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business
the macro economy

Questions and Answers of The Macro Economy

LO5-3 4. If all prices were to double overnight, what would be the(a) Change in real GDP?(b) Change in nominal GDP?
LO5-2 3. What was real per capita GDP in 1933 measured in 2013 prices? (Use the data in Table 5.4 to compute your answer.)
LO5-2 2. Suppose this year’s nominal GDP is $1,000 million and price level is 100. If nominal GDP increases by 2 percent and the price level goes up by 3 percent next year, calculate next year’s
1. Suppose that furniture production encompasses the following stages:(a) What is the value added at each stage?(b) How much does this output contribute to GDP?(c) How would answer (b) change if the
11. Why must the value of total expenditure equal the value of total income. LO5-3
10. Are you better off today than a year ago? How do you measure the change? LO5-1
9. More than 4 million websites sell a combined $100 billion of pornography a year. Should these sales be included in (a) GDP and(b) an index of social welfare? LO5-1
8. Is the Index of Social Health, discussed in In the News “Material Wealth vs. Social Health,” a better barometer of well-being than GDP? What are its relative advantages or disadvantages? LO5-1
7. Clear-cutting a forest adds to GDP the value of the timber, but it also destroys the forest. How should we value that loss? LO5-1
6. What jobs are likely part of the underground economy? LO5-1
5. Why is it important to know how much output is being produced?Who uses such information? LO5-1
4. Can we increase consumption in a given year without cutting back on either investment or government services? Under what conditions? LO5-4
3. If gross investment is not large enough to replace the capital that depreciates in a particular year, is net investment greater or less than zero? What happens to our production possibilities?
2. According to Table 5.3, GDP grew from $14.062 trillion in 2007 to$14.369 trillion in 2008, yet the quantity of output actually decreased. How is this possible? LO5-2
1. The manuscript for this text was typed for free by a friend. Had I hired an administrative assistant to do the same job, GDP would have been higher, even though the amount of output would have
LO4-3 11. The Economy Tomorrow: The following production possibility curve shows the tradeoff between housing and all other goods.(a) If the current mix of output is at point A and the optimal mix of
LO4-3 10. According to In the News “State Lotteries: A Tax on the Uneducated and the Poor,” what percentage of income is spent on lottery tickets by(a) A low-income family with income of $20,000
LO4-1 9. Suppose the market demand for cigarettes is given in the following table.Suppose further that smoking creates external costs valued at$2.00 per pack.Graph the social and market demand
LO4-1 8. Suppose the following data represent the market demand for college education:(a) If tuition is set at $15,000, how many students will enroll?Now suppose that society gets an external benefit
LO4-4 7. If a new home can be constructed for $150,000, what is the opportunity cost of federal defense spending, measured in terms of private housing? (Assume a defense budget of $600 billion.)
LO4-3 6.(a) Assuming an 9 percent sales tax is levied on all consumption, complete the following table:(b) Is the sales tax (A) progressive or (B) regressive? Sales Income Consumption Tax $10,000
LO4-1 5. If the average working-age adult produces $25,000 of output per year, how much global output is lost as a result of adult deaths from secondhand smoke, according to In the News “Secondhand
LO4-1 4. Draw market and social demand curves for the consumption of flu shots.
LO4-1 3. Assume that the product depicted below generates external costs in consumption of $3 per unit.(a) What is the market price (market value) of the product?(b) Draw the social demand curve.(c)
LO4-1 2. (a) Use Figure 4.3 to illustrate on the accompanying production possibilities curve the optimal mix of output (X).(b) Does the optimal mix include (A) more or (B) fewer “other goods”?
LO4-1 1. In Figure 4.2 , by how much is the market(a) Overproducing private goods?(b) Underproducing public goods?
12. Which taxes hit the poor hardest—those of local, state, or federal governments? LO4-3
11. Should the government be downsized? Which functions should be cut back? Which ones should be expanded? LO4-2
10. How does Sirius Satellite deter nonsubscribers from listening to its transmissions? Does this make radio programming a private good or a public good? LO4-1
9. What government actions might cause failures like points G1, G2, and G3 in Figure 4.6 ? Can you give examples? LO4-4
8. The government now spends more than $700 billion a year on Social Security benefits. Why don’t we leave it to individuals to save for their own retirement? LO4-1
7. If smoking generates external costs, should smoking simply be outlawed? How about cars that pollute? LO4-1
6. What is the specific market failure justification for government spending on(a) public universities, (b) health care, (c) trash pickup, (d) highways, (e)police, and (f) solar energy? Would a
5. Why might Fourth of July fireworks be considered a public good? Who should pay for them? What about airport security? LO4-1
4. Should the firefighters have saved the house in In the News “Firefighters Watch as Home Burns to the Ground”? What was the justification for their belated intervention? LO4-1
3. If everyone seeks a free ride, what mix of output will be produced in Figure 4.2 ? Why would anyone voluntarily contribute to the purchase of public goods like flood control or snow removal? LO4-1
2. If Israel’s “Iron Dome” (World View “Israel’s ‘Iron Dome’ Frustrates Hamas”) is so effective, why doesn’t a private company produce it and sell its services directly to
LO3-5 11. The Economy Tomorrow: According to Figure 3.8 ,(a) How many organs are supplied at a zero price?(b) How many people die in the government-regulated economy where there is a price ceiling =
LO3-5 10. In Figure 3.8 , when a price ceiling of zero is imposed, does(a) The quantity of organs demanded increase?(b) The market demand increase?(c) The quantity of organs supplied increase?(d) The
LO3-5 9. Use the following data to draw supply and demand curves.(a) What is the equilibrium price?(b) Suppose the current price is $7,(i) What kind of disequilibrium situation results?(ii) How large
LO3-5 8. Which curve shifts and in which direction when the following events occur in the domestic car market?(a) The U.S. economy falls into a recession.(b) U.S. autoworkers go on strike.(c)
LO3-1 7. The goal of the price cut described in In the News “Pricing the Galaxy S7,” was to(a) Increase supply.(b) Increase quantity supplied.(c) Increase demand.(d) Increase quantity demanded.
LO3-4 6. Illustrate using a supply and demand graph what happened to oil prices in World View “Oil Higher on Nigerian Supply Disruptions.”(a) Which curve shifted?(b) Which direction did that
LO3-2 5. Illustrate using a supply and demand graph what happened to gasoline prices in In the News,“Gas Prices Jump in Matthew’s Wake.”(a) Which curve shifted?(b) Which direction did that
LO3-3 4. Given the following data on gasoline supply and demand,(a) What is the equilibrium price?(b) Suppose the current price is $4. At this price, how much of a shortage or surplus exist? 12101
LO3-3 3. According to In the News “The Real March Madness: Ticket Prices”(a) What was the initial price of a ticket to the NCAA finals?(b) At that price was there an equilibrium, a shortage, or a
LO3-3 2. According to Figures 3.5 and 3.6, what would the new equilibrium price of tutoring services be if Ann decided to stop tutoring?
LO3-1 1. According to Figure 3.3 , at what price would Tom buy 12 hours of web tutoring?(a) Without a lottery win.(b) With a lottery win.
10. Is there a shortage of on-campus parking at your school? How might the shortage be resolved?
9. When Hurricane Matthew struck Florida, Governor Rick Scott signed an emergency declaration outlawing “price gouging,” i.e., unjustified price increases. More than 2,700 Floridians filed
8. What would happen in the apple market if the government set a minimum price of $10.00 per apple? What might motivate such a policy? LO3-5
7. The shortage in the organ market (Figure 3.8) requires a nonmarket rationing scheme. Who should get the available (qa) organs? Is this fairer than the market-driven distribution? LO3-5
6. In Figure 3.8 , why is the organ demand curve downward-sloping rather than vertical? LO3-1
5. Why are scalpers able to resell tickets to the Final Four basketball games at such high prices (In the News “The Real March Madness: Ticket Prices”)?LO3-2
4. Why do militant attacks in Nigeria affect the price of gasoline at U.S. gas stations? (World View “Oil Higher on Nigerian Supply Disruptions”)LO3-5
3. With respect to the demand for college enrollment, which of the following would cause (1) a movement along the demand curve or (2) a shift of the demand curve? LO3-4a. An increase in incomes.b.
2. Within weeks after Samsung launched its Galaxy Note 7 smartphone in August 2016, the phones started erupting into smoke and flames. How did this affect the demand for Note 7s? What determinants of
LO2-4 12. The Economy Tomorrow: How much more output per year will have to be produced in the world just to provide the 3 billion “severely” poor population with $1 more income per day?
LO2-2 11. Using the data from the Data Tables, calculate(a) the federal government’s share of total output in 1996, 2006, and 2016.(b) the state and local government’s share of total output in
LO2-1 10. Assuming 2016 per capita GDP growth rate is equal to the average growth rate (2000 –2015) provided in Table 2.1, estimate 2016 per capita GDP for each of the following countries using
LO2-3 9. If 150 million workers produced America’s GDP in 2015(World View “Comparative Output (GDP)”), how much output did the average worker produce?
LO2-2 7. U.S. real gross domestic product increased from $10 trillion in 2000 to $15 trillion in 2010. During that same decade the share of manufactured goods (e.g., cars, appliances) fell from 16
LO2-3 6.(a) If Haiti’s per capita GDP of roughly $810 were to DOUBLE every decade (an annual growth rate of 7.2 percent), what would Haiti’s per capita GDP be in 50 years?(b) Compare (a) to the
LO2-1 5. According to Table 2.1, how fast does total output (GDP)have to grow in order to raise per capita GDP in(a) the United States?(b) Japan?(c) Ethiopia?
LO2-3 4.(a) How much more output does the $20 trillion U.S. economy produce when GDP increases by 1.0 percent?(b) By how much does this increase per capita income if the population is 340 million?
LO2-4 3. In 1980, America’s GDP per capita was approximately$30,000 (measured in today’s dollars). How much higher in percentage terms was America’s GDP per capita in 2015 (see World View
LO2-1 2. According to the World View “GDP per Capita around the World,” how does per capita GDP in the following countries compare against America’s (in percentage terms)?(a) Canada(b) China(c)
1. In 2015 the world’s total output (real GDP) was roughly $80 trillion. What percent of this total was produced(a) By the three largest economies (World View “Comparative Output (GDP)”)?(b) By
10. How might free markets help reduce global poverty? How might they impede that goal?
9. Why are incomes so much more unequal in poor nations than in rich ones? LO2-4
8. Should the government try to equalize incomes more by raising taxes on the rich and giving more money to the poor? How might such redistribution affect total output and growth? LO2-4
7. Where do growing companies like Google and Facebook get their employees? What were those workers doing before? LO2-2
6. How many people are employed by your local or state government?What do they produce? What is the opportunity cost of that output?LO2-1
5. Is the relative decline in U.S. farming and manufacturing (Figure 2-2) a good thing or a bad thing? LO2-2
4. The U.S. farm population has shrunk by more than 25 million people since 1900. Where did all the people go? Why did they move? LO2-2
3. Can we continue to produce more output every year? Is there a limit? LO2-3
2. Why is per capita GDP so much higher in the United States than in Mexico? LO2-3
1. Americans already enjoy living standards that far exceed world averages. Do we have enough? Should we even try to produce more? LO2-1
LO1-2 12. The Economy Tomorrow: What are the opportunity costs of increasing the number of solar panels in use in the United States?
LO1-1 11. According to the World View “World’s Largest Armies,” what percent of the total population is serving in the military in(a) The United States (population = 340 million)?(b) North
LO1-2 10. If a person literally had “nothing else to do,”(a) What would be the opportunity cost of doing this homework?(b) What is the likelihood of that?
LO1-5 9. According to the World View “Market Reliance vs.Government Reliance?” which nation has(a) The highest level of faith in the market system?(b) The lowest level of faith in the market
8. You have only 20 hours per week to use for either study time or fun time. Suppose the relationship between study time, fun time, and grades is shown in this table:(a) Draw the (linear) production
LO1-3 7. According to the figure (similar to Figure 1.4),(a) At which point(s) is this society producing some of each type of output but producing inefficiently?(b) At which point(s) is this society
LO1-4 6. What are the three core economic questions societies must answer?
LO1-2 5. What is the opportunity cost (in civilian output) of a defense buildup that raises military spending from 4.0 to 4.3 percent of a $20 trillion economy?
LO1-2 4. (a) If the average North Korean farmer produces 1,800 pounds of food per year, what is the opportunity cost, in pounds of food, of North Korea’s army (World View“World’s Largest
LO1-3 3. According to Figure 1.3 , how much food production is sacrificed when North Korea moves from point P to point N?
2.(a) Compute the opportunity cost in forgone consumer goods (millions of pounds of butter) for each additional unit of military output (number of planes) produced:(b) As military output increases,
11. Explain why there are limits to output and how these limits force economies to make tradeoffs. LO1-1
10. Why might more reliance on markets rather than government be desirable? When and how might it be undesirable? LO1-5
9. What is the connection between North Korea’s missile program and its hunger problem? (World View “North Korea’s Food Shortage Grows”) LO1-2
8. Why did both presidents Obama and Trump reduce spending on America’s space exploration program? LO1-2
7. Why do people around the world have so much faith in free markets (World View “Market Reliance vs. Government Reliance?”)? LO1-5
6. Who would go to college in a completely private (market)college system? How does government intervention change this FOR WHOM outcome? LO1-4
5. What are the opportunity costs of developing wind farms to generate “clean” electricity? Should we make the investment?LO1-2
4. How might a nation’s production possibilities be affected by the following? LO1-3a. New solar technology.b. An increase in immigration.c. An increase in military spending.d. A natural disaster.
3. What’s the real cost of a “free lunch” as mentioned in the discussion of “Opportunity Costs?” LO1-2
2. How much time could you spend on homework in a day? How much do you spend? How do you decide? LO1-2
1. What opportunity costs did you incur in reading this chapter?If you read another chapter today, would your opportunity cost(per chapter) increase? Explain. LO1-2

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