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business
the macro economy

Questions and Answers of The Macro Economy

What would have happened to iPad prices and features if Apple had not faced competition from iPad clones(Chapter 23)? LO10-2
How does individualized price discrimination by car dealers affect their total revenue and profits? LO10-1
Why don’t monopolists try to establish “the highest price possible,” as many people allege? What would happen to sales? To profits? LO10-1
According to the Federal Trade Commission (In the News “US FTC Enables Boeing–Lockheed ‘Monopoly’ ”), how often do monopolies lead to higher prices?Why, then, did the rocket merger get
The objective in the game of Monopoly is to get all the property and then raise the rents. Can this power be explained with market supply and demand curves? LO10-1
The pros and cons of monopoly
How monopoly and competitive outcomes differ.
How a monopolist sets price and output.
The Economy Tomorrow: Suppose the competitive tablet market is in the long run equilibrium.If at this equilibrium, the typical firm produces 10,000 per month, total costs for this production is
Suppose that the monthly market demand schedule for Frisbees is Price $8 $7 $6 $5 $4 $3 $2 $1 Quantity demanded 1,000 2,000 4,000 8,000 16,000 32,000 64,000 128,000 Suppose further that the marginal
If a competitive firm has fixed costs of $10,000 per month and a minimum average variable cost of $28, at what price will it shutdown?
Suppose the typical catfish farmer was incurring an economic loss at the prevailing price p1.(a) Illustrate these losses on the market and firm graphs. Include the supply and demand curves on the
Suppose the following data describe the demand for fruit smoothies:Price $11 $10 $9 $8 $7 $6 $5 $4 $3 $2 Quantity demanded 7 10 13 16 19 22 25 28 31 34 Five identical, perfectly competitive firms are
Suppose the following data summarize the costs of a perfectly competitive firm:Quantity 0 1 2 3 4 5 6 7 8 Total cost $100 101 103 106 110 115 121 128 136(a) Draw the firm’s MC curve on graph
According to Figure 9.3b, if the market price for computers is $800,(a) What is the profit-maximizing quantity?(b) Calculate the profits (or losses) for this typical firm.(c) At this market price,
According to Table 9.1,(a) What were the fixed costs of production for the firm?(b) At what rate of output was profit per computer maximized? (Choose the highest output level.)(c) At what output rate
According to World View “Competition Shrink India’s Phone Bills,” between 2000 and 2011 in India,(a) By what percentage did the price of a phone minute decline after competition emerged?(b) By
What happens to the factors of production that exit an industry? LO9-4
Identify two products that have either (a) fallen sharply in price or (b) gotten significantly better without price increases. How did these changes come about? LO9-4
Why don’t catfish farmers raise the price of their fish and create better profits? LO9-2
Is “long-run” equilibrium permanent? What forces might dislodge it? LO9-3
Can phone rates keep falling in India? What will cause them to rise? (See World View “Competition Shrinks India’s Phone Bills.”) LO9-4
As the price of computers fell, what happened to their quality? How is this possible? LO9-4
What does the “bleeding” highlighted in In the News“U.S. Catfish Industry Bleeding Finally Stops” refer to?What causes it? What cures it? LO9-3
Why do TV prices continue to fall so much? (See World View “Flat Panels, Thin Margins.”) LO9-2
What industries do you regard as being highly competitive? Can you identify any barriers to entry in those industries? LO9-1
Why wouldn’t producers necessarily want to produce output at the lowest average cost? Under what conditions would they end up doing so? LO9-1
Why would anyone want to enter a profitable industry knowing that profits would eventually be eliminated by competition? LO9-3
How society benefits from market competition.
Why long-run economic profits approach zero in competitive markets.
How prices are established in competitive markets.
The market characteristics of perfect competition.
10. Which of the following options do you favor for resolving future Social Security deficits? What are the advantages and disadvantages of each option? (a) cutting Social Security benefits, (b)
9. How long would it take to pay off the national debt?How would the economy be affected? L03
8. By how much did defense spending increase in 1940 to 1944? (See back endpapers of this book.) What was crowded out? L02
7. What should the government do with a budget surplus? LO 1
6. A constitutional amendment has been proposed that would require Congress to balance the budget each year. Is it possible to balance the budget each year? Is it desirable? LOl
5. If tax cuts crowd out government spending, is the economy worse off? (See News, page 232.) L02
4. If deficit spending "crowds out" some private investment, could future generations be worse off? If external financing eliminates crowding out, are future generations thereby protected? L02
3. What's considered "too much" debt or "too large" a deficit? Are you able to provide any guidelines for deficit or debt ceilings? L02
2. In what ways do future generations benefit from this generation's deficit spending? Cite three examples L03
1. Who paid for the Revolutionary War? Did the deficit financing initiated by the Continental Congress pass the cost of the war on to future generations? L03
Who will pay off the accumulated national debt?
What harm, if any, do deficits cause?
How do deficits arise?
10. When the Democrats took control of the Congress in 2007, they proposed more government spenduig^paid for with higher taxes on "the rich." What impact would those options have on macro
9. Why do critics charge that fiscal policy has a "biggovernment bias"? L0 2
8. How quickly should Congress act to remedy an AD excess or shortfall? What are the risks of quick fiscal policy responses? L02 , L0 3
7. According to the World View on page 218, what prompted South Korea's fiscal stimulus in 2001? Had the government not intervened, what might have happened? LO 1
6. How does the slope of the AS curve affect the size of the AD shortfall? If the AS curve were horizontal, how large would the AD shortfall be in Figure 11.3? LO 1
5. Will consumers always spend the same percentage of any tax cut? Why might they spend more or less than usual? L02
4. Why are the AD shortfall and AD excess larger than their respective GDP gaps? Are they ever the same size? LOl
3. What happens to aggregate demand when transfer payments and the taxes to pay them both rise? L03
2. Will an extra $20 billion per year spent on housing have the same impact on the economy as an extra $20 billion spent on interstate highways? Explain. L03
1. How can you tell if the economy is in equilibrium? How could you estimate the GDP gap? LO 1
What are the risks of government intervention?
What policy actions will help fight inflation?
Can government spending and tax policies help ensure full employment?
L03. How fiscal stimulus or restraint affects macro outcomes.
L02. The tools of fiscal policy.
L01. What the AD shortfall and AD excess measure.
10. Will the price level always rise when AD increases?Why or why not? L02
9. What might get the international multiplier effect(World View, page 202) moving in the right direction? L02
8. What might trigger an abrupt decline in consumer spending? L01,L0 3
7. What forces might turn an economic bust into an economic boom? What forces might put an end to the boom? L03
6. Why would Asian economies stall when the U.S. economy slumps (World View, page 202)? How could the Asian economies self-adjust? Is that likely? L03
5. How might the airline industry job losses described in the News feature on page 200 affect incomes in the clothing and travel industries? L02
4. How can equilibrium output exceed full-employment output (as in Figure 10.9)? L03
3. When unwanted inventories pile up in retail stores, how is production affected? What are the steps in this process? L03
2. Why wouldn't investment and saving flows at full employment always be equal? LO 1
1. How might declining prices affect a firm's decision to borrow and invest? L03
L03. How recessionary and inflationary GDP gaps arise.
L02. What the multiplier is and how it works.
L01. The source of circular flow leakages and injections.
10. How might a "perfect" macro equilibrium (Figure 9.10a) be affected by (a) a stock market crash, (b) the death of a president, (c) a recession in Canada, and (d) a spike in oil prices? LO3
9. If an inflationary GDP gap exists, what will happen to business inventories. How will producers respond? LO3
8. Why wouldn't market participants always want to buy all the output produced? LO3
7. What factors influence the level of (a) U.S. exports to Mexico and (b) U.S. imports from Mexico? LO2
6. For how long can the APC remain negative (as in News, page 175)? LO2
5. According to the News on page 178, why did businesses cut investment spending in October 2001? Was this a rational response? LO2
4. Why would a hurricane depress consumer confidence (see News, page 175)? LO2
3. How do households dissave? Where do they get the money to finance their extra consumption? Can every- one dissave at the same time? LO1
1. What percentage of last month's income did you spend? How much more would you spend if you won a $1,000 lottery prize? Why might your average and marginal propensities to consume differ? LO1 2.
Will there be enough demand to maintain full employment?
What determines the level of spending for each component?
What are the components of aggregate demand?
L03. How and when macro failure occurs.
L02. How and why AD shifts occur.
L01. The components of aggregate demand and their determinants.Aggregate Demand
10. How might a tax cut affect both AD and AS? LO3.
9. Why might rising prices stimulate short-run production but have no effect on long-run production? LO3
8. How would a sudden jump in U.S. prices affect (a) imports from Mexico, (b) exports to Mexico, and (c) U.S. aggregate demand? LO3
7. What might have caused real GDP to decline so dra- matically in (a) 1929 and (b) 1946 (see Figure 8.3)? What caused output to increase again in each case? LO3
6. What's wrong with the classical theory of self- adjustment? Why didn't sales and employment increase in 1929-33 in response to declining prices and wages (see Figure 8.1)? LO2
5. What exactly did Say mean when he said "supply cre- ates its own demand"? LO1
4. The stock market plunge following the September 11, 2001, terrorist attacks greatly reduced the wealth of the average U.S. household. How might this have affected aggregate demand? Aggregate
3. If equilibrium is compatible with both buyers' and sell- ers' intentions, how can it be undesirable? LO1
2. What events might prompt consumers to demand fewer goods at current prices? LO2
1. If business cycles were really inevitable, what purpose would macro policy serve? LO1
L03. How AD and AS affect market outcomes.

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