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survey of economics

Questions and Answers of Survey Of Economics

=+ What measures stopped the bank runs?
=+ 2. Why did the creation of the Federal Reserve fail to prevent the bank runs of the Great Depression?
=+Treasury bills by the Fed on the value of checkable bank deposits. What is the size of the money multiplier?
=+reserves. Explain the effects of a $100 million open-market purchase of US.
=+1. Assume that any money lent by a bank is always deposited back in the banking system as a checkable deposit, that the reserve ratio is 10%, and that banks don’t hold excess
=+a bank loan, he or she keeps half the loan in cash. Explain the resulting expansion in the money supply.
=+2. Take the example of Silas depositing his $1,000 in cash into First Street Bank and assume that the required reserve ratio is 10%. But now assume that each time someone receives
=+loans will be repaid and he'll make high profits. If the real estate market goes bust, the loans won't be repaid and the bank will fail—but he will not lose any of his own wealth. How would
=+ 2. Acon artist has a great idea: he'll open a bank without investing any capital and lend all the deposits at high interest rates to real estate developers. If the real estate market booms, the
=+How does deposit insurance change the situation?
=+has suffered serious losses on its loans. Every depositor knows that the rumor isn’t true, but each thinks that most other depositors believe the rumor. Why, in the absence of deposit insurance,
=+account is that the depositor pays a penalty for withdrawing the money before the CD comes due—a period of months or even years. Small CDs are counted in M2 but not in M1. Explain why they are
=+ 2. Although most bank accounts pay some interest, depositors can get a higher interest rate by buying a certificate of deposit, or CD. The difference between a CD and a checking
=+ Suppose you hold a gift card, good for certain products at participating stores. Is this gift card money? Why or why not?
=+ How does the Federal Reserve use open-market operations to change the monetary base?
=+ + How do the actions of private banks and the Federal Reserve determine the money supply?
=+Why is the level of the money supply so important to the state of the economy?
=+ what forms does it take?
=+What are the various roles that money plays?
=+c. Real GDP equals $180 Dillion, , potential output equals $100 billion, the government collects 25% of any change in real GDP in the form of taxes, and the marginal propensity to consume is 0.8.
=+b. Real GDP equals $250 billion, potential output equals $200 billion, the government collects 10% of any change in real GDP in the form of taxes, and the marginal propensity to consume is 0.
=+a. Real GDP equals $100 billion, potential output equals $160 billion, the government collects 20% of any change in real GDP in the form of taxes, and the marginal propensity to consume is 0.75.
=+2. Calculate the change in government purchases of goods and services necessary to close the recessionary or inflationary gaps in the following cases. Assume that the short-run aggregate supply
=+Interactive step- help with solving this problem can be found onlin:
=+What is the total change in real GDP after 10 rounds?
=+b. Redo the accompanying table, assuming the marginal propensity to consume is 0.75 and the government collects 10% of the rise in real GDP in taxes.
=+How do your two answers compare?
=+ What would you expect the total change in real GDP to be, based on the multiplier formula?
=+a. What is the total change in real GDP after the 10 rounds? What is the value of the multiplier?
=+increases by $8 billion; in the second row, the increase in YD of $8 billion increases consumer spending by $4.80 billion (MPC change in disposable income).Changei Rounds Changei nrealG Changei
=+billion, show the rounds of increased spending that take place by completing the accompanying table. The first and second rows are filled in for you. In the first row, the increase in government
=+1. An economy has a marginal propensity to consume of 0.6, real GDP equals $500 billion, and the government collects 20% of GDP in taxes. If government purchases increase by $10
=+b. If the government needed to close a recessionary or inflationary gap, at which group should it primarily aim its fiscal policy of changes in government purchases of goods
=+what is the value of the multiplier—that is, what is the “bang for the buck” from each dollar the government spends on government purchases of goods and services in each income group?
=+‘a, Suppose the government engages in increased purchases of goods and services. For each of the income groups in the table,
=+37. The accompanying table shows how consumers’ marginal propensities to consume ina particular economy are related to their level of income.Income range $0-$20,000$20,001-$40,000$40,001-$60,000
=+Why is it important for a government to keep this number under control?
=+e. Why is the debt-GDP ratio the preferred measure of a country’s debt rather than the dollar value of the debt?
=+to remain unchanged when the deficit in 2017 is $600 billion?
=+d. At what rate would nominal GDP have to grow in order for the debt—GDP ratio
=+ c.Calculate the total increase in national debt if the government incurs a deficit of $600 billion in 2017.
=+approximately equal to 106.1% of GDP. At the time, according to the U.S. Treasury, the average interest rate paid by the government on its debt was 1.3%. However, running budget deficits becomes
=+16. Unlike households, governments are often able to sustain large debts. For example, in 2016, the U.S. government’s total debt reached $19.5 trillion,
=+e. The Affordable Care Act (ACA), which went into effect in 2014, created incentives for hospitals to find ways to save the government money.
=+d. Because the cost of health care is increasing faster than the overall inflation rate, annual increases in Social Security benefits are increased by the annual increase in health care costs
=+c. Social Security benefits for future retirees are limited to those with low incomes.
=+b. The age at which retired persons can receive full Social Security benefits is raised to age 70 for future retirees.
=+Modernization Act, which provides seniors and individuals with disabilities with a prescription drug benefit. Some of the benefits under this law took effect immediately, but others will not begin
=+a. In 2003, Congress passed and President Bush signed the Medicare
=+15. How did or would the following affect the current public debt and implicit liabilities of the U.S. government?
=+d. The government's debt is relatively high and the government is running a budget deficit to finance new infrastructure spending.
=+c. The government's debt is relatively low, but the government is running a budget deficit to finance the interest payments on the debt.
=+b. The government’ debt is relatively high due to a recently ended deficit- financed war, but the government is now running only a small budget deficit.
=+a. The government’s debt is relatively low, but the government is running a large budget deficit as it builds a high-speed rail system to connect the major cities of the nation.
=+14. In which of the following cases does the size of the government’s debt and the size of the budget deficit indicate potential problems for the economy?
=+c. Using the six countries as a reference point, what conclusions can you draw about the relationship between government debt and economic growth?
=+b. Calculate the percentage change in government debt from 2007 through 2015 for the same six countries. Which country experienced the largest percentage increase in government debt from 2007
=+a. Which of these six countries—United States, France, Italy, Greece, Germany, and United Kingdom—had the largest amount of government debt as a percent of GDP as of 2015? Which had the
=+13. LF recess the Discovering Data exercise for Chapter 28 online to answer these questions.
=+your study partner correct and in what ways is he incorrect?
=+deficit and debt is similar to the distinction between consumer savings and wealth. He also argues that if you have large budget deficits, you must have a large debt. In what ways is
=+for the economy over time under the three different scenarios? 12. Your study partner argues that the distinction between the government’s budget
=+per year over the next 10 years.d. What happens to the debt-GDP ratio and the ratio of the budget deficit to GDP
=+c. Redo the table again to show the debt—GDP ratio and the ratio of the budget deficit to GDP for the economy if the government's budget deficit grows by 20%
=+remains constant at $30 billion over the next 10 years. (Remember that the government's debt will grow by the previous year’s deficit.)
=+a. Complete the accompanying table to show the debt-GDP ratio and the ratio of the budget deficit to GDP for the economy if the government’s budget deficit
=+lic debt is $300 billion at the beginning of the year, and the deficit is $30 Budget deficit (percen tofreal GDP)
=+Debt (p ercent ofreal GDP)
=+per year and is expected to grow by 3% per year, thePl billion in 2016.RealG DP (bill ions of dollar Year s)2016 | $1,000 2017 | 1,030 2018 | 1,061 2019 | 1,093 2020 | 1,126 2021 | 1,159 2022 |
=+11. In 2016, the policy makers of the economy of Eastlandia projected the debt-GDP ratio and the ratio of the budget deficit to GDP for the economy for the next 10 years under different scenarios
=+years from 1990 to 2016 the government used expansionary fiscal policy and in which years it used contractionary fiscal policy.
=+policy. Can you determine which policy maker is correct? If not, why not? 9. Figure 28-10 shows the actual budget deficit and the cyclically adjusted budget deficit as a percentage of GDP in the
=+that a rising budget surplus indicates a growing economy; the other argues that it shows that the government is using contractionary fiscal
=+8. The government’s budget surplus in Macroland has risen consistently over the past five years. Two government policy makers disagree as to why this has happened. One argues
=+b. Real GDP equals $250 billion, potential output equals $200 billion, and the marginal propensity to consume is 0.5.c. Real GDP equals $180 billion, potential output equals $100 billion, and the
=+6. In each of the following cases, either a recessionary or inflationary gap exists. ‘Assume that the aggregate supply curve is horizontal, so that the change in real GDP arising from a shift of
=+7 AC=? ? ? ? ?8 AC=? ? ? ? ?9 AC=? ? ? ? ?10 AC=? 2 2 Al 2 2
=+Decrease in G= -$10 billion (billions | Decrease in TR = -$10 billion (billion of dollars) sof dollars)in | Change inr Change in in | Change inr Changein Rounds Gorc eal GDP TRorC eal GDP AG= -S10.
=+What explains the difference? (Hint: The multiplier for government purchases of goods and services is 1/(1 - MPC). But since each $1 change in government transfers only leads to an initial change
=+c. Using the formula for the multiplier for changes in government purchases and for changes in transfers, calculate the total change in real GDP due to the $10 billion decrease in government
=+ what is the sum of the changes in real GDP after the 10 rounds?
=+b. When the government reduces transfers by $10 billion,
=+2. However, on the right side of the table, the $10 billion reduction in transfers has no effect on real GDP in round 1 but does lower YDby $10 billion, resulting in a decrease in consumer spending
=+filled in for you: on the left side of the table, in the first row, the $10 billion reduction in government purchases decreases real GDP and disposable income, YD, by $10 billion, leading to a
=+will have a larger effect on real GDP than a $10 billion reduction in government transfers by completing the accompanying table for an economy with a marginal propensity to consume (MPC) of 0.6.
=+5. Show why a $10 billion reduction in government purchases of goods and services
=+b. What would be the appropriate fiscal policy response to this situation if the primary concern of the government was to maintain price stability?
=+Illustrate the effect of the policy on the equilibrium point and the aggregate price level using the diagram.
=+primary concern of the government was to maintain economic growth?
=+a. What would be the appropriate fiscal policy response to this situation if the
=+fiscal policy.‘Aggregate 4 tras ice SRAS, sus, Ao % % Real GOP uo Recessionay gop Kragman/Wel, Macroeconomics Se, ©2018 Wort Publishers
=+ Such a situation can be depicted by the movement of the short-run aggregate supply curve from its original position, SRAS;, to its new position, SRAS,, with the new equilibrium point & in the
=+4. During a 2008 interview, then German Finance Minister Peer Steinbrueck said, “We have to watch out that in Europe and beyond, nothing like a combination of downward economic [growth] and high
=+c. Anticipating the possibility of war, the government increases its purchases of military equipment.
=+b. Firms come to believe that a recession in the near future is likely.
=+a. Astock market boom increases the value of stocks held by households.
=+3. An economy is in long-run macroeconomic equilibrium when each of the following aggregate demand shocks occurs. What kind of gap—inflationary or recessionary—will the economy face after the
=+b. Which type of fiscal policy—expansionary or contractionary—would move the economy of Brittania to potential output, Yp?
=+Krugman/Wells, Macroeconomics, Se, (© 2018 Worth Publishers
=+2. The accompanying diagram shows the current macroeconomic situation for the economy of Brittania; real GDP is ¥;, and the aggregate price level is P;. You have been hired as an economic

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