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business
the macro economy
Questions and Answers of
The Macro Economy
Which investment has a higher rate of annual cash return? Investment A: $1,000 bond with a coupon rate of 4 percent selling for $1,200 or Investment B: $1,000 stock with a P/E ratio of 10 that pays
Illustrate with demand and supply shifts the impact of the following events on stock prices:(a) A federal court finds Google guilty of antitrust violations. Which way (right or left) did(i) Demand
How much interest accrued each day on the immediate cash payoff of the MegaMillions jackpot? (See Table 18.1.)
What is the current yield on a $1,000 bond with a 4 percent coupon if its market price is(a) $900?(b) $1,000?(c) $1,100?
Compute the market price of the GM bonds described in Table 18.5 if the yield falls to 20 percent.
What was the expected return on Columbus’s expedition, assuming that he had a 50 percent chance of discovering valuables worth $1 million, a 25 percent chance of bringing home only$100,000, and a
What is the present discounted value of $10,000 that is to be received in 2 years if the market rate of interest is(a) 0 percent?(b) 4 percent?(c) 8 percent?
If the market rate of interest is 5 percent, what is the present discounted value of $1,000 that will be paid in(a) 1 year?(b) 5 years?(c) 10 years?
According to the data in Table 18.3,(a) How much profit per share did Intel earn?(b) How much of that profit did it pay out in dividends?
According to the data in Table 18.3,(a) How much profit per share did Google earn?(b) How much of that profit did it pay out in dividends?
If a $24 per share stock has a P/E ratio of 16 and pays out 40 percent of its profits in dividends,(a) How much profit is it earning per share?(b) How large is its dividend?(c) What is the implied
If an $60 stock pays a quarterly dividend of $1, what is the implied annual rate of return?
Why do people say “a dollar today is worth more than a dollar tomorrow”? LO18-1
Could Facebook have become a premier social networking site without venture capitalists? How? LO18-2
What is the price of Snap Inc.’s (NYSE: SNAP) stock today? How much has it risen or fallen from its trading price on the first day of public trading (In the News“Snapchat IPO Nets $3 Billion”)?
How does a successful IPO affect WHAT, HOW, and FOR WHOM the economy produces? LO18-2
Why is it considered riskier to own stock in a software company than to hold U.S. Treasury savings bonds?Which asset will generate a higher return? LO18-4
If you could finance a new venture with either a stock issue or bonds, which option would you choose? What are their respective (dis)advantages? LO18-2
Why would anyone sell a bond for less than its face(par) value? LO18-3
Why would anyone buy shares of a corporation that had no profits and paid no dividends? What’s the highest price a person would pay for such a stock? LO18-3
If there were no organized financial markets, how would an entrepreneur acquire resources to develop and produce a new product? LO18-2
How risks and rewards are reflected in current values.
Key financial parameters for stocks and bonds.
The difference between stocks and bonds.
How present discounted values are computed.
The Economy Tomorrow: Identify if the following would likely strengthen or weaken a union membership in the United States.(a) Increase in manufacturing.(b) Faster growth of small companies.(c)
In the 2012 Machinists’-Caterpillar confrontation, the workers’ average pay was $26 per hour.If their demand for a 1.5% pay hike per year had been granted, what would their hourly wage have
In the Silicon Valley hiring-conspiracy case (In the News “Judge OKs $415 Million Settlement of ‘No Poaching’ Charges”), attorneys for the 64,000 plaintiffs asked for $3 billion in
The graphs show unionized and nonunionized labor markets.(a) Identify a likely wage and employment outcome when the market becomes unionized on the unionized labor market graph.(b) Show the impact of
Suppose the following supply and demand schedules apply in a particular labor market:Wage rate (per hour) $4 $5 $6 $7 $8 $9 $10 Quantity of labor supplied(workers per hour) 2 3 4 5 6 7 8 Quantity of
At the time of the National Football League strike in 1987, the football owners made available the following data:Total Team Revenues and Costs Source of Revenue Before the Strike During the Strike
Based on the data in Problems 1 and 2 above,(a) What is the competitive wage rate?(b) Approximately what wage will the union seek?(c) How many workers will the union have to exclude in order to get
Complete the following table:Wage rate $6 $7 $8 $9 $10 $11 $12 Quantity of labor supplied 80 120 155 180 200 210 215 Marginal factor cost
Complete the following table:Wage rate $14 $13 $12 $11 $10 $9 $8 $7 Quantity of labor demanded 0 5 20 50 75 95 110 120 Marginal wage(a) What is the marginal wage when the nominal wage is $11?(b) At
Why do pro basketball players want team owners to limit roster size to 40 players (In the News “NBA and Players Strike a Deal”)? Why would owners like larger rosters? LO17-1
Why did Walmart choose to close its store rather than hire 30 more workers (World View “Walmart Shutters Quebec Store as Union Closes In”)? LO17-2
Why did the NBA players avert a strike (In the News“NBA and Players Strike a Deal” and Collective Bargaining text) ? LO17-2
In 1998 teaching assistants at the University of California struck for higher wages and union recognition, something they had sought for 14 years. How might the availability of replacement workers
Why are farmworkers much less successful than airplane machinists in securing higher wages? LO17-2
Nonunionized firms tend to offer wage rates that are close to rates paid by unionized firms in the same industry. How do you explain this? LO17-3
Are large and powerful firms easier targets for union organization than small firms? Why or why not? LO17-1
Why do some college professors join a union? What are the advantages or disadvantages of campus unionization? LO17-1
Does a strike for a raise of 5 cents an hour make any sense? What kinds of long-term benefits might a union gain from such a strike? LO17-1
Collective bargaining sessions often start with unreasonable demands and categorical rejections. Why do unions and employers tend to begin bargaining from extreme positions? LO17-2
How unions affect nonunion wages.
The factors that affect collective bargaining outcomes.
How unions secure higher wages.
LO21-39. The Economy Tomorrow: Identify the four key paths identified by De Soto to improve business climate in less developed countries.
LO21-38. Foreign aid to poor nations amounted to $20 per year per person. What percentage did this aid cover of(a) The extreme poverty annual budget?(b) The severe poverty annual budget?
LO21-37. According to World View “The Way We Give,”(a) How much money is spent annually to combat baldness?(b) How much medical care would that money buy for each child who dies from malaria each
LO21-36. According to Table 21.3, how many years will it take for per capita GDP to double in(a) China?(b) Libya?(c) Zimbabwe?
LO21-35. If the 24 industrialized nations were to satisfy the UN’s Millennium Aid Goal, how much more foreign aid would they give annually? (See Table 21.2.)
LO21-34.(a) How much foreign aid did the United States provide in 2014?(See Table 21.2.)(b) How much more is required to satisfy the UN’s Millennium Aid Goal if U.S. GDP was $16.8 trillion?
LO21-23. In Namibia,(a) What percentage of total output is received by the richest 10 percent of households? (See World View “Glaring Inequalities.”)(b) How much output did this share amount to
LO21-22. There are 2 billion people in “severe” poverty with less than $3.10 of income per day.(a) What is the maximum combined income of this “severely”poor population?(b) What percentage of
LO21-11. The World Bank’s threshold for “extreme” poverty is $1.90 per person per day.(a) How much annual income does this imply for a family of four?(b) What portion of the official U.S.
13. What market failure does Bill Gates (World View “The Way We Give”) cite as the motivation for global philanthropy?
12. If economic growth reduced poverty but widened inequalities, would it still be desirable? LO21-3
11. How do nations expect nationalization of basic industries to foster economic growth?
10. Why do economists put so much emphasis on entrepreneurship?How can poor nations encourage it? LO21-3
9. Would you invest in Cambodia or Kenya on the basis of the information in Figure 21.5 ? LO21-3
8. Can poor nations develop without substantial increases in agricultural productivity? (See Figure 21.2 .) How? LO21-3
7. How does microfinance alter prospects for economic growth? The distribution of political power? LO21-3
6. How do unequal rights for women affect economic growth? LO21-3
5. Are property rights a prerequisite for economic growth?Explain. LO21-3
4. How do more children per family either restrain or expand incomeearning potential? LO21-3
3. If a poor nation must choose between building an airport, some schools, or a steel plant, which one should it choose? Why? LO21-3
2. If you had only $17 to spend per day (the U.S. poverty threshold), how would you spend it? What if you had only $1.90 a day (the World Bank “extreme poverty” threshold)? LO21-1
1. Why should Americans care about extreme poverty in Haiti, Ethiopia, or Bangladesh? LO21-2
LO20-313. The Economy Tomorrow: Show graphically the impact on the South Korean currency (won) when the Thai baht was devalued.
LO20-312. As shown in Table 20.1, in 2016 the United States was running a current account deficit. Would the following events increase or decrease the current account deficit?(a) U.S. companies, the
LO20-311. The following schedules summarize the supply and demand for trifflings, the national currency of Tricoli:Use these schedules for the following:(a) Graph the supply and demand curves.(b)
LO20-19. According to World View “Foreign Exchange Rates,” what was the peso price of a euro in March 2017?
LO20-18. If inflation raises U.S. prices by 2 percent and the U.S. dollar appreciates by 5 percent, by how much does the foreign price of U.S. exports change?
LO20-17. Between 1990 and 2000, by how much did the dollar appreciate(Figure 20.3)?
LO20-16. If a PlayStation 4 costs 30,000 yen in Japan, how much will it cost in U.S. dollars if the exchange rate is(a) 110 yen = $1?(b) 1 yen = $0.009?(c) 100 yen = $1?
LO20-15. Between 2014 and 2017, did the U.S. dollar appreciate or depreciate (see Figure 20.3)?
LO20-14. If a McDonald’s Big Mac meal sold for $6.00 in March 2017, how much would it cost in the currencies of(a) Brazil?(b) Japan?(c) Indonesia?(See World View “Foreign Exchange Rates.”)
LO20-33. How many Ukrainian hryvnia (see section Ukraine Crisis of 2014) could you buy with one U.S. dollar(a) Before the Russian invasion?(b) After the Russian invasion?
LO20-12. If a euro is worth $1.25, what is the euro price of a dollar?
LO20-11. According to World View “Foreign Exchange Rates,”which nation had(a) The cheapest currency?(b) The most expensive currency?
10. Why does World View “The Risks of China’s Foreign-Exchange Stockpile” say the undervalued yuan is “more bane than boom”?
9. Who in Mexico is helped or hurt by a strong U.S. dollar? Redo World View “Who Gains, Who Loses from Strong Dollar” for Mexicans.LO20-4
8. How would each of these events affect the supply or demand for Japanese yen? LO20-3a) Stronger U.S. economic growth.b) A decline in Japanese interest rates.c) Higher inflation in the United
7. If a nation’s currency depreciates, are the reduced export prices that result“unfair”? LO20-4
6. Why did the value of the Ukrainian hryvnia depreciate so much when Russia invaded (see section Ukraine Crisis of 2014)? LO20-3
5. In what sense do fixed exchange rates permit a country to “export its inflation”? LO20-4
4. Under what conditions would a country welcome a balance-of-payments deficit? When would it not want a deficit? LO20-4
3. How would rapid inflation in Canada affect U.S. tourism travel to Canada? Does it make any difference whether the exchange rate between Canadian and U.S. dollars is fixed or flexible? LO20-3
2. How do changes in the value of the U.S. dollar affect foreign enrollments at U.S. colleges? LO20-4
1. Why would a rise in the value of the dollar prompt U.S. manufacturers to build production plants in Mexico? LO20-4
LO19-39. The Economy Tomorrow:(a) Which regional trade pact is among Canada, the United States, and Mexico?(b) Which industries have gained from this trade pact?(c) Which industries have lost from
LO19-38. Suppose the following table reflects the domestic supply and demand for Bluetooth headphones:(a) Graph these market conditions and identify (i) The equilibrium price.(ii) The equilibrium
LO19-27. Suppose the two islands in Problem 4 agree that the terms of trade will be one for one and exchange 10 pearls for 10 pineapples.(a) If Alpha produced 6 pearls and 15 pineapples while Beta
LO19-36.(a) How much was the tariff on Chinese steel imposed in 2016(World View “U.S. Slaps China with Huge Anti-Dumping Tariffs”)?(b) If China was selling its steel for $50 a ton, what would
LO19-35.(a) How much more are U.S. consumers paying for the 12 tons of sugar they consume each year as a result of the quotas on sugar imports? (See In the News “Sugar Quotas a Sour Deal”).(b)
LO19-24. Alpha and Beta, two tiny islands in the Pacific, produce pearls and pineapples. The following production possibilities schedules describe their potential output in tons per year:(a) Graph
LO19-13. If it takes 10 farmworkers to harvest 1 ton of strawberries and 3 farmworkers to harvest 1 ton of wheat, what is the opportunity cost of 4 tons of strawberries?
LO19-12. Suppose a country can produce a maximum of 12,000 jumbo airliners or 2,000 aircraft carriers.(a) What is the opportunity cost of an aircraft carrier?(b) If another country offers to trade
LO19-21. Which countries are(a) The two largest export markets for the United States? (See Table 19.3.)(b) The two biggest sources of imports?
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