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business
the macro economy

Questions and Answers of The Macro Economy

6. What forces might turn an economic bust into an economic boom? What forces might put an end to the boom? LO10-3
5. How might construction industry job losses affect incomes in the clothing and travel industries? LO10-2
4. How can equilibrium output exceed full-employment output (as in Figure 10.9)? LO10-3
3. When unwanted inventories pile up in retail stores, how is production affected? What are the steps in this process? LO10-3
2. Why wouldn’t investment and saving flows at full employment always be equal? LO10-1
1. How might declining prices affect a firm’s decision to borrow and invest?(See In the News “Housing Starts Fall to 10-Year Low”.) LO10-3
LO9-4 12. The Economy Tomorrow: Predict the impact on aggregate demand if(a) The average workweek increased.(b) Consumer confidence lags.(c) Retailers are placing larger orders than in the past.
LO9-4 11. If the labor force averaged 237 million in 2009–2011, by how much in percentage terms did the state and local layoffs described in In the News “State/Local Belt Tightening Hurts
LO9-2 10. Given C = $1000 + 0.80YD,(a) How much is saved if YD is $40,000?(b) How much does consumption increase if YD increases by$1,000?
LO9-5 On the graph on the next page, draw the AD and AS curves with these data that lead to a full-employment equilibrium:(a) What is the full-employment equilibrium (i) Real output level?(ii) Price
LO9-5 8. Complete the following table:(a) What is the level of equilibrium GDP?(b) What is the equilibrium price level?(c) If full employment occurs at real GDP = $200 billion, what kind of GDP gap
LO9-4 7. What was the range, in absolute percentage points, of the variation in quarterly growth rates between 2005 and 2008 of (a) Consumer spending?(b) Investment spending?(c) Which is more
LO9-3 6. Illustrate on the following graphs the impact of Panasonic’s changed investment plans (World View “Panasonic Cuts Spending”). INTEREST RATE INVESTMENT PRICE LEVEL REAL OUTPUT
LO9-4 5. If every $1,000 increase in the real price of homes adds 6 cents to annual consumer spending (the “wealth effect”),(a) By how much did consumption decline when home prices fell by $2
LO9-4 4. Illustrate on the following two graphs the impact of decreased consumer confidence.What direction did(a) The consumption function shift?(b) AD shift? PRICE LEVEL CONSUMPTION C=a+by 45%
LO9-4 On the accompanying graph, draw the consumption function C = $300 billion + 0.50YD.(a) At what level of income do households begin to save?Designate that point on the graph with the letter
LO9-2 2. According to In the News “Disposable Income and Outlays:February 2017,” between January and February by how much did(a) Disposable income increase?(b) Consumption increase?(c) Savings
LO9-2 1. If the proportion of the total disposable income spend on consumer goods and services is 94.1 percent and if consumers spend 80 percent of each additional dollar, what is(a) The APC?(b) The
10. How might a “perfect” macro equilibrium (Figure 9.10a) be affected by(a) a stock market crash, (b) rising home prices, (c) a recession in Canada, and (d) a spike in oil prices?
9. If an inflationary GDP gap exists, what will happen to business inventories. How will producers respond? LO9-5
8. Why wouldn’t market participants always want to buy all the output produced? LO9-5
7. Why are declining housing permits considered a negative leading indicator? (See In the News “U.S. Leading Indicators Signal Continuing Recovery.”) LO9-5
6. Why might a surge in consumer confidence not result in increased aggregate demand and an expanding economy? LO9-4
5. According to the World View “Panasonic Cuts Spending,” why did Panasonic cut investment spending in 2009? Was this a rational response? LO9-3
4. Why would an employed consumer cut spending when other workers were being laid off (see In the News “Consumer Confidence Index at Record Low”)? LO9-2
3. How do households dissave? Where do they get the money to finance their extra consumption? Can everyone dissave at the same time? LO9-2
2. Why do rich people have a higher marginal propensity to save than poor people? LO9-2
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? LO9-2
LO8-2 11. The Economy Tomorrow: Graphically show an economy in a recession. What is the(a) Classical strategy option for macro policy?(b) Keynesian strategy option for macro policy?(c) Supply-side
LO8-4 10. How would the objectives of President Trump’s tax cuts and deregulation policies shift:(a) The aggregate demand curve?(b) The aggregate supply curve?
LO8-5 9. Assume that the accompanying graph depicts aggregate supply and demand conditions in an economy. Full employment occurs when $5 trillion of real output is produced.(a) What is the
LO8-5 8. If the AD curve shifts to the left, what happens to(a) The equilibrium rate of output?(b) The equilibrium price level?
LO8-5 7. If the AS curve shifts to the left, what happens to(a) The equilibrium rate of output?(b) The equilibrium price level?
LO8-1 6. According to Table 8.1,(a) What was the largest percentage GDP decline in a post–Great Depression U.S. recession?(b) What was(i) The longest post–World War II recession?(ii) The shortest
LO8-1 5. According to In the News “Sharpest Economic Decline in 26 Years,”(a) By what percentage did GDP decline in the fourth quarter of 2008?(b) At that rate, how much output would have been
LO8-4 3. Suppose you have $6,000 in savings when the price level index is at 100.(a) If inflation pushes the price level up by 10 percent, what will be the real value of your savings?(b) What is the
2. LO8-4LO8-3In Figure 8.8 , what price level will induce people to buy all the output produced at full employment?
LO8-4 1. In Figure 8.7 ,(a) How much output is unsold at the price level P1?(b) At what price level is all output produced sold?
10. President Trump sought to increase economic growth by cutting taxes and reducing regulation of production. How did these two initiatives affect the AS and AD curves? LO8-4
9. Why might rising prices stimulate short-run production but have no effect on long-run production? LO8-4
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? LO8-5
7. What might have caused real GDP to decline so dramatically in (a) 1929 and (b) 1946 (see Figure 8.3)? What caused output to increase again in each case? LO8-5
6. What’s wrong with the classical theory of self-adjustment? Why didn’t sales and employment increase in 1929–1933 in response to declining prices and wages (see Figure 8.1)? LO8-2
5. What exactly did Say mean when he said that “supply creates its own demand”? LO8-2
4. How did the decline in U.S. home prices in 2006–2008 affect aggregate demand? LO8-4
3. If equilibrium is compatible with both buyers’ and sellers’ intentions, how can it be undesirable? LO8-4
2. What events might prompt consumers to demand fewer goods at current prices? LO8-4
1. If business cycles were really inevitable, what purpose would macro policy serve? LO8-2
LO7-4 13. The Economy Tomorrow: If home prices are expected to rise in the future, will you be more or less likely to buy a house now?
LO7-3 12. On a graph, illustrate both the the inflation rate and the real GDP growth rate for 2006–2016. (The data required for this exercise can be found in the Data Tables at the end of the
LO7-1 11. When Disney’s Magic Kingdom in Orlando, Florida opened in 1971 the price of admission was $3.50. In 2017 the ticket price was $105.The CPR index was at 39 in 1971 and 243 in 2017.(a) By
LO7-1 10. Use the item weights in Figure 7.2 to determine the percentagechange in the CPI that would result from a(a) 20 percent increase in entertainment prices.(b) 8 percent decrease in
LO7-1 9. To better understand how inflation is measured, suppose the prices listed in the table for Problem 8 changed from one year to the next, as shown here. Use the rest of the table to compute
LO7-1 8. To better understand how inflation is measured, pretend that the following table describes the typical consumer’s complete market basket for the year. Compute the item weights for each
LO7-1 7. If apples, oranges, and bananas are weighted equally in a “fruit price index” and no other fruit changed prices (see Table 7.2),(a) By how much did fruit prices rise or fall in 2016?(b)
LO7-2 6. Suppose you borrow $1000 of principal that must be repaid at the end of two years, along with interest of 5 percent a year. If the annual inflation rate turns out to be 10 percent,(a) What
LO7-1 5. Suppose you’ll have an annual nominal income of $40,000 for each of the next three years, and the inflation rate is 5 percent per year.(a) Find the real value of your $40,000 salary for
LO7-2 4. If tuition keeps increasing at the same rate as in 2016–2017 (see In the News “College Tuition Up Again”), how much will it cost to complete a degree at a private college in four years
LO7-1 3. Using the Consumer Price Index (CPI) from the Data Tables at the end of the book(a) Calculate the inflation rate for 2007–2008, 2008–2009, 2014–2015, and 2015–2016.(b) Which years
LO7-1 2. By how much did the pace of college tuition hikes exceed the 2016 rate of inflation (Table 7.2)?
LO7-1 1. According to World View “Zimbabwe’s Trillion-Dollar Currency,”what was the price of a loaf of bread in Zimbabwe, measured in(a) U.S. dollars?(b) Zimbabwe dollars?
11. How much do higher gasoline prices contribute to inflation? LO7-1
10. Could demand-pull inflation occur before an economy was producing at capacity? How? LO7-4
9. Prior to December 15, 2016 the largest unit of currency in Venezuela was the 100 bolivar. With inflation running in excess of 500 percent a year, people needed stacks of 100-bolivar notes to buy
8. Are people worse off when the price level rises as fast as their income?Why do people often feel worse off in such circumstances? LO7-2
7. Would it be advantageous to borrow money if you expected prices to rise?Would you want a fixed-rate loan or one with an adjustable interest rate?LO7-2
6. If all prices increased at the same rate (i.e., no relative price changes), would inflation have any redistributive effects? LO7-2
5. Whose real wealth (see Table 7.3) declined in the 1990s? Who else might have lost real income or wealth? Who gained as a result of inflation? LO7-2
4. Who gained and who lost from the price changes in Table 7.2? What happened to the price of breakfast? LO7-2
3. Who gains and who loses from rising house prices? LO7-2
2. How might rapid inflation affect college enrollments? LO7-2
1. Why would farmers rather store their output than sell it during periods of hyperinflation? How does this behavior affect prices? LO7-2
LO6-3 13. The Economy Tomorrow: For each situation described here, determine the type of unemployment:(a) Steelworkers losing their jobs due to outsourcing.(b) A college graduate waiting to accept a
LO6-4 12.(a) What was the unemployment rate in 2016?(b) How many more jobs were needed to bring the unemployment rate down to the 4 percent low-end of the unemployment threshold?
LO6-4 11. On a graph, illustrate both the unemployment rate and the real GDP growth rate for 2006-2016. (The data required for this exercise can be found in the Data Tables at the end of the
LO6-1 10. In 2016, how many of the 700,000 black teenagers who participated in the labor market(a) Were unemployed?(b) Were employed?(c) Would have been employed if they had the same unemployment
LO6-1 9. According to In the News “Unemployment Rate Hits a 26-Year High,” in October 2009(a) How many people were in the labor force?(b) How many people were employed?
LO6-1 7. Suppose the following data describe a nation’s population:(a) How many people are unemployed in each year?(b) How many people are employed in each year?LO6-1 8. Based on the data in the
LO6-2 6. According to Okun’s law, how much output (real GDP)was lost in 2009 when the nation’s unemployment rate increased from 5.8 percent to 9.8 percent?
LO6-1 5. Between 1980 and 2015, by how much did the labor force participation rate (Figure 6.2) of(a) Men change?(b) Women change?
LO6-1 4. If the labor force of 160 million people is growing by 1.2 percent this year, how many new jobs have to be created each month to keep unemployment from increasing?
LO6-1 3. Between 2000 and 2016 (see Data Tables), by how much did(a) the labor force change?(b) unemployment change?(c) employment change?
LO6-1 2. If the unemployment rate in 2016 had been 4.5 percent instead of 4.9 percent (Figure 6.1),(a) How many more workers would have been employed?(b) How many fewer would have been unemployed?
LO6-1 1. According to Figure 6.1 ,(a) What percentage of the civilian labor force was employed?(b) What percentage of the civilian labor force was unemployed?(c) What percentage of the population was
10. How can the outsourcing of U.S. computer jobs generate new U.S. jobs in construction or retail trade? (See In the News“Outsourcing May Create U.S. Jobs.”) LO6-4
9. President Trump suggested that Apple corporation should move its iPhone manufacturing back from China into the United States. Is this a good idea? What impact would it have on employment, wages,
8. Identify (a) two jobs at your school that could be outsourced and (b) two jobs that would be hard to outsource. LO6-4
6. Why is frictional unemployment deemed desirable? LO6-3
5. When the GE lightbulb plant in Virginia closed (see Chapter introduction), how was the local economy affected? LO6-2
4. Should the government replace the wages of anyone who is unemployed? How might this affect output and unemployment? LO6-3
3. When the housing industry implodes, what do construction workers do? LO6-3
2. If more teenagers stay in school longer, what happens to (a)production possibilities? (b) unemployment rates? LO6-1
1. Is it possible for unemployment rates to increase at the same time that the number of employed persons is increasing? How?LO6-1
LO5-1 11. The Economy Tomorrow: According to In the News“Material Wealth vs. Social Health,” do per capita GDP data overstate or understate the rise in U.S. well-being since 1990?How do you know?
LO5-2 10. Using the data in the endpapers related to nominal per capita GDP, real per capita GDP, and total population, answer the following for the time period 2000–2010:(a) By what percentage did
LO5-2 9. According to the data in Table 5.3, what is(a) Real GDP in 2008, at prices of 2007?(b) Real GDP in 2007, at prices of 2008?
LO5-4 8. According to Table 5.5, calculate the following as a percentage of GDP for 2016:a. Personal consumption expendituresb. Gross private investmentc. Total government purchasesd. Exportse.
LO5-2 7. Nominal GDP was $9,817 billion in 2000 and $18,569 billion in 2016. The chain-weighted price deflator (price index) for GDP was 81.9 in 2000 and 111.4 in 2016.(a) Calculate real GDP for 2016
LO5-4 6. Using the data in Table 5.5, what share of U.S. total income in 2016 consisted of(a) Wages and salaries?(b) Corporate profits?
LO5-3 5. Based on the following data,(a) How much is GDP?(b) How much is net investment?(c) How much is national income? Consumption Depreciation Retained earnings $200 billion 20 12 Gross investment

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