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principles of macroeconomics

Questions and Answers of Principles Of Macroeconomics

10. How do government statisticians determine the poverty rate?How could the poverty rate fall while the number of people in poverty rises? Which group in each of the following pairs has the higher
9. Comment on or explain: LO23.4a. Endowing everyone with equal income will make for very unequal enjoyment and satisfaction.b. Equality is a “superior good”; the richer we become, the more of it
8. Do you agree or disagree? Explain your reasoning. “There need be no trade-off between equality and efficiency. An ‘efficient’economy that yields an income distribution that many regard as
7. Should a nation’s income be distributed to its members according to their contributions to the production of that total income or according to the members’ needs? Should society attempt to
6. What factors have contributed to increased income inequality since 1975? LO23.3
5. Briefly discuss the major causes of income inequality. With respect to income inequality, is there any difference between inheriting property and inheriting a high IQ? Explain. LO23.2
4. Why is the lifetime distribution of income more equal than the distribution in any specific year? LO23.1
3. How does the Gini ratio relate to the Lorenz curve? Why can’t the Gini ratio exceed 1? What is implied about the direction of income inequality if the Gini ratio declines from 0.42 to 0.35?How
2. Assume that Al, Beth, Carol, David, and Ed receive incomes of$500, $250, $125, $75, and $50, respectively. Construct and interpret a Lorenz curve for this five-person economy. What percentage of
1. Use quintiles to briefly summarize the degree of income inequality in the United States. How and to what extent does government reduce income inequality? LO23.1
LO23.7 Discuss labor market discrimination and how it might affect hiring decisions and wages.
LO23.6 Identify the major components of the income-maintenance program in the United States.
LO23.5 Relate how poverty is measured and its incidence by age, gender, ethnicity, and other characteristics.
LO23.4 Debate the economic arguments for and against income inequality.
LO23.3 Demonstrate how income inequality has changed since 1975.
LO23.2 Discuss the extent and sources of income inequality.
LO23.1 Explain how income inequality in the United States is measured and described.
4. In 2013, it was estimated that the total value of all corn-production subsidies in the United States totaled about $4.8 billion. The population of the United States was approximately 315 million
3. Suppose that 10 workers were required in 2010 to produce 40,000 bushels of wheat on a 1,000-acre farm. LO22.2a. What is the average output per acre? Per worker?b. If in 2020 only 8 workers produce
2. Suppose that both wheat and corn have an income elasticity of 0.1. LO22.1a. If the average income in the economy increases by 2 percent each year, by what percentage does the quantity demanded of
1. Suppose that corn currently costs $4 per bushel and that wheat currently costs $3 per bushel. Also assume that the price elasticity of corn is 0.10, while the price elasticity of wheat is 0.15.For
5. Which of the following are elements of current U.S. farm policy?LO22.5a. Farmers are free to choose how much to plant of any particular crop.b. Direct payments.c. Price supports.d. Countercyclical
4. The majority of farm subsidies flow toward .LO22.4a. Poor, small-scale farmers.b. Rich, large-scale farmers.c. Government employees.d. Grain wholesalers.
3. Suppose that the government has been supporting the price of corn. Its free market price is $2.50 per bushel, but the government has been setting a support price of $3.50 per bushel. Which of the
2. Use supply and demand curves to depict equilibrium price and output in a competitive market for some farm product. Then show how an above-equilibrium price floor (price support) would cause a
1. Suppose that the demand for olive oil is highly inelastic. Also suppose that the supply of olive oil is fixed for the year. If the demand for olive oil suddenly increases because of a shortage of
14. last word What groups benefit and what groups lose from the U.S. sugar subsidy program?
13. Distinguish between price loss coverage and agricultural risk coverage. How do they help reduce the volatility of farm income?In what way do farm subsidies perpetuate the longstanding problem of
12. What was the major intent of the Freedom to Farm Act of 1996? Do you agree with the intent? Why or why not? Did the law succeed in reducing overall farm subsidies? Why or why not? LO22.5
11. Use public choice theory to explain the persistence of farm subsidies in the face of major criticisms of those subsidies. If the special-interest effect is so strong, what factors made it
10. What are the effects of farm subsidies such as those of the United States and the European Union on (a) domestic agricultural prices, (b) world agricultural prices, and(c) the international
9. Do you agree with each of the following statements? Explain why or why not. LO22.3, LO22.4a. The problem with U.S. agriculture is that there are too many farmers. That is not the fault of farmers
8. Explain the economic effects of price supports. Explicitly include environmental and global impacts in your answer. On what grounds do economists contend that price supports cause a misallocation
7. If in a given year the indexes of prices received and paid by farmers were 120 and 165, respectively, what would the parity ratio be? Explain the meaning of that ratio. LO22.3
6. “Because consumers as a group must ultimately pay the total income received by farmers, it makes no real difference whether the income is paid through free farm markets or through price supports
5. Explain and evaluate: “Industry complains of the higher taxes it must pay to finance subsidies to agriculture. Yet the trend of agricultural prices has been downward, while industrial prices
4. The key to efficient resource allocation is shifting resources from low-productivity to high-productivity uses. In view of the high and expanding physical productivity of agricultural resources,
3. Explain how each of the following contributes to the farm problem: LO22.1, LO22.2a. The inelasticity of demand for farm products.b. The rapid technological progress in farming.c. The modest
2. What relationship, if any, can you detect between the facts that farmers’ fixed costs of production are large and the supply of most agricultural products is generally inelastic? Be specific in
1. Carefully evaluate: “The supply and demand for agricultural products are such that small changes in agricultural supply result in drastic changes in prices. However, large changes in
LO22.5 List the main elements of existing federal farm policy.
LO22.4 Describe major criticisms of the pricesupport system in agriculture.
LO22.3 Relate the rationale for farm subsidies and the economics and politics of price supports(price floors).
LO22.2 Discuss why there has been a huge employment exodus from agriculture to other U.S. industries over the past several decades.
LO22.1 Explain why agricultural prices and farm income are unstable.
2. Carrot Computers and its competitors purchase touch screens for their tablet computers from several suppliers. The six makers of touch screens have market shares of, respectively, 19 percent, 18
1. Suppose that there are only three types of fruit sold in the United States. Annual sales are 1 million tons of blueberries, 5 million tons of strawberries, and 10 million tons of bananas. Suppose
5. True or false: Economists believe that social regulation is an exception to the MB = MC rule because social regulation should in every case extend as far as possible in order to ensure safe
4. Which of the following is the correct name for the idea that certain firms prefer government regulation because regulation shields them from the pressures of competition and, in effect, guarantees
3. When confronted with a natural monopoly that restricts output and charges monopoly prices, the two methods that governments have for promoting better outcomes are:LO21.3a. Public ownership and
2. How would you expect antitrust authorities to react to: LO21.2a. A proposed merger of Ford and General Motors.b. Evidence of secret meetings by contractors to rig bids for highway construction
1. True or false: Under the “rule of reason” that was established by the Supreme Court in the U.S. Steel case, a monopoly seller should be found guilty of violating antitrust laws even if it is
13. last word On what basis were the airlines found guilty of violating antitrust laws in the Airline Tariff Publishing case?What was the remedy? By contrast, why might it be hard to prosecute
12. Use economic analysis to explain why the optimal amount of product safety may be less than the amount that would totally eliminate the risk of accidents and deaths. Use automobiles as an example.
11. How does social regulation differ from industrial regulation?What types of benefits and costs are associated with social regulation? LO21.4
10. In view of the problems involved in regulating natural monopolies, compare socially optimal (marginal-cost) pricing and fair-return pricing by referring again to Figure 12.9. Assuming that a
9. What types of industries, if any, should be subjected to industrial regulation? What specific problems does industrial regulation entail? LO21.3
8. “The social desirability of any particular firm should be judged not on the basis of its market share but on the basis of its conduct and performance.” Make a counterargument, referring to the
7. Why might a firm charged with violating the Clayton Act, Section 7, try arguing that the products sold by the merged firms are in separate markets? Why might a firm charged with violating Section
6. In the 1980s, PepsiCo Inc., which then had 28 percent of the soft-drink market, proposed to acquire the Seven-Up Company.Shortly thereafter, the Coca-Cola Company, with 39 percent of the market,
5. Suppose a proposed merger of firms would simultaneously lessen competition and reduce unit costs through economies of scale. Do you think such a merger should be allowed?LO21.2
4. Why might one administration interpret and enforce the antitrust laws more strictly than another? How might a change of administrations affect a major monopoly case in progress?LO21.2
3. Contrast the outcomes of the Standard Oil and U.S. Steel cases.What was the main antitrust issue in the DuPont cellophane case? In what major way do the Microsoft and Standard Oil cases differ?
2. Describe the major provisions of the Sherman and Clayton acts. What government entities are responsible for enforcing those laws? Are firms permitted to initiate antitrust suits on their own
1. Both antitrust policy and industrial regulation deal with monopoly.What distinguishes the two approaches? How does government decide to use one form of remedy rather than the other? LO21.1, LO21.3
LO22.5 List the main elements of existing federal farm policy.
LO22.4 Describe major criticisms of the pricesupport system in agriculture.
LO22.3 Relate the rationale for farm subsidies and the economics and politics of price supports(price floors).
LO22.2 Discuss why there has been a huge employment exodus from agriculture to other U.S. industries over the past several decades.
LO22.1 Explain why agricultural prices and farm income are unstable.
2. Carrot Computers and its competitors purchase touch screens for their tablet computers from several suppliers. The six makers of touch screens have market shares of, respectively, 19 percent, 18
1. Suppose that there are only three types of fruit sold in the United States. Annual sales are 1 million tons of blueberries, 5 million tons of strawberries, and 10 million tons of bananas. Suppose
5. True or false: Economists believe that social regulation is an exception to the MB = MC rule because social regulation should in every case extend as far as possible in order to ensure safe
4. Which of the following is the correct name for the idea that certain firms prefer government regulation because regulation shields them from the pressures of competition and, in effect, guarantees
3. When confronted with a natural monopoly that restricts output and charges monopoly prices, the two methods that governments have for promoting better outcomes are:LO21.3a. Public ownership and
2. How would you expect antitrust authorities to react to: LO21.2a. A proposed merger of Ford and General Motors.b. Evidence of secret meetings by contractors to rig bids for highway construction
1. True or false: Under the “rule of reason” that was established by the Supreme Court in the U.S. Steel case, a monopoly seller should be found guilty of violating antitrust laws even if it is
9. What types of industries, if any, should be subjected to industrial regulation? What specific problems does industrial regulation entail? LO21.3
8. “The social desirability of any particular firm should be judged not on the basis of its market share but on the basis of its conduct and performance.” Make a counterargument, referring to the
7. Why might a firm charged with violating the Clayton Act, Section 7, try arguing that the products sold by the merged firms are in separate markets? Why might a firm charged with violating Section
6. In the 1980s, PepsiCo Inc., which then had 28 percent of the soft-drink market, proposed to acquire the Seven-Up Company.Shortly thereafter, the Coca-Cola Company, with 39 percent of the market,
5. Suppose a proposed merger of firms would simultaneously lessen competition and reduce unit costs through economies of scale. Do you think such a merger should be allowed?LO21.2
4. Why might one administration interpret and enforce the antitrust laws more strictly than another? How might a change of administrations affect a major monopoly case in progress?LO21.2
3. Contrast the outcomes of the Standard Oil and U.S. Steel cases.What was the main antitrust issue in the DuPont cellophane case? In what major way do the Microsoft and Standard Oil cases differ?
2. Describe the major provisions of the Sherman and Clayton acts. What government entities are responsible for enforcing those laws? Are firms permitted to initiate antitrust suits on their own
1. Both antitrust policy and industrial regulation deal with monopoly.What distinguishes the two approaches? How does government decide to use one form of remedy rather than the other? LO21.1, LO21.3
LO21.4 Discuss the nature of “social regulation,” its benefits and costs, and its optimal level.
LO21.3 Identify and explain the economic principles and difficulties relating to the setting of prices (rates) charged by so-called natural monopolies.
LO21.2 Describe some of the key issues relating to the interpretation and application of antitrust laws.
LO21.1 List and explain the core elements of the major antitrust (antimonopoly) laws in the United States.
8. Find out what has happened to Greece’s financial system and economy since this book was published. Has Greece’s crisis worsened or eased? Has the crisis affected other European or non-European
6. Draw an expanded version of Figure 19-1(the outline of a typical financial crisis) for emerging economies. The figure should include capital flight and show how this phenomenon interacts with the
4. In 2010, Senator Blanche Lincoln (D-AR)proposed that commercial banks be forbidden to trade derivative securities. Discuss the arguments for and against this proposal.
b. Once the crisis began, what could policymakers have done to dampen the effects on the financial system and economy?Explain.
a. What government or Fed policies might have prevented the stock market crash and bank panics that started the financial crisis?(Hint: Think of policies that exist today.)
2. What could U.S. policymakers have done to prevent the Great Depression or at least reduce its severity? Specifically:
1. Many economists argue that a rescue of a financial institution should protect the institution’s creditors from losses but not protect its owners:they should lose their equity. Supporters of this
10. Describe the IMF’s role in the financial crises of emerging economies.
9. What are the leading causes of capital flight?
8. What effects does capital flight have on interest rates and exchange rates? Explain these effects.

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