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principles of macroeconomics

Questions and Answers of Principles Of Macroeconomics

Do you agree or disagree with this statement: “It is in the best interest of our economy for Congress and the President to run a balanced budget each year.” Explain your answer.
What is a potential problem with a temporary tax decrease designed to increase aggregate demand if people know that it is temporary?
True or False:Federal spending has grown substantially in recent decades.By world standards, the U.S. government controls a relatively large share of the U.S. economy.A majority of the federal
% on employees’ income earned below $113,000. Is this tax progressive, regressive or proportional?
The social security tax is
Many developing countries, like Mexico, have moderate to high rates of inflation. At the same time, international trade plays an important role in their economies. What type of exchange rate regime
We learned that changes in exchange rates and the corresponding changes in the balance of trade amplify monetary policy. From the perspective of a nation’s central bank, is this a good thing or a
If a country’s currency is expected to appreciate in value, what would you think will be the impact of expected exchange rates on yields (e.g., the interest rate paid on government bonds) in that
What is the purchasing power parity exchange rate?
What is the foreign exchange market?
A booming economy can attract financial capital inflows, which promote further growth. However, capital can just as easily flow out of the country, leading to economic recession. Is a country whose
This chapter has explained that “one of the most economically destructive effects of exchange rate fluctuations can happen through the banking system,” if banks borrow from abroad to lend
Suppose that political unrest in Egypt leads financial markets to anticipate a depreciation in the Egyptian pound. How will that affect the demand for pounds, supply of pounds, and exchange rate for
How will a stronger euro affect the following economic agents?A British exporter to Germany.A Dutch tourist visiting Chile.A Greek bank investing in a Canadian government bond.A French exporter to
All other things being equal, by how much will nominal GDP expand if the central bank increases the money supply by $100 billion, and the velocity of money is 3? (Use this information as necessary to
Suppose the Fed conducts an open market sale by selling $10 million in Treasury bonds to Acme Bank. Sketch out the balance sheet changes that will occur as Acme restores its required reserves (10% of
Suppose the Fed conducts an open market purchase by buying $10 million in Treasury bonds from Acme Bank. Sketch out the balance sheet changes that will occur as Acme converts the bond sale proceeds
A well-known economic model called the Phillips Curve (discussed in The Keynesian Perspective chapter) describes the short run tradeoff typically observed between inflation and unemployment. Based on
What is a bank run?
If the central bank sells $500 in bonds to a bank that has issued $10,000 in loans and is exactly meeting the reserve requirement of 10%, what will happen to the amount of loans and to the money
Humongous Bank is the only bank in the economy. The people in this economy have $20 million in money, and they deposit all their money in Humongous Bank.Humongous Bank decides on a policy of holding
What is the double-coincidence of wants?
Imagine that you are in the position of buying loans in the secondary market (that is, buying the right to collect the payments on loans) for a bank or other financial services company. Explain why
For the following list of items, indicate if they are in M1, M2, or neither:Your $5,000 line of credit on your Bank of America card$50 dollars’ worth of traveler’s checks you have not used yet$1
A neoclassical economist and a Keynesian economist are studying the economy of Vineland. It appears that Vineland is beginning to experience a mild recession with a decrease in aggregate demand.
Legislation proposes that the government should use macroeconomic policy to achieve an unemployment rate of zero percent, by increasing aggregate demand for as much and as long as necessary to
Suppose the U.S. Congress cuts federal government spending in order to balance the Federal budget. Use the AD/AS model to analyze the likely impact on output and employment. Hint: revisit Figure 12.6.
Use the AD/AS model to explain how an inflationary gap occurs, beginning from the initial equilibrium in Figure 12.6.
In a Keynesian framework, using an AD/AS diagram, which of the following government policy choices offer a possible solution to recession? Which offer a possible solution to inflation?A tax increase
In the Keynesian framework, which of the following events might cause a recession? Which might cause inflation? Sketch AD/AS diagrams to illustrate your answers.A large increase in the price of the
The AD/AS model is static. It shows a snapshot of the economy at a given point in time. Both economic growth and inflation are dynamic phenomena. Suppose economic growth is 3% per year and aggregate
Suppose the level of structural unemployment increases. How would you illustrate the increase in structural unemployment in the AD/AS model? Hint: How does structural unemployment affect potential
On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because the product in question is now relatively less expensive than substitute products. Explain why
What is stagflation?
What is potential GDP?
What is Say’s law?
Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1% of Germany’s GDP; private savings is 20% of GDP; and physical investment is
Table 10.7 provides some hypothetical data on macroeconomic accounts for three countries represented by A, B, and C and measured in billions of currency units. In Table 10.7, private household saving
In 2001, the United Kingdom's economy exported goods worth £192 billion and services worth another £77 billion. It imported goods worth £225 billion and services worth £66 billion. Receipts of
Explain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy.Living in an especially large
For each of the following, indicate which type of government spending would justify a budget deficit and which would not.Increased federal spending on Medicare Increased spending on education
Using the national savings and investment identity, explain how each of the following changes (ceteris paribus) will increase or decrease the trade balance:A lower domestic savings rate The
How does the bottom portion of Figure 10.3, showing the international flow of investments and capital, differ from the upper portion?
State whether each of the following events involves a financial flow to the U.S. economy or away from the U.S. economy:Export sales to Germany Returns paid on past U.S. financial investments in
State whether each of the following events involves a financial flow to the Mexican economy or a financial flow out of the Mexican economy:Mexico imports services from Japan Mexico exports goods to
Rosalie the Retiree knows that when she retires in 16 years, her company will give her a one-time payment of $20,000. However, if the inflation rate is 6% per year, how much buying power will that
If inflation rises unexpectedly by 5%, indicate for each of the following whether the economic actor is helped, hurt, or unaffected:A union member with a COLA wage contract Someone with a large stash
What is indexing?
What is deflation?
Go to this website for the Purchasing Power Calculator at MeasuringWorth.com. How much money would it take today to purchase what one dollar would have bought in the year of your birth?
Edna is living in a retirement home where most of her needs are taken care of, but she has some discretionary spending. Based on the basket of goods in Table 9.5, by what percentage does Edna’s
How the U.S. and Other Countries Experience Inflation
How to Measure Changes in the Cost of Living
What type of unemployment (cyclical, frictional, or structural) applies to each of the following:landscapers laid off in response to a drop in new housing construction during a recession.coal miners
Assess whether the following would be counted as “unemployed” in the Current Employment Statistics survey.A husband willingly stays home with children while his wife works.A manufacturing worker
Whose unemployment rates are commonly higher in the U.S. economy:Whites or non-Whites?The young or the middle-aged?College graduates or high school graduates?
Using the above data, what is the unemployment rate? These data are U.S. statistics from 2010. How does it compare to the February 2015 unemployment rate computed earlier?
What Causes Changes in Unemployment over the Long Run
What Causes Changes in Unemployment over the Short Run
Patterns of Unemployment
How Economists Define and Compute Unemployment Rate
What is capital deepening?
Would the following events usually lead to capital deepening? Why or why not?A weak economy in which businesses become reluctant to make long-term investments in physical capital.A rise in
Economic Convergence
Components of Economic Growth
Labor Productivity and Economic Growth
The Relatively Recent Arrival of Economic Growth
, in which of the years given would it have been best to be a borrower?
The “prime” interest rate is the rate that banks charge their best customers. Based on the nominal interest rates and inflation rates in Table 6.10, in which of the years would it have been best
Explain briefly whether each of the following would cause GDP to overstate or understate the degree of change in the broad standard of living.The environment becomes dirtier The crime rate declines A
According to Table 6.7, how long has the average expansion lasted since the end of World War II?
According to Table 6.7, how long has the average recession lasted since the end of World War II?
, how often have recessions occurred since the end of World War II (1945)?
According to Table
Without looking at Table 6.7, return to Figure 6.10. If we define a recession as a significant decline in national output, can you identify any post-1960 recessions in addition to the 2008-2009
Using data from Table 6.5 how much of the nominal GDP growth from 1980 to 1990 was real GDP and how much was inflation?
Which of the following are included in GDP, and which are not?The cost of hospital stays The rise in life expectancy over time Child care provided by a licensed day care center Child care provided by
How Well GDP Measures the Well-Being of Society
Comparing GDP among Countries
Tracking Real GDP over Time
Adjusting Nominal Values to Real Values
Measuring the Size of the Economy: Gross Domestic Product
Would you expect supply to play a more significant role in determining the price of a basic necessity like food or a luxury like perfume? Explain. Hint: Think about how the price elasticity of demand
, and the price of oranges falls by 3%. What will happen to the demand for apples?
Suppose the cross-price elasticity of apples with respect to the price of oranges is
Elasticity in Areas Other Than Price
Elasticity and Pricing
Polar Cases of Elasticity and Constant Elasticity
Price Elasticity of Demand and Price Elasticity of Supply
Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch.Using
shows the amount of savings and borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in
Table
Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Sketch a demand and supply diagram to support your
Predict how each of the following events will raise or lower the equilibrium wage and quantity of oil workers in Texas. In each case, sketch a demand and supply diagram to illustrate your answer.The
Identify each of the following as involving either demand or supply. Draw a circular flow diagram and label the flows A through F. (Some choices can be on both sides of the goods market.)Households
During a discussion several years ago on building a pipeline to Alaska to carry natural gas, the U.S. Senate passed a bill stipulating that there should be a guaranteed minimum price for the natural
Select the correct answer. A price ceiling will usually shift:demand supply both neither
Select the correct answer. A price floor will usually shift:demand supply both neither Illustrate your answer with a diagram.
A price ceiling will have the largest effect:substantially below the equilibrium price slightly below the equilibrium price substantially above the equilibrium price slightly above the equilibrium
Identify the most accurate statement. A price floor will have the largest effect if it is set:substantially above the equilibrium price slightly above the equilibrium price slightly below the

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