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principles of economics

Questions and Answers of Principles Of Economics

*3 The table gives the demand and supply schedules for sandwiches.Quantity Quantity demanded supplied Price (pounds per sandwich) (sandwiches per hour) 0 400 0 1 350 50 2 300 100 3 250 150 4 200 200
2 The figure shows the market for CDs. a What are the equilibrium price and equilibrium quantity of CDs? b Calculate the amount that consumers paid for CDs. c What is the consumer surplus?d What is
*1 The figure shows the demand for and supply of floppy discs.a What are the equilibrium price and equilibrium quantity of floppy discs? b Calculate the amount that consumers paid for floppy discs. c
2 Use the information you obtained in web exercise 1 and find the information you need to answer: a What are the costs that make up the total cost of a gallon of petrol? b If the price of crude oil
1 Obtain information on the price of petrol during the recent past and then: a Use demand, supply and elasticity to explain the recent changes in the price of petrol. b Find the latest price of crude
1 Read the news article in Reading Between the Lines on p. 92 about the French cigarette taxes and then: a Using the numbers in the table below, calculate the price elasticity of demand for
16 The table gives the supply schedule for jeans. Price Quantity supplied (dollars per pair) (millions of pairs per year) 120 2,400 125 2,800 130 3,200 135 3,600 Calculate the elasticity of supply
*15The table gives the supply schedule for long-distance phone calls.Calculate the elasticity of supply when a The price falls from 40 cents to 30 cents a minute. b The average price is 20 cents a
14 Judy’s income has increased from £13,000 to £17,000. Judy increased her demand for concert tickets by 15 per cent and decreased her demand for bus rides by 10 per cent. Calculate Judy’s
*13 Alex’s income has increased from £3,000 to £5,000. Alex increased his consumption of bagels from 4 to 8 a month and decreased his consumption of doughnuts from 12 to 6 a month. Calculate
10 In problem 8, at a10 a pound, is the demand for sugar elastic or inelastic? Use the total revenue test to answer this question.
*9 In problem 7, at a250 a chip, is the demand for chips elastic or inelastic? Use the total revenue test to answer this question.
8 The demand schedule for sugar isa What happens to total revenue if the price of sugar rises from a5 to a15 per pound? b What happens to total revenue if the price rises from a15 to a25 per pound? c
*7 The demand schedule for computer chips is a What happens to total revenue if the price falls from a400 to a350 a chip? b What happens to total revenue if the price falls from a350 to a300 a chip?
*5 If the quantity of dental services demanded increases by 10 per cent when the price of dental services falls by 10 per cent, is the demand for dental service inelastic, elastic, or unit elastic?
4 The figure shows the demand for pens.a Calculate the elasticity of demand for a rise in price from £6 to £10. b At what prices is the elasticity of demand equal to 1, greater than 1, and less
*3 The figure shows the demand for DVD rentals.a Calculate the elasticity of demand for a rise in rental price from £3 to £5. b At what price is the elasticity of demand equal to 1? Price (pounds
2 Good weather brings a bumper tomato crop. The price falls from £7 to £5 a load, and the quantity demanded increases from 300 to 500 loads a day. Over this price range, a What is the price
*1 Rain spoils the strawberry crop. As a result, the price rises from £2 to £3 a box and the quantity demanded decreases from 1,000 to 600 boxes a week. Over this price range, a What is the price
1.13. In 1939, with the U.S. economy not fully recovered from the Great Depression, President Roosevelt proclaimed that Thanksgiving Day would fall a week earlier than usual so that the shopping
1.12. Suppose that firms become very optimistic about future business conditions and invest heavily in new capital equipment.a. Use an aggregate-demand/aggregate-supply diagram to show the short-run
1.11. For each of the following events, explain the short-run and long-run effects on output and the price level, assuming policymakers take no action.a. The stock market declines sharply, reducing
1.10. Explain whether each of the following events shifts the short-run aggregate-supply curve, the aggregatedemand curve, both, or neither. For each event that does shift a curve, use a diagram to
1.9. Suppose workers and firms suddenly believe that inflation will be quite high over the coming year.Suppose also that the economy begins in long-run equilibrium, and the aggregate-demand curve
1.8. Suppose that the economy is currently in a recession. If policymakers take no action, how will the economy evolve over time? Explain in words and using an aggregate-demand/aggregate-supply
1.7. Suppose the Fed expands the money supply, but because the public expects this Fed action, it simultaneously raises its expectation of the price level.What will happen to output and the price
1.6. For each of the three theories for the upward slope of the short-run aggregate-supply curve, carefully explain the following:a. how the economy recovers from a recession and returns to its
1.5. Explain why the following statements are false.a. “The aggregate-demand curve slopes downward because it is the horizontal sum of the demand curves for individual goods.”b. “The long-run
1.4. In Figure 31-8, how does the unemployment rate at points B and C compare to the unemployment rate at point A? Under the sticky-wage explanation of the short-run aggregate-supply curve, how does
1.3. Explain whether each of the following events will increase, decrease, or have no effect on long-run aggregate supply.a. The United States experiences a wave of immigration.b. Congress raises the
1.2. Suppose that the economy is undergoing a recession because of a fall in aggregate demand.a. Using an aggregate-demand/aggregate-supply diagram, depict the current state of the economy.b. What is
1.1. Why do you think that investment is more variable over the business cycle than consumer spending? Which category of consumer spending do you think would be most volatile: durable goods (such as
1.7. What might shift the aggregate-supply curve to the left?Use the model of aggregate demand and aggregate supply to trace through the effects of such a shift.
1.6. What might shift the aggregate-demand curve to the left? Use the model of aggregate demand and aggregate supply to trace through the effects of such a shift.
1.5. List and explain the three theories for why the short-run aggregate-supply curve is upward sloping.
1.4. Explain why the long-run aggregate-supply curve is vertical.
1.3. List and explain the three reasons why the aggregatedemand curve is downward sloping.
1.2. Draw a diagram with aggregate demand, short-run aggregate supply, and long-run aggregate supply. Be careful to label the axes correctly.
1.1. Name two macroeconomic variables that decline when the economy goes into a recession. Name one macroeconomic variable that rises during a recession.
1.Suppose that the election of a popular presidential candidate suddenly increases people’s confidence in the future. Use the model of aggregate demand and aggregate supply to analyze the effect on
1.Explain why the long-run aggregate-supply curve is vertical. Explain three theories for why the short-run aggregate-supply curve is upward sloping.
1.Explain the three reasons why the aggregate-demand curve slopes downward. Give an example of an event that would shift the aggregate-demand curve. Which way would this event shift the curve?
1.12. Suppose that U.S. mutual funds suddenly decide to invest more in Canada.a. What happens to Canadian net foreign investment, Canadian saving, and Canadian domestic investment?b. What is the
1.11. In 1998 the Russian government defaulted on its debt payments, leading investors worldwide to raise their preference for U.S. government bonds, which are considered very safe. What effect do
1.10. Over the past decade, some of Japanese saving has been used to finance American investment. That is, American net foreign investment in Japan has been negative.a. If the Japanese decided they
1.9. Suppose that Americans decide to increase their saving.a. If the elasticity of U.S. net foreign investment with respect to the real interest rate is very high, will this increase in private
1.8. Suppose that real interest rates increase across Europe.Explain how this development will affect U.S. net foreign investment. Then explain how it will affect U.S.net exports by using a formula
1.7. A senator renounces her past support for protectionism:“The U.S. trade deficit must be reduced, but import quotas only annoy our trading partners. If we subsidize U.S. exports instead, we can
1.6. Suppose the French suddenly develop a strong taste for California wines. Answer the following questions in words and using a diagram.a. What happens to the demand for dollars in the market for
1.5. An economist discussing trade policy in The New Republic wrote: “One of the benefits of the United States removing its trade restrictions [is] the gain to U.S.industries that produce goods for
1.4. The chapter notes that the rise in the U.S. trade deficit during the 1980s was due largely to the rise in the U.S.budget deficit. On the other hand, the popular press sometimes claims that the
1.3. Suppose that Congress passes an investment tax credit, which subsidizes domestic investment. How does this policy affect national saving, domestic investment, net foreign investment, the
1.2. An article in The New York Times (Apr. 14, 1995)regarding a decline in the value of the dollar reported that “the president was clearly determined to signal that the United States remains
1.1. Japan generally runs a significant trade surplus. Do you think this is most related to high foreign demand for Japanese goods, low Japanese demand for foreign goods, a high Japanese saving rate
1.4. What is capital flight? When a country experiences capital flight, what is the effect on its interest rate and exchange rate?
1.3. Suppose that a textile workers’ union encourages people to buy only American-made clothes. What would this policy do to the trade balance and the real exchange rate? What is the impact on the
1.2. Why are budget deficits and trade deficits sometimes called the twin deficits?
1.1. Describe supply and demand in the market for loanable funds and the market for foreign-currency exchange.How are these markets linked?
1.Suppose that Americans decided to spend a smaller fraction of their incomes. What would be the effect on saving, investment, interest rates, the real exchange rate, and the trade balance?
1.In the model of the open economy just developed, two markets determine two relative prices. What are the markets? What are the two relative prices?
1.Describe the sources of supply and demand in the market for loanable funds and the market for foreign-currency exchange.
1.12. A case study in the chapter analyzed purchasing-power parity for several countries using the price of a Big Mac.Here are data for a few more countries:a. For each country, compute the predicted
1.Over the past 20 years, Spain has had high inflation, and Japan has had low inflation. What do you predict has happened to the number of Spanish pesetas a person can buy with a Japanese yen?
1.Define net exports and net foreign investment. Explain how they are related.
1.9. Why can’t the Fed control the money supply perfectly?
1.12. Suppose that the Live-Long-and-Prosper Health Insurance Company charges $5,000 annually for a family insurance policy. The company’s president suggests that the company raise the annual price
1.3. The labor-force participation rate of women increased sharply between 1970 and 1990, as shown in Figure 26-3.As with men, however, there were different patterns for different age groups, as
1.2. As shown in Figure 26-3, the overall labor-force participation rate of men declined between 1970 and 1990. This overall decline reflects different patterns for different age groups, however, as
1.5. How do unions affect the natural rate of unemployment?
1.2. Is unemployment typically short-term or long-term?Explain.
1.How is the unemployment rate measured? How might the unemployment rate overstate the amount of joblessness? How might it understate it?
1.4. What is investment? How is it related to national saving?
1.2. List and describe four determinants of productivity.
1.6. Consider the following data on U.S. GDP:a. What was the growth rate of nominal GDP between 1996 and 1997? (Note: The growth rate is the percentage change from one period to the next.)b. What was
1.5. Below are some data from the land of milk and honey.a. Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2001 as the base year.b. Compute the percentage change in nominal
1.Define real and nominal GDP. Which is a better measure of economic well-being? Why?
How might inflation targeting improve the Fed’s monetary policy?
What are the policy actions taken by the Fed and the U.S. Treasury in response to the financial crisis?
How do the Fed’s actions influence the inflation rate and how long does it take for inflation to respond to the Fed’s policy changes?
How do the Fed’s actions influence real GDP and how long does it take for real GDP to respond to the Fed’s policy changes?
How do the Fed’s actions change the exchange rate?
Do interest rates fluctuate in response to the Fed’s actions?
How is the federal funds rate determined in the market for reserves?
What is the Fed’s monetary policy instrument?
Who is responsible for U.S. monetary policy?
What is the core inflation rate and how does it differ from the overall CPI inflation rate?
How large was the estimated U.S. fiscal imbalance in 2010 and how did it divide between current and future generations?
Does the United States have a stable short-run Phillips curve? Explain why or why not.
percentage points, how do the short-run Phillips curve and the long-run Phillips curve change?
If the expected inflation rate increases by
Why does the supply of U.S. dollars change?
Why does the demand for U.S. dollars change?
Provide an example of the imports effect on the supply of U.S. dollars.
Provide an example of the exports effect on the demand for U.S. dollars.
How does a change in the supply of money change the interest rate in the long run?
How does a change in the supply of money change the interest rate in the short run?
What happens if a country has a surplus of loanable funds at the world real interest rate?
What happens if a country has a shortage of loanable funds at the world real interest rate?
Why do loanable funds flow among countries?
Explain the connection between the price of a financial asset and its interest rate.

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