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business
the macro economy

Questions and Answers of The Macro Economy

7. LO14-2Assume the banking system contains the following amounts:(a) Are the banks currently fully utilizing their lending capacity?(b) What would happen to the money supply initially if the public
6. LO14-2By how much did the following increase when China cut the reserve requirement (see World View “China Cuts Reserve Requirements”):(a) Excess reserves?(b) The lending capacity of the
5. LO14-2According to World View “China Cuts Reserve Requirements,” what was the money multiplier in China(a) Before the rate cut?(b) After the rate cut?
(e) How much is the unused lending capacity?4. LO14-2In Problem 3, suppose the Fed wanted to stop further lending activity. To do this, what reserve requirement should the Fed impose?
3. LO14-2Assume that the following data describe the condition of the banking system:(a) How large is the money supply (M1)?(b) How large are required reserves?(c) How large are excess reserves?(d)
2. LO14-2In Table 14.1, what would the following values be if the required reserve ratio fell from 0.20 to 0.10?(a) Total deposits(b) Total reserves(c) Required reserves(d) Excess reserves(e) Money
1. LO14-1What is the money multiplier when the reserve requirement is(a) 0.05?(b) 0.10?(c) 0.125?(d) 0.111?
10. What are the advantages of crowdfunding over traditional bank lending? What are the disadvantages? LO14-2
9. If bondholders expect the Fed to raise interest rates, what action might they take? How would this affect the Fed’s goal? LO14-3
8. In 2008 the Fed reduced both the discount and federal fund rates dramatically. But bank loan volume didn’t increase. What considerations might have constrained the market’s response to Fed
7. In early 2009, short-term bond yields in the United States fell to less than 0.5 percent. Yet relatively few people moved their assets out of bonds into banks. How might this failure of open
6. Why did bond prices decline at the January 2017 auction? (See In the News “Treasury Prices Fall with Improved Expectations.”) LO14-3
5. Why did the Fed raise the federal funds rate in 2016–2017 (In the News “Fed Raises Key Interest Rate”)? What impact would those rate increases have on the economy? LO14-1
4. Why did China reduce reserve requirements in 2014? How did they expect consumers and businesses to respond? (See World View “China Cuts Reseve Requirements.”) LO14-2
3. What are the current price and yield of 10-year U.S. Treasury bonds?Of General Motors bonds? (Check the financial section of your daily newspaper.) What accounts for the difference? LO14-3
2. Why do people hold bonds rather than larger savings account or checking account balances? Under what circumstances might they change their portfolios, moving their funds out of bonds and into bank
13. LO13-1The Economy Tomorrow: How much does M1 and M2 change in the following situations?(a) $100 in coins is deposited into a checking account.(b) $500 is transferred from a savings to a checking
12. LO13-4Suppose that a lottery winner deposits $8 million in cash into her transactions account at the Bank of America (B of A). Assume a reserve requirement of 20 percent and no excess reserves in
11. LO13-3In Table 13.2, how much unused lending capacity does Eternal Savings have at step 4?
2. (b) When the reserve requirement changes, which of the following will change in the total banking system?Total deposits Total reserves Required reserves Excess reserves Unused lending capacity
1. (a) When the reserve requirement changes, which of the following will change for an individual bank?Total deposits Total reserves Required reserves Excess reserves Unused lending capacity
9. LO13-3On January 10, 2017, a man in Lebanon, Virginia, Page 292 frustrated with the DMV bureaucracy, paid his DMV bill with 300,000 pennies that he carted into the DMV office in five wheelbarrows.
8. LO13-4What is the value of the money multiplier when the required reserve ratio is(a) 5 percent?(b) 10 percent?
7. LO13-3Suppose a bank’s balance sheet looks like this:(a) What is the required reserve ratio?(b) How much money can this bank still lend?
6. LO13-2Suppose a bank’s balance sheet looks as follows:and banks are required to hold reserves equal to 10 percent of deposits.(a) How much excess reserves does the bank hold?(b) How much more
5. LO13-2If a bank has total deposits of $8,000,000 and reserves of $2,000,000(a) What is the current percentage of deposits held in reserve?(b) What percentage of deposits are currently loaned out?
4. LO13-1If you withdraw $100 from your checking account and the required reserve ratio is 10 percent, how much do(es) the bank’s(a) Total deposits change?(b) Required reserves change?(c) Excess
3. LO13-2A bank has $1000 in deposits and the required reserve ratio is 10 percent. Based on this information(a) Enter the appropriate values in the T-account.(b) Calculate the potential total
2. LO13-1Of the following three forms of money: cash, checking accounts, savings accounts, which is the largest component of(a) M1?(b) M2?
1. LO13-1According World View “Trading Chickens for Diapers,” how much pasta could a Venezuelan get in barter for one chicken?
10. What makes bitcoins an unlikely form of money?
9. If all banks heeded Shakespeare’s admonition “Neither a borrower nor a lender be,” what would happen to the circular flow? LO13-3
8. If people never withdrew cash from banks, how much money could the banking system potentially create? Could this really happen? What might limit deposit creation in this case? LO13-4
7. Does the fact that your bank keeps only a fraction of your account balance in reserve make you uncomfortable? Why don’t people rush to the bank and retrieve their money? What would happen if
6. Why must a bank’s assets always equal its liabilities? LO13-2
5. What percentage of your monthly bills do you pay with (a) cash, (b)check, (c) credit card, and (d) automatic transfers? How do you pay off the credit card balance? How does your use of cash
4. Are digital wallets like ApplePay and GoogleWallet new forms of money? LO13-1
3. How are an economy’s production possibilities affected when barter replaces cash exchanges? (See World View “Trading Chickens for Diapers”) LO13-1
2. In what respects are modern forms of money superior to the colonial use of wampum as money? LO13-1
1. Why are checking account balances, but not credit cards, regarded as“money”? LO13-1
LO12-213. The Economy Tomorrow: Using data in Table 12.5,(a) Graph workers per beneficiary since 1960.(b) Based on this change in demographics, what is the change in the relationship between payroll
LO12-112. Use the data in Table 12.3 to answer questions about changes in the structural and total deficits for fiscal years 2008–2015.(a) In how many years do the two deficits change in different
LO12-411.(a) What percentage of U.S. debt do foreigners hold? (See Figure 12.4 .)(b) If the interest rate on U.S. Treasury debt is 4 percent, how much interest do foreigners collect each year from
LO12-310. In Figure 12.5 , what is the opportunity cost of increasing government spending from g1 to g2 if(a) No external financing is available?(b) Complete external financing is available?
LO12-19. According to In the News “Fiscal Policy in the Great Depression,”(a) How much fiscal restraint occurred between 1931 and 1933?(b) By how much did this policy reduce aggregate demand if
LO12-48. Suppose a government has no debt and a balanced budget. Suddenly it decides to spend $5 trillion while raising only $4.5 trillion worth of taxes.(a) What will be the government’s
LO12-17. According to Table 12.3, the federal deficit fell from$1,300 billion in 2011 to $680 billion in 2013. How much of this $620 billion deficit reduction was due to(a) The growing economy?(b)
LO12-16. Use Table 12.3 to determine how much fiscal stimulus or restraint occurred between(a) 2007 and 2008.(b) 2014 and 2015.
LO12-15. Between 2008 and 2016, in how many years was fiscal restraint initiated? (See Table 12.3.)
LO12-14. What would happen to the budget deficit if the(a) GDP growth rate jumped from 2 percent to 4 percent?(b) Inflation rate increased by two percentage points?(Note: See Table 12.2 for clues.)
LO12-23. What country had the largest budget deficit (as a percentage of GDP) in 2016 (World View “Budget Imbalances Common”)?
LO12-22. Since 1994, in how many years has the federal budget had a surplus? (See Figure 12.1 .)
LO12-21. From 2008 to 2010 by how much did each of the following change?(a) Tax revenue.(b) Government spending.(c) Budget deficit.(Note: See Table 12.1.)
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. What are the “future problems” referred to in In the News“Critics Decry Trump’s ‘Mountain of Debt’”? LO12-4
8. What did the surge in defense spending from 1940 to 1944 crowd out? LO12-3
7. 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? LO12-1
6. 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? LO12-3
5. In what ways do future generations benefit from this generation’s deficit spending? Cite three examples. LO12-2, LO12-4
4. Can you forecast next year’s deficit without knowing how fast GDP will grow? LO12-1
3. When are larger deficits desirable? LO12-1
2. 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? LO12-4
1. Why are people worried more about federal budget deficits than environmental protection (In the News “What Worries Americans”)? LO12-4
LO11-212. The Economy Tomorrow: The figure depicts an economy’s production possibilities. Assume the economy is currently at pointa. How would the mix of output change if the economy was stimulated
LO11-111. Use the following data to answer the following questions:(a) What is the rate of equilibrium GDP?(b) If full employment occurs at a real output rate of $910, how large is the real GDP
LO11-410. If the marginal propensity to consume was 0.9, how large would each of the following need to be in order to restore a fullemployment equilibrium in Figure 11.7 ?(a) A tax increase.(b) A
LO11-29. Suppose that an increase in income transfers rather than government spending was the preferred policy for stimulating the economy depicted in Figure 11.5 . By how much would transfers have
LO11-48. According to In the News “Trump’s Spending Proposals Stir Inflation Worries,” how much of a cumulative impact on spending could be expected from President Trump’s proposed $1
LO11-57. According to the CBO’s low estimates (Table 11.2), how many jobs were created by the 2009 fiscal stimulus package for each year 2009–2013?
LO11-26.(a) According to In the News “Just How Stimulating Are Those Checks?” how much more did the average household spend on appliances, electronics, and furniture when it received the 2008 tax
LO11-45. If the AD excess is $360 billion and the MPC is 0.75,(a) How much fiscal restraint is desired?(b) By how much do income taxes have to be increased to get that restraint?(c) Alternatively,
LO11-24. If the AD shortfall is $700 billion and the MPC is 0.95,(a) How large is the desired fiscal stimulus?(b) How large an income tax cut is needed?(c) Alternatively, how much more government
LO11-33. On the accompanying graph, identify and label(a) Macro equilibrium.(b) The real GDP gap.(c) The AD excess or AD shortfall.(d) The new equilibrium that would occur with appropriate fiscal
LO11-22. Suppose the government decides to increase taxes by $40 billion to increase Social Security benefits by the same amount.By how much will this combined tax transfer policy affect aggregate
LO11-21. Suppose the consumption function is C = $800 billion + 0.8Y and the government wants to stimulate the economy. By how much will aggregate demand at current prices shift initially(before
12. If fiscal stimulus can close a GDP gap, why not do so immediately?
11. How did the 2009 fiscal stimulus create more jobs in 2013?
8. How quickly should Congress act to remedy an AD excess or AD shortfall? What are the risks of quick fiscal policy responses? LO11-5
7. In Figure 11.4 , why did inflation accelerate when the economy was still so far short of full employment? LO11-2
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 ? LO11-1
5. Will consumers always spend the same percentage of any tax cut? Why might they spend more or less than usual? LO11-2
4. Why are the AD shortfall and AD excess larger than their respective GDP gaps? Are they ever the same size as the GDP gap? LO11-3
3. What happens to aggregate demand when transfer payments and the taxes to pay them both rise by the same amount? LO11-2
2. How did consumers spend their 2008 tax cut (In the News, “Just How Stimulating Are Those Checks?”)? Does it matter what they spend it on?Explain. LO11-2
1. How can you tell if the economy is in equilibrium? How could you estimate the real GDP gap? LO11-1
LO10-312. The Economy Tomorrow: Refer to Figure 10.10 to describe the impact of changing consumer confidence on aggregate demand for the following years:(a) 2002.(b) 2007–2008.(c) 2014.
LO10-211. The accompanying graph depicts a full-employment macro equilibrium. On the following graph,(a) Identify this full-employment equilibrium(b) Show the initial change in aggregate demand when
LO10-210. Calculate the total change in aggregate spending if investment increases by $200 billion and the marginal propensity to consume is 0.8.
9. LO10-2 LO10-3The accompanying graph depicts a macro equilibrium. Answer the questions based on the information in the graph.(a) What is the equilibrium rate of GDP?(b) If full-employment real GDP
LO10-27. If United States exports to Mexico decline by $15 billion by how much will U.S. spending drop if our MPC is 0.75?LO10-38. How large is the inflationary GDP gap in Figure 10.9 ?
LO10-16. By how much did annualized consumption decline in November 2008 when GDP was $14 trillion? (See In the News “US GDP Down 3.8% in Q4, Biggest Drop Since 1982.”)
LO10-35. Illustrate in the following graph the impact of a sudden decline in consumer confidence that reduces autonomous consumption by $200 billion at the price level PF. Assume MPC = 0.5.(a) What
LO10-24. Suppose that investment demand increases by $200 billion and no leakages occur except household saving. Assume further that households have a marginal propensity to consume of 75 percent.(a)
LO10-23. If the marginal propensity to consume is 0.95,(a) What is the value of the multiplier?(b) What is the marginal propensity to save?
LO10-12. If the consumption function is C = $600 billion + 0.9Y,(a) What is the MPC?(b) How large is autonomous C?(c) How much do consumers spend with incomes of $4 trillion?(d) How much do they save?
LO10-31. From 2007 to 2009, calculate the percentage change in(a) Real consumption.(b) Real investment.(c) Real government spending.(See Data Tables at the end of the book.)
10. How did consumer confidence change after the 2016 presidential election (Figure 10.10)? What might have caused this change? LO10
9. Will the price level always rise when AD increases? Why or why not?LO10-3
8. What is the “ripple effect” in In the News “Unemployment Spreading Fast across U.S. Industries?” LO10-2
7. Why might “belt-tightening” by consumers in a recession be unwelcome?(See In the News “The Paradox of Thrift.”) LO10-3

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