growth rate. This was true until the 1800s. How does Thinking and
If people want to smooth their consumption over time, what will they tend to do when they win the lottery: spend most of it within a year or save most of it for later? L 0 1
The typical savings supply curve has a positive slope. If a nation’s saving supply curve had a perfectly vertical slope, what would that mean?a. People in this country save the same amount no
Consider three countries: Jovenia (average age: 25), Mittelaltistan (average age: 45), and Decrepetia (average age: 75). Based on the lifecycle theory, which of these countries will probably have:a.
If financial intermediation breaks down, what category of GDP will probably fall the most: consumption, investment, government purchases, or net exports?L 0 1
Let’s work out a simple example in which a person smooths her consumption over time.Gwen is a real estate agent, and she knows that she will have some good years and some bad years. She figures
Consider your answers to the previous question.When one bond pays a higher interest rate than another bond, is that mostly because savers are less willing to supply loanable funds to the higher-rate
Consider Figure 27.10. Would a rise in government borrowing make it harder or easier for a new business to sell new stocks in an initial public offering (IPO)? In other words, are government bonds
“If the government keeps real interest rates low (either by raising inflation or by decreeing low interest rates), then this encourages extra borrowing by businesses, which leads to more investment
a. If a zero-coupon bond with a face value of$1,000 payable in 1 year sells for $925, what is the interest rate?b. If another bond with the same face value and maturity sells for $900, what is the
Predict the effect of each of the following events on the supply of and demand for loanable funds(increase, decrease, or no effect on supply;increase, decrease, or no effect on demand).What would be
Using a spreadsheet and the material in the appendix, answer the following questions.a. Assume the interest rate is 5% (0.05). Calculate the value of a bond that pays $100 at the end of every year
The United States borrows a lot of money from other countries. If you wanted to use the lifecycle theory to explain this, would you say that the United States is acting like a “young”country, an
How are houses like bonds? With respect only to their home equity (i.e. ignoring all other assets and investments), would homeowners tend to favor high or low interest rates? L 0 1
Which of the following people are counted as unemployed?A person out of work and actively searching for work A person in prison A person who wants to work but stopped searching six months ago A
According to Figure 28.1, what percent of all Americans are employed? (This number is the“employment–population ratio.”) What percent of the labor force is employed? L 0 1
If we count “discouraged workers”as unemployed when calculating the unemployment rate, does the rate more than double, less than double, or remain unchanged? L 0 1 CHAPTER REVIEW
Let’s connect the minimum wage model back to the supply and demand model of Chapter 8.Is a minimum wage a price ceiling or a price floor? Does it create a surplus or a shortage in the labor market?
Who is more likely to ask politicians for stronger labor unions and laws, making it harder to fire workers: insiders who have jobs or outsiders who don’t have jobs? L 0 1
Let’s look at how the unemployment rate changes during and after a typical recession. In Figure 28.5, does the unemployment rate tend to reach its peak during the recession, or does it usually
According to Figure 28.8, during which decade was the natural unemployment rate the highest? L 0 1
Take a look at Figure 28.10. About how big is the difference in labor force participation rates between countries with the highest implicit tax rate on older men compared with countries with the
Take a look at Table 28.2. If you have to pick a country to lose your job in, and you know you’re going to be out of work for one year, which country offers the highest one-year average replacement
When a government raises the minimum wage by $2.00 per hour, where would we expect more jobs to be lost: in the fast-food industry or in city government? Why? L 0 1
Goldin and Katz looked for the link between birth control and women’s labor force participation by examining the difference between states that acted early to make birth control legal and states
Here’s a story economists tell one another: A Nobel Prize–winning economist flew to New York City for a conference. He got into a cab, and started talking with the cab driver. The cab driver
“The unemployment rate also fails to capture all of the people who have given up looking for work,” reports the New York Times. This is one of many complaints about how the U.S. government
Long-term, structural unemployment is higher in Europe than in the United States, but some European countries have it worse than others.Take a look at Table 28.1. Spain has a lower fraction of
This chapter had three big lessons. Each of the following situations illustrates one and (we think) only one of those lessons. Which one?a. Militaries throughout the world give medals, citations, and
An American church sends 10 missionaries to Panama for three years to find new converts.Every six months, the missionary with the most new converts gets to be the supervising missionary for the next
Punishments can be an incentive, not just rewards. Consider an assembly line. Why wouldn’t you necessarily want to reward the fastest worker on the assembly line? What other incentive system might
The basketball player Tim Hardaway was once promised a big bonus if he made a lot of assists.Can you think of any problems that such an incentive scheme might cause? Many professional athletes get a
Let’s return to Big Idea Four (thinking on the margin) back in Chapter 1. Why are calls to give harsher penalties to drug dealers and kidnappers often met with warnings by economists? nju69
Why are salespeople so much more likely than other kinds of workers to be paid on a “piece rate” (i.e., on commission)? What is it about the kind of work they do that makes the highcommission +
Unlike in the previous question, sometimes, piece rates don’t work so well. Why might the following incentive mechanisms turn out to be more trouble than they’re worth?a. An industrial materials
One reason it’s difficult for a manager to set up good incentives is because it’s easy for employees to lie about how they’ll respond to incentives. For example, Simple Books pays Mary Sue to
Who do you think is in favor of forbidding baseball player contracts from including bonuses based on playing skill? Owners or players? Why? jui75
In the movie business, character actors are typically paid a fixed fee, while movie “stars”are typically paid a share of the box office revenues. Why the difference? Try to give two explanations
In early 2004, Donald Trump took the idea of using a tournament for hiring executives to a whole new level with the premiere of the TV show The Apprentice. On the show, a group of contestants compete
What type of systems in the United States help overcome the incentives of physicians to order medically unnecessary tests? jui75
In his path-breaking book Managerial Dilemmas, political scientist Gary Miller says that a good corporate culture is one that gets workers to work together even when they face prisoner’s dilemmas
Let’s do something boring just to drive home a point: Count up the number of years in Figure 22.1 in which more than half of the mutual funds managed to beat the S&P 500 index. (Recall that the
Consider the supply and demand for oranges.Orange crops can be destroyed by below-freezing temperatures.a. If a weather report states that oranges are likely to freeze in a storm later this week,
In the United States, high-level corporate officials have to publicly state when they buy or sell a large number of shares in their own company. They have to make these statements a few days after
Let’s see how fees can hurt your investment strategy. Let’s assume that your mutual fund grows at an average rate of 7% per year—before subtracting off the fees. Using the rule of 70:a. How
a. If you talk to a broker selling the high-fee mutual fund, what will he or she probably tell you when you ask them, “Am I getting my money’s worth when I pay your high fees?”b. According to
How is “stock market diversification” like putting money in a bank account? kio25
What is so bad about bubbles? If the price of Internet stocks or housing rises and then falls, is that such a big problem? After all, some people say, most of the gains going up are “paper gains”
The table at right shows the marginal utility a consumer receives from the weekly consumption of On-Demand movie rentals and Thai takeout meals. One On-Demand movie rental costs $5, and Thai takeout
Fill in the blanks below with either “good X”or “good Y,” where good X is measured on the x -axis and good Y is measured on the y -axis.a. If the price of is $8 and the price of is $12, then
Suppose Haya has $120 of income left each week after she pays her bills and puts some money away in a savings account, and she has two ways to spend this extra money: go to the movies, which costs
The utility-maximizing bundle of goods is found at the point of tangency between the budget constraint and an indifference curve.In the diagram below, the utility-maximizing bundle is the one labeled
Suppose we wanted to investigate the saving and borrowing behavior of consumers. It’s not that difficult to extend our basic model. We can use the same framework as before, but define our two goods
Consider Facts and Tools question 2. Explain the income and substitution effects of the price changes on your optimal consumption bundle when the latte and scone prices increased, but your income did
In this chapter, we focused a lot on budget constraints, but time is an additional constraint that consumers face. Jackson has $40 per week to spend on leisure activities. He likes to bowl and to
This chapter argues that the ideal membership fee from Costco’s point of view would leave consumers indifferent between shopping at Costco and shopping elsewhere. Do you think most of the shoppers
Refer to Thinking and Problem-Solving question
In that question, we assumed that the consumer earned $50 in period 1 and $150 in period 2, and that saving and borrowing were both interest-free. Let’s see if we can’t add even more real-life
Currently, if you join Columbia House’s DVD club, you get 3 DVDs for $1 each, but you have to commit to buying at least 3 more DVDs at $20 each over the next year. Suppose the normal market price
What is included in GDP: all goods, all services, or both? mk5
What happened to spending on medical services and recreational activities after 1950? nju5
Police officer: “I pulled you over for speeding.You were going 80 miles per hour.”Driver: “But that’s impossible, officer! I’ve only been driving for 15 minutes!”The government reports
Calculate the annual growth rate of nominal GDP in the following examples:Nominal GDP in 1930: $97 billion. Nominal GDP in 1931: $84 billion.Nominal GDP in 1931: $84 billion. Nominal GDP in 1932: $68
Are the following included in U.S. GDP?Briefly explain why or why not:a. Used textbooks sold at your college bookstoreb. Used books sold at a garage salec. Cars made in the United States at a Toyota
By definition, is nominal GDP higher than real GDP? nu7
In the last 20 years, have recessions been getting more frequent or less frequent than they used to be? nmj5
Looking back over the last 10,000 years of human history, which is more “normal”: for GDP per capita to grow or for GDP per capita to stay about the same? : ki7
Attach the appropriate fractions to the “long-term averages” in Figure 24.6. (Some fractions will be left over.) These fractions may turn out to be more memorable than the exact percentages in
What is the national spending identity? This identity is very important in macroeconomics.It is as important as basic anatomy in medical school: You won’t be able to cure a person until you know
Calculate GDP in this simple economy:Consumer purchases: $100 per year Investment purchases: $50 per year Government purchases: $20 per year Total exports: $50 per year Total imports: $70 per year:
Since World War II, who were the only three recession-free U.S. presidents? (We’ll revisit the question of how presidents matter for the economy in later chapters.) :lop8
Let’s see what fraction of the economic pie goes to workers in the form of wages, and let’s see if it has changed over the years. The “wage share” seems like it should be easy to calculate,
Let’s figure out GDP for Robinson Crusoe.a. Initially, he is stuck on an island without the wisdom and local knowledge of Friday.Because Crusoe is a proper Englishman, he wants to keep his
The underground economy and other nonpriced production make it difficult to accurately measure the precise level of GDP. But GDP could still be very accurate for measuring changes in the economy. If
a. U.S. GDP is approximately $14 trillion. If GDP were divided up equally among all 300 million Americans, what would each person get? If you and your nine best friends took almost all of the GDP for

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