Questions and Answers of Modern Principles Of Economics

Imagine that, all else equal, it takes U.S. workers a quarter of the time it takes Chinese workers to design a new mobile phone model. Also, imagine that it takes U.S. workers half the time it takes
Sketch a PPC for a four-worker economy that produces two goods, hot dogs and hamburgers. Give an economic interpretation of the vertical intercept, the horizontal intercept, and the slope of the
What is meant by the “consumption possibilities” of a country? How are consumption possibilities related to production possibilities in a closed economy? In an open economy?
A small, open economy is equally productive in producing coffee and tea. What will this economy produce if the world price of coffee is twice that of tea? Half that of tea? What will the country
Suppose that a U.S. worker can produce 1,000 pairs of shoes or 10 industrial robots per year. For simplicity, assume there are no costs other than labor costs and firms earn zero profits. Initially,
Show graphically the effects of a tariff on imported automobiles on the domestic market for automobiles. Who is hurt by the tariff and why? Who benefits and why?
Show graphically the effects of a quota on imported automobiles on the domestic market for automobiles. Who does the quota hurt and who benefits? Explain.
How did the experience of the Great Depression motivate the development of the field of macroeconomics?
Over the next 50 years the Japanese population is expected to decline, while the fraction of the population that is retired is expected to increase sharply. What are the implications of these
Generally, how does the standard of living in the United States today compare to the standard of living in other countries? To the standard of living in the United States a century ago?
Is it possible for average living standards to rise during a period in which average labor productivity is falling? Discuss, using a numerical example for illustration.
Why is average labor productivity a particularly important economic variable?
The Bureau of Economic Analysis, or BEA, is a government agency that collects a wide variety of statistics about the U.S. economy. From the BEA’s website (www.bea.gov), find data for the most
True or false: Economic growth within a particular country generally proceeds at a constant rate. Explain.
Which of the following statements are positive and which are normative?a. If the Federal Reserve raises interest rates, demand for housing is likely to fall.b. The Federal Reserve should raise
True or false: Differences of opinion about economic policy recommendations can always be resolved by objective analysis of the issues. Explain.
Which of the following would be studied by a macroeconomist? By a microeconomist?a. The worldwide operations of General Motors.b. The effect of government subsidies on sugar prices.c. Factors
What type of macroeconomic policy (monetary, fiscal, structural) might include each of the following actions?a. A broad government initiative to reduce the country’s reliance on agriculture and
Baseball statistics, such as batting averages, are calculated and reported for each individual player, for each team, and for the league as a whole. What purposes are served by doing this? Relate to
What are the costs of increasing economic growth?
List and discuss the five important labor market trends given in the first section of the chapter. How do these trends either support or qualify the proposition that increasing labor productivity
What is a banking panic? Prior to the introduction of deposit insurance, why might even a bank that had made sound loans have reason to fear a panic?
Define velocity. How has the introduction of new payment technologies affected velocity? Explain.
What other methods does the Fed have for affecting short-run interest rates besides open-market operations? Discuss whether these methods can be used for only lowering short-run interest rates, for
Suppose you are much less concerned about risk than the typical person. Are stocks a good financial investment for you? Why or why not?
If the natural rate of unemployment is 5 percent, what is the total rate of unemployment according to Okun’s law if output is 2 percent below potential output? What if output is 2 percent above
In a situation where short-run interest rates have hit their zero lower bound, can the Fed still lower other, higher, longer-term interest rates? Discuss specific actions that the Fed can take and
What is the demand for money? How does the demand for money depend on the nominal interest rate? On the price level? On income? Explain in terms of the costs and benefits of holding money
How would increased political instability in a country likely affect capital inflows, the domestic real interest rate, and investment in new capital goods? Show graphically.
Why does the overall rate of inflation tend to adjust more slowly than prices of commodities, such as oil or grain?
Most central banks place great value on keeping inflation a low and stable. Why do they view this objective as so important?
Use a supply and demand diagram to illustrate the effects of a speculative attack on an overvalued exchange rate. Why do speculative attacks often result in a devaluation?
Contrast fixed and flexible exchange rates in terms of how they affect (a) The ability of monetary policy to stabilize domestic output and (b) The predictability of future exchange rates.

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