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modern principles of economics

Questions and Answers of Modern Principles Of Economics

1.Suppose the exchange rate between the British pound and the U.S. dollar is 1 = $1.50.a. Draw a graph showing the demand and supply of pounds for dollars.b. If the Bank of England implements a
1.Suppose the exchange rate between the Danish krone and the U.S. dollar is 7 DKK - $1 and the exchange rate between the Chilean peso and the U.S. dollar is 650 CLP = $1.a. Express both of these
1.Suppose the following graph shows what prevailed on the foreign exchange market in 2018 with floating exchange rates.a. Name three phenomena that might shift the demand curve to the right.b. Which,
1.In August 2018, the euro was trading at $1.16. Check the Internet or any daily newspaper to see what the “price” of a euro is today. What explanations can you give for the change?Make sure you
1.You are given the following model that describes the economy of Hypothetica 1. Consumption function: C80+ 0.75Y 2. Planned investment: I-49 3. Government spending: G = 60 4. Exports: EX 20 5.
1.The exchange rate between the U.S. dollar and the Japanese yen is floating freely—both governments do not intervene in the market for each currency. Suppose a large trade deficit with Japan
1.[Related to the Economics in Practice ] The United States is the second-largest oil importer in the world (China is the largest), importing an average of 10 million barrels of crude oil per day in
1.What effect will each of the following events have on the current account balance and the exchange rate if the exchange rate is fixed? if the exchange rate is floating?a. The U.S. government cuts
1.Obtain a recent issue of The Economist. Turn to the section titled“Economic and financial indicators.” Look at the table titled“Trade, exchange rates, budget balances, and interest
1.1. What are potential long-run costs of being a large debtor nation? The International Monetary Fund (IMF) was created in 1944 as part of the Bretton Woods conference described in the appendix to
1.Question 2 Reducing imports through protectionist policies leads the prices of imported goods paid by domestic consumers to rise. Economists have tried to quantify these price increases and compare
1.Question 1 The Theory of Comparative Advantage and the Heckscher-Ohlin Theorem both treat the factors of production as being immobile between economies. Why is this a crucial assumption in
1.[Related to the Economics in Practice ] When a president presents a trade agreement for ratification to Congress, many domestic industries fight the ratification. In 2005, the United States was
1.[Related to the Economics in Practice ] In 2015, the United States and Cuba re-established diplomatic relations, reopening embassies in each other’s capitals for the first time since 1961.Since
1.Refer to the previous problem. Assume the market is opened to trade and Indonesia still enters the market by pricing coal at$40 per ton. But as a response to complaints from domestic coal
1.The following graph represents the domestic supply and demand for coal.a. In the absence of trade, what is the equilibrium price and equilibrium quantity?b. The government opens the market to free
1.[Related to the Economics in Practice ] As is stated in the text, NAFTA was ratified by the U.S. Congress in 1993 and went into effect on January 1, 1994, and aside from a few tariffs, all of
1.Some empirical trade economists have noted that for many products, countries are both importers and exporters. For example, the United States both imports and exports shirts.How do you explain this?
1.You can think of the United States as a set of 50 separate economies with no trade barriers. In such an open environment, each state specializes in the products that it produces best.a. What
1.The following table shows imports and exports of goods during the first half of 2018 for the United States:What, if anything, can you conclude about the comparative advantage that the United States
1.Evaluate the following statement: If lower exchange rates increase a nation’s exports, the government should do everything in its power to ensure that the exchange rate for its currency is as low
1.The nation of Pixley has an absolute advantage in everything it produces compared to the nation of Hooterville. Could these two nations still benefit by trading with each other? Explain.
1.Great Britain and the United States produce cheddar cheese and blue cheese. Current domestic prices per pound for each type of cheese are given in the following table:Suppose the exchange rate is 1
1.The following table gives recent figures for yield per acre in Illinois and Kansas:a. If we assume that farmers in Illinois and Kansas use the same amount of labor, capital, and fertilizer, which
1.The United States and Brazil each produce only cheese and wine. Domestic prices are given in the following table:On April 1, the London exchange listed an exchange rate of $1 = 1BRL.a. Which
1.Suppose Latvia and Estonia each produce only two goods, tractors and bobsleds. Both are produced using labor alone. Assuming both countries are at full employment, you are given the following
1.In terms of value of imports and exports, the top five trading partners for the United States are China, Canada, Mexico, Japan, and Germany. Go to www.bea.gov and search for “U.S.Trade in Goods
1.1. Using supply-and-demand curves, show the effect of screening out the sun on the price of candles. Although most economists argue in favor of free trade, it is important to recognize that some
1.1. If in fact the Chinese government was allocating the rights to export under a quota to the most productive firms, what would you expect to see happen once the quota is lifted? Prior to 2005,
1.1. What do you expect to see happen to average prices after trade opens up? Earlier in the chapter we described the way in which free trade allows countries to make the most of what they do well.
1.Question 2 According to the Real Business Cycle Theory, the Short-Run Aggregate Supply curve is vertical, and fluctuations in Real GDP arise due to shocks that shift this curve around. Would a
1.Question 1 When tax rates are higher, national income falls. Is this true along the entire Laffer curve or only the downward-sloping portion?
1.The following data is for the small, recently independent island nation of Hibiscus:Tax rate: 10% flat tax on all citizens since its independence in 2015 Labor supply: 200 workers in 2015, and has
1.The tiny island of Ditto contains two identical towns, East Doppelganger and West Doppelganger. Each year, the 100 citizens of each town compete in their annual New Year’s resolution challenge.
1.Assume people and firms have rational expectations. Explain how each of the following events will affect aggregate output and the price level.a. The Fed announces it will increase the required
1.If households and firms have rational expectations, is it possible for the unemployment rate to exceed the natural rate of unemployment? Explain.
1.The economy of Borealis is represented by the following Lucas supply function: Y = 750 + 50 (P − Pe The current price level in Borealis is 1.45, and the expected price level is 1.70.a. What will
1.In an economy with reasonably flexible prices and wages, full employment is almost always maintained. Explain why that statement is true.
1.A cornerstone of new classical economics is the notion that expectations are “rational.” What do you think will happen to the prices of single-family homes in your community over the next
1.[Related to the Economics in Practice ] Suppose you are thinking about where to live after you finish your degree. You discover that an apartment building near your new job has identical
1.In a hypothetical economy, there is a simple proportional tax on wages imposed at a rate There are plenty of jobs around, so if people enter the labor force, they can find work. We define total
1.During the 1980 presidential campaign, Ronald Reagan promised to cut taxes, increase expenditures on national defense, and balance the budget. During the New Hampshire primary of 1980, George Bush
1.When Bill Clinton took office in January 1993, he faced two major economic problems: a large federal budget deficit and high unemployment resulting from a slow recovery from the recession of 1990
1.In 2000, a well-known economist was heard to say, “The problem with supply-side economics is that when you cut taxes, they have both supply and demand side effects and you cannot separate the
1.In the nation of Lower Vicuna, the velocity of money is fairly constant, and in the nation of Upper Vicuna, the velocity of money fluctuates greatly. For which nation would the quantity theory of
1.The following is data from 2018 for the tiny island nation of Coco Loco:money supply = $800million; price level = 3.2; velocity of money = 3.Use the quantity theory of money to answer the following
1.You are a monetarist given the following information: The money supply is $1 million. The velocity of money is four. What is nominal income? Real income? What happens to nominal income if the money
1.The table gives estimates of the rate of the M2 money supply growth and the rate of real GDP growth for five countries in 2016:a. If you were a monetarist, what would you predict about the rate of
1.Use aggregate supply and aggregate demand curves to show the predictions of Keynesian economic theory of the likely effects of a major tax cut when the economy is not operating at capacity and the
1.1. Why do you think that consumers are so sensitive to gas prices in forming their expectations? A current debate among macroeconomists and policymakers is how people form expectations about the
1.Question 2 The enforcement of legal contracts and property rights is essential for supporting long-run growth. Based on what you learned in this chapter, why is this so?
1.Question 1 Many international nongovernmental organizations (NGOs)work on improving health and educational outcomes for people living in developing countries. How would you expect these efforts to
1.From 2005 through 2016, Mexico’s per-capita real GDP increased from $8,966 to $10,052 as measured in 2010 U.S.dollars, yet despite this increase in the standard of living, environmental issues
1.[Related to the Economics in Practice ] One source of longrun economic growth is an increase in the quality of labor, or human capital, of which education plays a major role. Go to www.bls.gov and
1.How do each of the following relate to the rates of productivity and growth in an economy?a. Spending on research and developmentb. Government regulationc. Changes in human capitald. Output per
1.According to the Bureau of Labor Statistics, during the first quarter of 2015 nonfarm business productivity in the United States fell 3.1 percent and manufacturing productivity fell 1.0 percent
1.Why can growth lead to a more unequal distribution of income?By assuming this is true, how is it possible for the poor to benefit from economic growth?
1.Economists generally agree that high budget deficits today will reduce the growth rate of the economy in the future. Why? Do the reasons for the high budget deficit matter? In other words, does it
1.Education is an area in which it has been hard to create productivity gains that reduce costs. Collect data on the tuition rates of your own college in the last 20 years and compare that increase
1.I[Related to the Economics in Practice ] In a March 2013 press release, the World Bank announced its support to assist Indonesia in accelerating its economic growth through the Research and
1.In the fall of 2005, the president’s tax reform commission issued a final report. The commission called for a general cut in marginal tax rates; lower tax rates on dividends, capital gains, and
1.Tables 1 ,2 , and 3 that follow present some data on three hypothetical economies. Complete the tables by figuring the measured productivity of labor and the rate of output growth.What do the data
1.One way that less developed countries catch up with the growth of the more developed countries is by adopting the technology of the developed countries. On average, however, developed countries are
1.Use the data in the following table to explain what happened with respect to economic growth and the standard of living in each of the three countries. Country Real GDP Real GDP Population
1.The data in the following table represents real GDP per capita in 1980 and 2016 for five countries. Fill in the table by calculating the annual growth rate in real GDP per capita from 1980 to 2016.
1.The data in the following table represents real GDP from 2013–2016 for five countries.a. Calculate the growth rate in real GDP for all five countries from 2013–2014. Which country experienced
1.Go to a recent issue of The Economist magazine. In the back of each issue is a section called “economic indicators.” That section lists the most recent growth data for a substantial number of
1.1. In recent years China has begun to strengthen its laws on patents. How does this fit in with the research described here? One of the puzzles in the growth area has been the fact that government
1.Question 2 Households are able to delay purchases of durable goods during bad economic times, which leads to spending on durable goods to be more volatile than spending on nondurable goods.
1.Question 1 According to the Life-Cycle Theory of Consumption, an increase in income would shift the blue Income curve in Figure 30.1 upward. Would you expect this to eliminate the two periods of
1.[Related to the Economics in Practice ] Since 1995, Transparency International has published its annual Corruptions Perceptions Index, which ranks countries by their perceived level of corruption,
1.Explain the effect that each of the following situations will have on the size of the multiplier.a. Firms have excess inventories as the economy begins to recover from a recession.b. Expansionary
1.In the short run, the percentage increase in output tends to correspond to a smaller percentage decrease in the unemployment rate as a result of “slippages.” Explain the three slippages between
1.The Bureau of Labor Statistics reported that in June 2010, the unemployment rate in the United States was 9.4 percent. In June 2015, the BLS reported an unemployment rate of 4.0 percent.a.
1.Between January 2017 and January 2018, real GDP in the United States increased by 2.3 percent, whereas nonfarm payroll jobs increased by only 0.75 percent. How is it possible for output to increase
1.Futurama Medical is a high-tech medical equipment manufacturer that uses custom-designed machinery and a highly skilled, well-trained labor force in its production factory.Gonzo Garments is a
1.George Jetson has recently been promoted to inventory control manager at Spacely Sprockets, and he must decide on the optimal level of sprockets to keep in inventory. How should Jetson decide on
1.How can a firm maintain a smooth production schedule even when sales are fluctuating? What are the benefits of a smooth production schedule? What are the costs?
1.Why do expectations play such an important role in investment demand? How, if at all, does this explain why investment is so volatile?
1.Explain why a household’s consumption and labor supply decisions are interdependent. What impact does this interdependence have on the way in which consumption and income are related?
1.Lydia Lopokova is 40 years old. She has assets (wealth) of$80,000 and has no debts or liabilities. She knows that she will work for 30 more years and will live 10 years after that, when she will
1.[Related to the Economics in Practice ] From March 2012 to May 2017, the price of houses increased dramatically in many parts of the country.a. What impact would you expect increases and decreases
1.Graph the following two consumption functionsa. For each function, calculate and graph the propensity to consume (APC) when income is $200, $500, and $1,000.b. For each function, what happens to
1.On January 1, 2018, the top federal income tax bracket in the United States went from 39.6 percent to 37 percent. Many republicans claimed that increasing the rewards for working(the net after-tax
1.In June 2018, the Federal Reserve Bank raised interest rates for the seventh time in three years, and signaled that two additional rate hikes would take place by the end of the year.a. What direct
1. Multipliers also vary across countries. What factors do you think determine these differences? Estimating the size of the multiplier is difficult because it is hard to sort out the many things
1.1. Who, other than macroeconomists, might be interested in the Case-Shiller index? We have suggested in the text that the rapid rise in housing prices in the period from 2000 to 2006 and the
1.Question 2 Deficit targeting could lead to the wrong type of fiscal policies being enacted during a recession. How is this so?
1.Question 1 As indicated in Figure 29.3, housing prices have risen substantially over the past few years. The composition of buyers (based on credit scores and median household incomes), however, is
1.In July 2018, the Congressional Budget Office (CBO) issued a report estimating that the federal budget deficit for 2019 was expected torise to $973 billion, or 4.6 percent of GDP. Working under the
1.If the government implements a spending and tax policy in which it promises to neither increase nor decrease spending and taxes, is it still possible for the budget deficit to increase or decrease?
1.Suppose the government decides to decrease spending and increase taxes in an attempt to decrease its deficit. Is it possible for the Fed to ease the macroeconomic effects of the spending and tax
1.Since the year 2000, several countries have defaulted on their sovereign bonds. Do some research to find information on three countries that have defaulted since 2000. For each of the three
1.You are given the following information about the economy in 2019 (all in billions of dollars):a. Find equilibrium income. Show that the government budget deficit (the difference between government
1.Explain why the government deficit rises as the economy contracts and why the government deficit falls when the economy expands.
1.[Related to the Economics in Practice ] The Economics in Practice states that since recessions can be hard to forecast, the recognition lag can be long, as was the case with the recession of
1.Explain why stabilization policy may be difficult to carry out.How is it possible that stabilization policies can actually be destabilizing?
1.Some states are required to balance their budgets. Is this measure stabilizing or destabilizing? Suppose all states were committed to a balanced-budget philosophy and the economy moved into a
1.During 1997, stock markets in Asia collapsed. Hong Kong’s was down nearly 30 percent, Thailand’s was down 62 percent, and Malaysia’s was down 60 percent. Japan and Korea experienced big drops
1.In July 2009, the S&P 500 index was at 1,000.a. What is the S&P 500 index?b. Where is the S&P today?c. If you had invested $10,000 in July2009 and your investments had increased in value by the

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