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survey of economics

Questions and Answers of Survey Of Economics

=+b. A sharp rise in the cost of business borrowing
=+a. An unexpected increase in consumer spending
=+1. For each event, explain whether planned investment spending or unplanned inventory investment will change and in what direction.
=+ Consumer spending Current di sposablei Angelina Felicia Marina neome So $8,000 | $6,500 | $7,250 10,000 | 12,000 | 14,500 | 14,250
=+$10,000.a. Derive each individual’s consumption function, where MPCis calculated for a $10,000 change in current disposable income.b. Derive the aggregate consumption function.
=+1. Suppose the economy consists of three people: Angelina, Felicia, and Marina. The table shows how their consumer spending varies as their current disposable income rises by
=+Which country is likely to have the larger multiplier? Explain.
=+ 3, As a percentage of GDP, savings accounts for a larger share of the economy in the country of Scania compared to the country of Amerigo.
=+What is it if MPCis 0.8?
=+2. What is the multiplier if the marginal propensity to consume is 0.5?
=+Why is investment spending considered a leading indicator of the future state of the economy?
=+How does the inventory adjustment process move the economy to anew equilibrium after a change in demand?
=+ why do we need to distinguish between planned investment spending and unplanned inventory investment?
=+What determines investment spending ?
=+ How do expected future income and aggregate wealth affect consumer spending?
=+ What is the aggregate consumption function?
=+What is the importance of the multiplier, which summarizes how initial changes in spending lead to further changes?
=+of investment spending. Assume the budget balance is zero.Interest s rate 4 éa(Q, Quantity of loanable funds
=+b. At any given interest rate, consumers decide to save more. Assume the budget balance is zero.c. At any given interest rate, businesses become very optimistic about the future profitability
=+a. The government reduces the size of its deficit to zero.
=+17. Use the market for loanable funds shown in the accompanying diagram to explain what happens to private savings, private investment spending, and the interest rate if each of the following
=+Work It Out Interactive step-by-step help with solving this problem can be found online.
=+What will be the effect on the availability of student loans?
=+ Why is it likely that investors now believe Sallie Mae bonds to be riskier than expected?
=+What effect will this have on Sallie Mae bonds?
=+c. Suppose that a very severe recession hits and, as a consequence, many graduating students cannot get jobs and default on their student loans.
=+b. What effect do you think Sallie Mae’s actions will have on the ability of students to get loans?
=+situations in which they could only buy and sell individual student loans?
=+What effect will it have on investors compared to
=+a. What is this process called?
=+into pools of loans and sells shares of these pools to investors as Sallie Mae bonds.
=+16. Sallie Mae is a quasi-governmental agency that packages individual student loans
=+d. The company unexpectedly announces that due to an accounting error, it must amend last year’s accounting statement and reduce last year’s reported profit by $5 million. It also announces
=+c. Achange in the tax law passed last year reduces this year’s profit.
=+. Several companies in the same sector announce surprisingly higher sales.
=+a. The interest rate on bonds falls.
=+ 15. Explain the effect on a company’s stock price today of each of the following events, other things held constant.
=+What are the primary assets of these intermediaries, and how do they facilitate investment spending and saving?
=+14. What are the important types of financial intermediaries in the U.S. economy? ‘
=+ Rawlings builds a new plant to make catcher’s mitts.e. Russia buys $100 million in U.S. government bonds. 3
=+c. Ronald Basketballstar spends $10 million to build a new mansion with a view of the Pacific Ocean. .
=+b. Rhonda Moviestar spends $10 million to buy a mansion built in the 1970s.
=+a. Rupert Moneybucks buys 100 shares of existing Coca-Cola stock.
=+12. For each of the following, is it an example of investment spending, investing in financial assets, or investing in physical assets?
=+ How does the pattern compare to that of the United States in Figure25-10?10-year euro bond fafation rte Interest rote Inflation rote ‘ /Det fom: Eur Stat
=+government bonds and inflation rate for the euro area for 1996 through 2016, as reported by the European Central Bank. How would you describe the relationship between the two?
=+11. The accompanying diagram shows data for the interest rate on 10-year euro area
=+quantity of loanable funds?Interest te St& Ae -Ds° a Quantity of loanable funds
=+inflation rate. How will the change in the expected future inflation rate affect the equilibrium
=+ 10. Using the accompanying diagram, explain what will happen to the market for loanable funds when there is a fall of 2 percentage points in the expected future
=+b. If the actual inflation rate is 7% over the next year, how does that affect Boris and Lynn?
=+a. If the inflation rate is actually 4% over the next year, how does that lowerthan-expected inflation rate affect Boris and Lynn? Who is better off?
=+Boris will repay the $10,000 with interest in one year. They agree to a nominal interest rate of 8%, reflecting a real interest rate of 3% on the loan anda commonly shared expected inflation rate
=+g. Boris Borrower and Lynn Lender agree that Lynn will lend Boris $10,000 and that
=+crowds out private investment spending?
=+7. Explain why equilibrium in the loanable funds market maximizes efficiency. 8. How would you respond to a friend who claims that the government should eliminate ali purchases that are financed by
=+c. How does the equilibrium interest rate change in response to government expenditure on the expanded pre-K programs? Explain.
=+b. Now draw a new diagram with the cost of the expanded pre-K programs included in the analysis. Shift the demand curve in the appropriate direction. Label the new equilibrium point (E,) and the
=+cost of the expanded pre-K programs accounted for. Label the vertical axis“Interest rate” and the horizontal axis “Quantity of loanable funds.” Label the equilibrium point (£,) and the
=+without affecting supply. This question considers the likely effect of this government expenditure on the interest rate.a. Draw typical demand (D,) and supply (S,) curves for loanable funds without
=+government was running a budget deficit at the time, assume that the new pre-K funding was financed by government borrowing, which increases the demand for loanable funds
=+6. Congress estimated that the cost of increasing support and expanding prekindergarten education and infant and toddler childcare would cost $28 billion in 2014. Since the U.S.
=+Krugman Wells, Macroeconomics, Se, © 2018 Worth Publishers,
=+change? Is there any crowding out in the market?Interest‘200 400~—600~—~aOD.—3,000 1,200, (Quantity of eanable funds (billions of dlls)
=+diagram shows the market for loanable funds before the government sells the bonds. Assume that there are no capital inflows or outflows. How will the equilibrium interest rate and the equilibrium
=+5. The government is running a budget balance of zero when it decides to increase education spending by $200 billion and finance the spending by selling bonds. The accompanying
=+4. Assume the economy is open to capital inflows and outflows and therefore net capital inflow equals imports (JM) minus exports (X). Calculate each of the following.a. X= $125 million IM= $80
=+Net capital inflo was a percentag 5 -2 eof GDP
=+Capsland and Marsalia running a budget deficit or surplus?Capsland Marsalia Investment spen ding as a percent 20% 20% age of GDP.Private savings a sa percentage of 10 25 GDP
=+Capsland is currently experiencing a positive net capital inflow and Marsalia, a negative net capital inflow. What is the budget balance (as. a percentage of GDP) in both countries? Are
=+3. The accompanying table shows the percentage of GDP accounted for by private savings, investment spending, and net capital inflow in the economies of Capsland and Marsalia.
=+There are no government transfers. [ Hint: Net capital inflow equals the value of imports (1M) minus the value of exports (X).]GDP = $1,000 million C= $850 million T= $50 million G= $100 million X=
=+2. Given the following information about the international economy of Regalia, what is the level of investment spending and private savings, and what are the budget balance and net capital inflow?
=+ What is the relationship among the three? Is national savings equal to investment spending? There are no government transfers.GDP = $1,000 million C= $850 mi‘ion T= $50 million G= $100 million
=+1. Given the following information about the closed economy of Brittania, what is the level of investment spending and private savings, and what is the budget balance?
=+3. What do you predict is the effect of Grameen Bank’s lending on a community?
=+What is the source of this inefficiency?
=+d. The company announces that it is on track to meet its previously forecast profit target.
=+c. Other companies in the same industry announce that sales are unexpectedly slow this year.
=+b. The company announces that although it had high profits this year, those profits will be less than had been previously announced.
=+a, The company announces that although profits are low this year, it has discovered a new line of business that will generate high profits next year.
=+1. What is the likely effect of each of the following events on the stock price of a company? Explain your answers.
=+Explain in terms of the country’s level of savings and level of investment spending.
=+2. What relationship would you expect to find between the level of development of a country’s financial system and its level of economic development?
=+c. Ashare of the family business, which can be sold only if you find a buyer and all other family members agree to the sale
=+b. A share of a highly diversified mutual fund, which can be quickly sold
=+a. A bank deposit with a guaranteed interest rate
=+1. Rank the following assets in terms of (i) level of transaction costs, (ii) level of risk, (iii) level of liquidity.
=+c. What will happen to the equilibrium quantity of loanable funds?
=+b. How will the nominal interest rate be affected by this change?
=+a, How will the real interest rate be affected by this change?
=+ 3. Suppose that expected inflation rises from 3% to 6%.
=+b. Retired people generally save less than working people at any interest rate. The proportion of retired people in the population goes up.
=+ why asset market fluctuations can be a source of macroeconomic instability?
=++ What are the competing views about how asset prices are determined ?
=++ How do financial intermediaries help investors achieve diversification?
=+ * What are the purposes of the four principal types of financial assets: loans, bonds, stocks, and bank deposits?
=+« How does the loanable funds market match savers with borrowers?
=+What is the relationship between savings and investment spending?
=+Assume that an increase in human capital doubles the output per worker when physical capital per worker equals $10,000. Drawa curve on the diagram that represents this policy for Albernia.

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