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business
the macro economy

Questions and Answers of The Macro Economy

10. What are the potential benefits and risks of a border-adjustment tax?
9. Who gains and who loses from nontariff barriers to Mexican trucks(World View “Mexico Retaliates for U.S. Trucking Roadblocks”)? What made President Obama offer renewed negotiations? LO19-3
8. According to the National Association of Home Builders, the 2017 tariff on Canadian lumber will result in the loss of 8,000 U.S. construction jobs. How does this happen? LO19-3
7. Who, besides Chinese steel producers, was hurt by the new tariffs on Chinese imports (World View “U.S. Slaps China with Huge Anti-Dumping Tariffs”)? LO19-3
6. Domestic producers often base their demands for import protection on the fact that workers in country X are paid substandard wages. Is this a valid argument for protection? LO19-1
5. Suppose we refused to sell goods to any country that reduced or halted its exports to us. Who would benefit and who would lose from such retaliation? LO19-2
4. How does international trade restrain the price behavior of domestic firms? LO19-3
3. If a nation exported much of its output but imported little, would it be better or worse off? How about the reverse—that is, exporting little but importing a lot? LO19-2
2. What would be the effects of a law requiring bilateral trade balances?LO19-2
1. Suppose a lawyer can type faster than any secretary. Should the lawyer do her own typing? Can you demonstrate the validity of your answer?LO19-1
LO18-29. The Economy Tomorrow: Match the statement with the school of economic thought: Statement Money supply should be grown at a steady pace. Fine-tuning does not work because the private sector
LO18-28. According to In the News “CBO’s Flawed Forecasts,”what is the implied value of the multiplier for(a) Increased unemployment benefits?(b) Infrastructure spending?
LO18-27. Complete the following chart by summarizing the policy prescriptions of various economic theories: Policy Prescription for Policy Approach Recession Inflation Fiscal Classical Keynesian
LO18-36. The following table displays Congressional Budget Office forecasts of federal budget balances for the following fiscal year.Compare these forecasts with actual surplus and deficits for those
LO18-35. The CBO said that it was 66.7 percent confident that the GDP growth rate for 2016-2020 would be between 0.7 and 3.2 percent(In the News “CBO’s Flawed Forcasts”). In a $20 trillion
LO18-14. If infrastructure spending increases by $100 billion and taxes are raised by the same amount, by how much will aggregate demand change if the MPC is .80?Page 401
LO18-13. According to World View “Comparative Macro Performance”(a) Which country had the greatest macro misery in the 2000s?(Compute the “misery index” from Chapter 16.)(b) Which country had
LO18-12. In 2011 the unemployment rate was 8.9 percent, far above the full-employment threshold (5 percent).(a) How many jobs were lost, as a result, in a labor force of 140 million?(b) If the
LO18-31. If the Congressional Budget Office makes its average error this year, by how much will it underestimate next year’s budget deficit? (See In the News “CBO’s Flawed Forcasts”)(Note:
10. What is the “magic wand” referred to in this chapter’s opening quotation? LO18-2
9. What are the pros and cons of tax cuts or increased government spending as stimulative tools? LO18-3
8. Suppose the economy is slumping into recession and needs a fiscal policy boost. Voters, however, are opposed to larger federal deficits.What should policymakers do? LO18-2
7. Suppose the government proposes to cut taxes while maintaining the current level of government expenditures. To finance this deficit, it may either (i) sell bonds to the public or (ii) ask the Fed
6. Why did both consumer confidence and the stock market increase significantly after Donald Trump was elected but before he even took office? How did this phenomenon alter economic forecasts? LO18-3
5. Should military spending be subject to macroeconomic constraints?What programs should be expanded or contracted to bring about needed changes in the budget? LO18-2
4. Suppose it’s an election year and aggregate demand is growing so fast that it threatens to accelerate inflation. Why might Congress and the president hesitate to cut government spending or raise
3. If policymakers had instant data on the economy’s performance, should they respond immediately? Why or why not? LO18-3
2. Why did Fed Chairman Bernanke expect there would be no recession in 2008 (see In the News “Fed Chief Sees No Recession”)? Why was he wrong? LO18-3
1. What policies would Keynesians, monetarists, and supply-siders advocate for (a) restraining inflation and (b) reducing unemployment?LO18-1
LO17-212. The Economy Tomorrow: Suppose a country’s GDP is 10 billion and the population is 2 million this year.(a) Calculate GDP per capita for this year.(b) Calculate GDP per capita for next year
LO17-111. Using Data Tables, calculate nominal GDP per capita for 2007–2016.
LO17-110. Using Data Tables, graph the real GDP growth rates for 2007–2016.
LO17-39. Suppose that every additional four percentage points in the investment rate (I ÷ GDP) boost economic growth by one percentage point. Assume also that all investment must be financed with
LO17-18. The real (inflation-adjusted) value of U.S.manufacturing output and related manufacturing employment was(a) How many manufacturing jobs were lost between 2000 and 2016?(b) How much did
LO17-17. If output per worker is now $122,000 per year, how much will the average worker produce next year if productivity improves by(a) 2.0 percent per year?(b) 3.0 percent per year?
LO17-16. In 2016, 59.7 percent of the adult population (253 million) was employed. If the employment rate increased to 62 percent,(a) How many more people would be working?(b) By how much would
LO17-15. If the labor force increases by 1.1 percent each year and productivity increases by 2.8 percent, how fast will output grow?
LO17-34. According to Figure 17.3 , in how many years since 1990 has GDP grown(a) Faster than the population (1.1 percent growth)?(b) Slower than the population?
LO17-13. How much more output will the average American(U.S. population = 330 million) have a year from now if the $20 trillion GDP grows by(a) 0 percent?(b) 1 percent?(c) 3 percent?
LO17-12. According to the Rule of 72 (Table 17.1) and recent growth rates (World View “High Investment = Fast Growth”) how long will it be before GDP doubles in(a) The United States?(b) India?(c)
LO17-11. According to the Rule of 72 (Table 17.1), how many years will it take for GDP to double if the economy is growing at(a) 1 percent a year?(b) 3 percent a year?
10. Why do economists worry about how pro-growth spending is financed (In the News “Paying for Trump’s Infrastructure Spending”)? LO17-2
9. Why do some nations grow and prosper while others stagnate?LO17-1
8. Is limitless growth really possible? What forces do you think will be most important in slowing or halting economic growth?LO17-3
7. Fertility rates in the United States have dropped so low that we’re approaching zero population growth, a condition that France has maintained for decades. How will this affect our economic
6. In 1866 Stanley Jevons predicted that economic growth would come to a halt when England ran out of coal, a doomsday that he reckoned would occur in the mid-1970s. How did we avert that projection?
5. Should fiscal policy encourage more consumption or more saving? Does it matter? LO17-2
4. How might economic growth be impeded by (a) high levels of national debt and/or (b) fiscal restraint designed to reduce that national debt? LO17-2
3. Why don’t we consume all our current output instead of sacrificing some present consumption for investment? LO17-1
2. How did output per U.S. worker increase so much in 2007–2011(World View “U.S. Workers Compete Well”)? How could German productivity decline? LO17-1
1. In what specific ways (if any) does a college education increase a worker’s productivity? LO17-1
LO16-112. The Economy Tomorrow: The Economy Tomorrow section provides estimates of time spent in traffic delays. If the average worker produces $110 of output per hour, what is the opportunity cost
LO16-410. If the tax elasticity of supply is 0.27, by how much do tax rates have to be reduced to increase the labor supply by 2 percent?
LO16-49. If the tax elasticity of labor supply is 0.20, by what percentage will the quantity of labor supplied increase in response to(a) A $500 per person income tax rebate?(b) A 6 percent reduction
LO16-28. On the following graph, plot the unemployment and inflation rates for the years 2005–2015 using Data Tables at the end of the book. Is there any evidence of a Phillips curve trade-off?
LO16-37. Illustrate the effect of a business tax cut on aggregate supply using the model of the macroeconomy. What happened to the(a) Equilibrium rate of output? (c) Unemployment?(b) Equilibrium
LO16-26. According to Figure 16.6 , what inflation rate would occur if the unemployment rate rose to 6 percent, with (a) PC1? (b) PC2?
LO16-45. By how much did the disposable income of rich people decrease as a result of the 2012 hike in the top marginal tax rate from 35 to 39.6 percent? Assume they have $2 trillion of gross income
LO16-34. Suppose households supply 600 billion hours of labor per year and have a tax elasticity of supply of 0.15. If the tax rate is increased by 10 percent, by how many hours will the supply of
LO16-43. Suppose taxpayers are required to pay a base tax of$50 plus 30 percent on any income greater than $100, as in the initial tax system B in Table 16.1. Suppose further that the taxing
LO16-12. Which AS curve (a,b, orc) in Figure 16.1 causes the least unemployment when fiscal or monetary restraint is pursued?
LO16-11. On the following graph, draw the (A)Keynesian, (B) monetarist, and (C) hybrid AS curves, all intersecting AD at point E. If AD shifts rightward, which AS curve (A, B, or C) generates(a) The
11. Why would anyone object to President Trump’s increased infrastructure spending? LO16-2
10. How might the inflationary flashpoint affect policy decisions?How would you represent the flashpoint on the Phillips curve?LO16-2
9. How would the volume and timing of capital investments be affected by (a) a permanent cut in the capital gains tax and (b)a temporary 10 percent tax credit? LO16-4
8. How does each of the following infrastructure items affect aggregate supply: (a) highways, (b) schools, (c) sewage systems, and (d) courts and prisons? LO16-4
7. Ride-sharing services like Uber and Lyft offer cheaper transportation than traditional taxicabs, which are regulated by local governments. How do these services affect the AS curve? Should they be
6. If the government requires power companies to use “clean”energy sources rather than “dirty” ones, how would aggregate supply be affected? LO16-4
5. How is the aggregate supply curve affected by (a) minimum wage laws, (b) Social Security payroll taxes, (c) Social Security retirement benefits, and (d) tighter border security?LO16-4
4. Which of the following groups are likely to have the highest tax elasticity of labor supply: (a) college students, (b) single parents, (c) primary earners in two-parent families, and (d)secondary
3. Why did President Obama raise the top marginal tax rate to 39.6 percent if higher tax rates reduce aggregate supply? LO16-4
2. How did the 2011 tsunami affect Japan’s potential output(World View “Japan Sees Quake Damage Bill of Up to $309 Billion, Almost Four Katrinas”)? LO16-3
LO15-412. The Economy Tomorrow: Match the statement with either a Monetarist or Keynesian perspective.(a) The interest rate should be targeted, not the money supply.(b) A slowdown in spending implies
LO15-311. According to Figure 15.6 , the velocity of money declined from 1.90 in 2008 to 1.50 in 2015. By what percent would M have to increase in order to offset fully this decline in V?
LO15-310. Use the accompanying graphs to show what happens in the economy when M increases from $300 billion to $400 billion.(a) Show the change in M on the first graph.(b) Identify the change in
LO15-39. The following data describe market conditions:(a) At what rate of interest does the liquidity trap emerge?(b) At what rate of interest does investment demand become totally inelastic?
LO15-28. Suppose the Fed decided to purchase $100 billion worth of government securities in the open market. What impact would this action have on the economy?Specifically, answer the following
LO15-17. If the nominal rate of interest is 5 percent and the real rate of interest is 3 percent, what rate of inflation is anticipated?
LO15-46. Suppose that an economy is characterized by M = $12 trillion V = 1.8 P = 1.0(a) What is the real value of output (Q)?Now assume that the Fed increases the money supply by 10 percent and
LO15-25. How much would the Fed have had to reduce longterm interest rates to get the same stimulus as President Trump’s planned $300 billion fiscal stimulus?
LO15-24. Illustrate the effects on investment of(a) An interest rate cut (point A).(b) An interest rate cut accompanied by decreased sales expectations (point B).
LO15-23. According to Bernanke’s policy guide, what is the fiscal policy equivalent of a 0.5 percent cut in long-term interest rates?
LO15-22. Suppose home owners owe $8 trillion in mortgage loans.(a) If the mortgage interest rate is 5 percent, approximately how much are home owners paying in annual mortgage interest?(b) If the
LO15-11. In Table 15.1, what is the implied price of holding money in a checking account rather than investing in Treasury bonds?
11. What should the Fed do when prices are rising at a 3.5 percent rate and unemployment is at 7 percent?
10. If mortgage rates fell to 0 percent (“free money”), why might consumers still hesitate to borrow money to buy a home? LO15-3
9. When banks are reluctant to use their lending capacity as in 2012 what do they do with their increased reserves? LO15-3
8. Why did the stock market “surge” when the Fed announced it intended to buy $1.2 trillion of bonds (see In the News “Fed to Expand Bond-Purchase Program”)? LO15-2
7. Could long-term interest rates rise when short-term rates are falling?What would cause such a pattern? LO15-3
6. When prices started doubling (see In the News “‘Not Worth a Continental’: The U.S. Experience with Hyperinflation”), why didn’t the Continental Congress print even more money so
5. Can there be any inflation without an increase in the money supply?How? LO15-4
4. If the Federal Reserve banks mailed everyone a brand-new $100 bill, what would happen to prices, output, and income? Illustrate your answer by using the equation of exchange. LO15-2
3. Why do high interest rates so adversely affect the demand for housing and yet have so little influence on the demand for pizzas? LO15-2
2. How would people “adjust their portfolios” in Figure 15.1 ? LO15-1
1. What proportions of your money balance are held for transactions, precautionary, and speculative purposes? Can you think of any other purposes for holding money? LO15-1
12. LO12-2The Economy Tomorrow: Suppose a person who is developing an app crowdfunds $40,000 and holds this as cash for future expenses.If this $40,000 comes from donors checking accounts, by how
11. LO14-3Suppose a banking system with the following balance sheet has no excess reserves. Assume that banks will make loans in the full amount of any excess reserves that they acquire.(a) What is
10. LO14-3What was the Fed’s target for the fed funds rate in December 2016 (In the News “U.S. Fed Reserve Cuts Interest Rates to Historic Low”)?
9. LO14-3Suppose Page 311 a $1,000 bond pays $40 per year in interest.(a) What is the contractual interest rate (“coupon rate”) on the bond?(b) If market interest rates rise to 5 percent, what
8. LO14-3According to In the News “Treasury Prices Fall with Improved Expectations,” what would the yield be on the Treasury bond if the market price of the bonds were:(a) $1,000?(b) $800?(c)

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