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principles of macroeconomics
Questions and Answers of
Principles Of Macroeconomics
Which of the following changes in the financial market will lead to an increase in the quantity of loans made and received:a rise in demand a fall in demand a rise in supply a fall in supply
Which of the following changes in the financial market will lead to a decline in interest rates:a rise in demand a fall in demand a rise in supply a fall in supply
The Market System as an Efficient Mechanism for Information
Demand and Supply in Financial Markets
Demand and Supply at Work in Labor Markets
provides the conditions of demand and supply. What are the equilibrium price and equilibrium quantity before the price ceiling? What will the excess demand or the shortage (that is, quantity demanded
A low-income country decides to set a price ceiling on bread so it can make sure that bread is affordable to the poor.Table
shows the supply and demand for movie tickets in a city. Graph demand and supply and identify the equilibrium. Then calculate in a table and graph the effect of the following two changes.Three new
illustrates the market's demand and supply for cheddar cheese. Graph the data and find the equilibrium. Next, create a table showing the change in quantity demanded or quantity supplied, and a graph
The computer market in recent years has seen many more computers sell at much lower prices. What shift in demand or supply is most likely to explain this outcome? Sketch a demand and supply diagram
again. Suppose the price of gasoline is $1.00. Will the quantity demanded be lower or higher than at the equilibrium price of $1.40 per gallon? Will the quantity supplied be lower or higher? Is there
Review Figure
Why would a free market never operate at a quantity greater than the equilibrium quantity? Hint: What would be required for a transaction to occur at that quantity?
Suppose there is a soda tax to curb obesity. What should a reduction in the soda tax do to the supply of sodas and to the equilibrium price and quantity? Can you show this graphically? Hint: Assume
. Suppose the government decided that, since gasoline is a necessity, its price should be legally capped at $1.30 per gallon. What do you anticipate would be the outcome in the gasoline market?
Review Figure
What is deadweight loss?
What would be the impact of imposing a price floor below the equilibrium price?
Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, state how the event will
In an analysis of the market for paint, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction.There have recently been
. Suppose the price of gasoline is $1.60 per gallon. Is the quantity demanded higher or lower than at the equilibrium price of $1.40 per gallon? What about the quantity supplied? Is there a shortage
Review Figure
Demand, Supply, and Efficiency
Price Ceilings and Price Floors
Changes in Equilibrium Price and Quantity: The Four-Step Process
Shifts in Demand and Supply for Goods and Services
Demand, Supply, and Equilibrium in Markets for Goods and Services
If the price of a pie is $12, what is the maximum number of pies she could buy in a week?
What is the difference between a positive and a normative statement?
What is comparative advantage?
. Suppose there is an improvement in medical technology that enables more healthcare with the same amount of resources. How would this affect the production possibilities curve and, in particular,
Return to the example in Figure
Confronting Objections to the Economic Approach
The Production Possibilities Frontier and Social Choices
How Individuals Make Choices Based on Their Budget Constraint
Confronting Objections to the Economic Approach
The Production Possibilities Frontier and Social Choices
How Individuals Make Choices Based on Their Budget Constraint
Suppose, as an economist, you are asked to analyze an issue unlike anything you have ever done before. Also, suppose you do not have a specific model for analyzing that issue. What should you do?
Macroeconomics is an aggregate of what happens at the microeconomic level. Would it be possible for what happens at the macro level to differ from how economic agents would react to some stimulus at
How To Organize Economies: An Overview of Economic Systems
How Economists Use Theories and Models to Understand Economic Issues
Microeconomics and Macroeconomics
What Is Economics, and Why Is It Important?
The theory of efficiency wages: What is worker health, turnover, quality, effort, and morale?
Unions and collective bargaining: What is the economics of unions? Are unions good or bad for the economy?
Minimum-wage laws: Who earns the federal minimum wage?
Unemployment: How is unemployment measured? How long are people unemployed? Why are there always some people unemployed?Job search: Why is some frictional unemployment inevitable? How does public
Suppose the a policymaker is deciding how to finance the construction of a new airport. He can either pay for it by increasing citizens’ taxes or by printing more money. What are some of the
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
Explain during the Revolutionary War, the American colonies could not raise enough tax revenue to fully fund the war effort; to make up this difference, the colonies decided to print more money.
Define in 2010, President Barack Obama and Congress enacted a healthcare reform bill in the United States. Two goals of the bill were to provide more Americans with health insurance (via subsidies
Suppose that 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
Define 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?
Explain each of the following statements from the standpoints of equality and efficiency.a. “Everyone in society should be guaranteed the best healthcare possible.”b. “When workers are laid
Explain whether each of the following government activities is motivated by a concern about equality or a concern about efficiency. In the case of efficiency, discuss the type of market failure
Define your roommate is a better cook than you are, but you can clean more quickly than your roommate can. If your roommate did all the cooking and you did all the cleaning, would your chores take
In 1996 bill reforming the federal government’s antipoverty programs limited many welfare recipients to only two years of benefits. Definea. How does this change affect the incentives for
Explain the Social Security system provides income for people over age
Define 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
Discuss, 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
Describe some of the trade-offs faced by each of the following:Explain is your enswera. a family deciding whether to buy a new carb. a member of Congress deciding how much to spend on national
What are the inflation and unemployment related in the short run?
What is inflation and what causes it? Define.
Why are the productivity important?
Explain the two main causes of market failure and give an example of each. Verify?
What does the “invisible hand” of the market place do? Define
Would isn’t trade among countries like a game with some winners and some losers?
Why should policy makers think about the incentives?
Water is necessary for life. what is the marginal benefit of a glass of water large or small?
What are the opportunity costs of seeing a movies?
Give three examples of important trade offs that you can facing in your life.
7. What is Tobin’s q, and what does it have to do with investment?
6. In the neoclassical model of investment, under what conditions will firms find it profitable to add to their capital stock?
5. Give an example in which someone might exhibit timeinconsistent preferences.
4. Explain why changes in consumption are unpredictable if consumers obey the permanent-income hypothesis and have rational expectations.
6. If investors come to expect that Congress will cut business taxes in the future, the impact today will bea. higher Tobin’s q and more investment.b. higher Tobin’s q and less investment.c.
5. If, in a recession, employment and the real interest rate both decline, the marginal product of capital and the cost of capital .a. increases, increasesb. increases, decreasesc. decreases,
4. According to models of households with time-inconsistent preferences, people would like to commit themselves to more in the future, but when the future arrives they are tempted to more than they
3. Robert Hall’s random-walk hypothesis suggests that a change in tax policy will have the largest effect on consumption when peoplea. hear a lawmaker propose the change.b. conclude that the policy
2. People who prefer smooth consumption over time shoulda. base their consumption on current income rather than lifetime resources.b. increase saving when current income falls below permanent
1. The Keynesian consumption function predicted that the saving rate should as the economy gets richer over time, but the data assembled by Simon Kuznets showed instead that the saving rate .a.
7. What are the pros and cons of using public funds to prop up a financial system in crisis?
6. What does it mean for a central bank to act as lender of last resort?
5. Explain how a financial crisis reduces the aggregate demand for goods and services.
4. How does the leverage ratio influence a financial institution’s stability in response to bad economic news?
3. What are adverse selection and moral hazard? How do banks mitigate these problems?
2. What is the main advantage of holding a stock mutual fund rather than an individual stock?
1. Explain the difference between debt finance and equity finance.
6. A central bank typically acts as a lender of last resort when a banka. reports that its capital has fallen below zero.b. does not have the liquidity to meet depositors’withdrawals.c. stops
5. Because banks rely on leverage, a change in the value of a bank’s assets leads to a proportionately larger change in the bank’sa. capital.b. deposits.c. liabilities.d. reserves.
4. According to the efficient markets hypothesis,a. actively managed mutual funds should provide higher returns than index funds.b. excessive diversification can reduce a portfolio’s return and
3. After selling shares in his new theater production to investors, Max Bialystock goes on vacation rather than working hard to ensure that the play is a success. This is an example ofa. adverse
2. Putting your retirement saving in a mutual fund is better than putting it all in Netflix stock because doing so eliminatesa. adverse selection.b. moral hazard.c. systematic risk.d. idiosyncratic
1. Forrest is starting a lawn care business but needs to buy lawnmowers. He gets some money from Jenny, whom Forrest will pay back over time with interest of 6 percent, and some money from Dan, whom
7. Give three reasons a budget deficit might be a good policy choice.
6. Do you find the traditional or the Ricardian view of government debt more credible? Why?
6. If fiscal policymakers are motivated by tax smoothing, then budget surpluses are appropriate when income is unusually or government expenditure is unusually .a. high, highb. high, lowc. low,
5. Ricardian equivalence may fail to hold ifa. the government adopts capital budgeting.b. people are forward-looking rather than myopic.c. parents want to leave their children bequests.d. consumers
4. According to the Ricardian view of government debt, a debt-financed tax cuta. increases private saving but reduces national saving.b. increases private saving but has no effect on national
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