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principles of macroeconomics

Questions and Answers of Principles Of Macroeconomics

6. Consider a professor who is writing a book. The professor can both write the chapters and gather the needed data faster than anyone else at his university.Still, he pays a student to collect data
5. Suppose that there are 10 million workers in Canada, and that each of these workers can produce either 2 cars or 30 bushels of wheat in a year.a. What is the opportunity cost of producing a car in
4. Pat and Kris are roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beer. Pat takes 4 hours to
3. American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things
2. Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in an hour. She spends 5 hours per day studying.a. Draw Maria’s production possibilities frontier for
1. Consider the farmer and the rancher from our example in this chapter. Explain why the farmer’s opportunity cost of producing 1 pound of meat is 2 pounds of potatoes. Explain why the rancher’s
5. Why do economists oppose policies that restrict trade among nations?
4. Will a nation tend to export or import goods for which it has a comparative advantage? Explain.
3. Is absolute advantage or comparative advantage more important for trade? Explain your reasoning, using the example in your answer to Question 2.
2. Give an example in which one person has an absolute advantage in doing something but another person has a comparative advantage.
1. Explain how absolute advantage and comparative advantage differ.
13. Would you expect economists to disagree less about public policy as time goes on? Why or why not? Can their differences be completely eliminated? Why or why not?
12. Look up one of the Web sites listed in Table 2-1. What recent economic trends or issues are addressed there?
11. Who is the current chairman of the Federal Reserve?Who is the current chair of the Council of Economic Advisers? Who is the current secretary of the treasury?
10. The Economic Report of the President contains statistical information about the economy as well as the Council of Economic Advisers’ analysis of current policy issues.Find a recent copy of this
9. If you were president, would you be more interested in your economic advisers’ positive views or their normative views? Why?
8. Classify each of the statements in Table 2-2 as positive, normative, or ambiguous. Explain.
7. Classify each of the following statements as positive or normative. Explain.a. Society faces a short-run tradeoff between inflation and unemployment.b. A reduction in the rate of growth of money
6. Classify the following topics as relating to microeconomics or macroeconomics.a. a family’s decision about how much income to saveb. the effect of government regulations on auto emissionsc. the
5. The first principle of economics discussed in Chapter 1 is that people face tradeoffs. Use a production possibilities frontier to illustrate society’s tradeoff between a clean environment and
4. Imagine a society that produces military goods and consumer goods, which we’ll call “guns” and “butter.”a. Draw a production possibilities frontier for guns and butter. Explain why it
3. Draw a circular-flow diagram. Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities.a. Sam pays a
2. One common assumption in economics is that the products of different firms in the same industry are indistinguishable. For each of the following industries, discuss whether this is a reasonable
1. Describe some unusual language used in one of the other fields that you are studying. Why are these special terms useful?
9. Why do economists sometimes offer conflicting advice to policymakers?
8. What is the Council of Economic Advisers?
7. What is the difference between a positive and a normative statement? Give an example of each.
6. What are the two subfields into which economics is divided? Explain what each subfield studies.
5. Use a production possibilities frontier to describe the idea of “efficiency.”
4. Draw and explain a production possibilities frontier for an economy that produces milk and cookies. What happens to this frontier if disease kills half of the economy’s cow population?
3. Should an economic model describe reality exactly?
2. Why do economists make assumptions?
1. How is economics like a science?
16. Imagine that you are a policymaker trying to decide whether to reduce the rate of inflation. To make an intelligent decision, what would you need to know about inflation, unemployment, and the
15. Suppose that when everyone wakes up tomorrow, they discover that the government has given them an additional amount of money equal to the amount they already had. Explain what effect this
14. Suppose Americans decide to save more of their incomes. If banks lend this extra saving to businesses, which use the funds to build new factories, how might this lead to faster growth in
13. In what ways is your standard of living different from that of your parents or grandparents when they were your age? Why have these changes occurred?
12. Discuss each of the following statements from the standpoints of equity and efficiency.a. “Everyone in society should be guaranteed the best health care possible.”b. “When workers are laid
11. Explain whether each of the following government activities is motivated by a concern about equity or a concern about efficiency. In the case of efficiency, discuss the type of market failure
10. Suppose the United States adopted central planning for its economy, and you became the chief planner. Among the millions of decisions that you need to make for next year are how many compact
9. Your roommate is a better cook than you are, but you can clean more quickly than your roommate can. If your roommate did all of the cooking and you did all of the cleaning, would your chores take
8. A recent bill reforming the government’s antipoverty programs limited many welfare recipients to only two years of benefits.a. How does this change affect the incentives for working?b. How might
7. The Social Security system provides income for people over age 65. If a recipient of Social Security decides to work and earn some income, the amount he or she receives in Social Security benefits
6. Three managers of the Magic Potion Company are discussing a possible increase in production. Each suggests a way to make this decision.HARRY: We should examine whether our company’s
5. The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of
4. You win $100 in a basketball pool. You have a choice between spending the money now or putting it away for a year in a bank account that pays 5 percent interest.What is the opportunity cost of
3. You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. What is the true cost of going skiing? Now suppose that you had been planning to spend the
2. You are trying to decide whether to take a vacation.Most of the costs of the vacation (airfare, hotel, forgone wages) are measured in dollars, but the benefits of the vacation are psychological.
1. Describe some of the tradeoffs faced by the following:a. a family deciding whether to buy a new carb. a member of Congress deciding how much to spend on national parksc. a company president
10. How are inflation and unemployment related in the short run?
9. What is inflation, and what causes it?
8. Why is productivity important?
7. Explain the two main causes of market failure and give an example of each.
6. What does the “invisible hand” of the marketplace do?
5. Why isn’t trade among countries like a game with some winners and some losers?
4. Why should policymakers think about incentives?
3. Water is necessary for life. Is the marginal benefit of a glass of water large or small?
2. What is the opportunity cost of seeing a movie?
1. Give three examples of important tradeoffs that you face in your life.
=+c. “Inflation does not reduce the purchasing power of most workers.”
=+b. “If prices change in a way that leaves the overall price level unchanged, then no one is made better or worse off.”
=+a. “Inflation hurts borrowers and helps lenders, because borrowers must pay a higher rate of interest.”
=+12. Explain whether the following statements are true, false, or uncertain.
=+inflation that is not associated with expected inflation. Then explain one harm associated with both expected and unexpected inflation.
=+11. Explain one harm associated with unexpected
=+d. a college that has invested some of its endowment in government bond
=+. a union worker in the second year of a labor contract
=+b. a homeowner with a fixed-rate mortgage
=+10. Suppose that people expect inflation to equal 3 percent, but in fact, prices rise by 5 percent.Describe how this unexpectedly high inflation rate would help or hurt the following:a. the
=+ What are those functions? How does inflation affect the ability of money to serve each of these functions?
=+ 9. Recall that money serves three functions in the economy.
=+ How do you think the shoeleather costs of your college president differ from your own?
=+How might you measure these costs in dollars?
=+ 8. What are your shoeleather costs of going to the bank?
=+c. The nominal interest rate is 4 percent and the inflation rate is 1 percent.
=+b. The nominal interest rate is 6 percent and the inflation rate is 2 percent.
=+. The nominal interest rate is 10 percent and the inflation rate is 5 percent.
=+ 7. If the tax rate is 40 percent, compute the beforetax real interest rate and the after-tax real interest rate in each of the following cases.
=+d. What matters more to Bob and Rita—the overall inflation rate or the relative price of rice and beans?
=+Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita?
=+c. Finally, suppose that in 2009 the price of beans was $2 and the price of rice was $1.50.What was inflation?
=+ Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita?
=+b. Now suppose that in 2009 the price of beans was $2 and the price of rice was $4. What was inflation?
=+$2 and the price of rice was $6. What was inflation? Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita?
=+a. Suppose that in 2009 the price of beans was
=+and beans. In 2008, the price of beans was $1, and the price of rice was $3.
=+economy composed of only two people: Bob, a bean farmer, and Rita, a rice farmer. Bob and Rita both always consume equal amounts of rice
=+ 6. Let’s consider the effects of inflation in an
=+ Can you think of any way holders of savings accounts are hurt by the increase in the inflation rate?
=+ Why is wealth that is held in savings accounts not subject to a change in the inflation tax?
=+ 4. Suppose that a country’s inflation rate increases sharply. What happens to the inflation tax on the holders of money?
=+require that the rate of money growth equal zero? If yes, explain why. If no, explain what the rate of money growth should equal.
=+ 3. It is often suggested that the Federal Reserve try to achieve zero inflation. If we assume that velocity is constant, does this zero-inflation goal
=+c. If the Fed wants to keep the price level stable, what should it do?
=+. If the Fed does not respond to this event, what will happen to the price level?
=+a. How does this event affect the demand for money?
=+ 2. Suppose that changes in bank regulations expand the availability of credit cards so that people need to hold less cash.
=+d. What money supply should the Fed set next year if it wants inflation of 10 percent?
=+c. What money supply should the Fed set next year if it wants to keep the price level stable?
=+by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant?

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