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principles of economics

Questions and Answers of Principles Of Economics

Use the table below from the U.S. Bureau of Labor Statistics to answer the following questions.a. What was the unemployment rate in May 2019?b. If we were to count marginally attached workers as
The table below contains data on per person income and per person consumption in the United States for several years.a. Draw the consumption function for the United States for these years.b. What is
Around $500 billion in U.S. Treasuries are traded each day and many countries hold U.S. Treasuries, as they are considered a very safe investment. For example, as of October 2018, Japan held $1,018.5
On September 29, 2008, the stock market fell almost 7%. How can we reconcile these kinds of huge losses in the stock market with the efficient market hypothesis?
In 2018, Germany had the world’s largest current account surplus of US$291 billion. Using this one piece of information, answer the following questions.a. Which was greater, the income Germans
In the first quarter of 2019, the output gap in the United States was 0.8%. Make a prediction about what you think the output gap will be in the second quarter of 2019. Explain your reasoning.
You are working at the campus bookstore earning $9.00 per hour. Your manager tells you that in the upcoming year you will get a 2% raise. How does your real wage change if inflation next year is 1%,
In 2018, the federal government spent $4.1 trillion and brought in revenue of $3.3 trillion.a. Is this a budget deficit or surplus, and what is its size?b. If net government debt in 2018 was $15.8
Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events.a. The market for steel in the United States:
Provide some examples of goods or services that you purchase that have relatively inelastic demand. How would you respond to a 10% increase in price? Are there any goods that you would consider
What impact has access to the internet on smartphones had on the price elasticity of demand for items from Best Buy or Barnes and Noble? What are some strategies these companies could take to combat
You are a pricing manager at a pharmaceutical company. The CEO of the company calls a meeting of all managers to explain that it is critical to increase revenue soon or you may have to start laying
What are some examples of pairs of goods or services you purchase that are complements or substitutes? Would their cross-price elasticity be positive or negative, and why? What would happen to your
What are some examples of things you purchase that have positive or negative income elasticities? How would your purchase decisions change if your income rose by 20%?
Consider two different companies. The first has a relatively inelastic supply curve; the second has a relatively elastic supply curve. What factors might lead to the difference in supply elasticities
The EpiPen is a life-saving device used by people with severe allergies. The U.S. manufacturer of the EpiPen raised its price by nearly 25% per year for nearly a decade. For each price increase of
Europe has eight different companies selling devices similar to the EpiPen. If these devices were available in the U.S. market, what would happen to the price elasticity of demand for the EpiPen?
An article in Forbes noted that the Intercounty Connector toll road that connects two counties in Maryland was not generating as much toll revenue as predicted. At that time, the toll rate was $8 for
Suppose an experiment is conducted that provides the data in the accompanying table. What is the price elasticity of demand for using the tollway when the price falls from $8 to $6 (use the midpoint
People differ in their willingness to pay for air travel and airlines would like to charge different prices to different people. Airlines typically attempt to divide passengers into two types:
The average price of gasoline in the United States rose by 17% between 2007 and 2008. The number of extremely large, gas-guzzling vehicles called Hummers sold in the United States fell by 50% over
We often observe that items such as different brands of aspirin, gasoline, and tomato sauce are typically priced the same, particularly when consumers can find these goods in close proximity to each
In 2015, Netflix increased its monthly price for new subscribers by $1. In response, someone tweeted: “So tired of being a college student. Can’t wait until I have a stable job and won’t have a
The accompanying table shows how many Veggie Delite sandwiches Subway might be willing to sell each day at two different prices. Using the midpoint formula, calculate the price elasticity of supply
Determine whether each of the following events will result in a movement along the market supply curve for labor in the fast-food industry or whether it will cause the market supply curve for labor
Between 2000 and 2017, real GDP per person grew, on average, 1% per year in the United States. Did this GDP growth benefit all Americans? What does this tell us about the limitations of GDP as a
In 2017, GDP in Switzerland was $680 billion and GDP in the United States was $19.5 trillion. Does this indicate that the standard of living in Switzerland must be well below that of the United
Determine whether each of the following transactions contributes to the calculation of GDP as total spending, then, identify the relevant component of GDP (C, I, G, or NX).a. Michelin sells tires to
Use the data to calculate nominal U.S. GDP using the spending approach in 2016 and 2017.
The growth rate of nominal GDP was 9.4%, and the growth rate of real GDP was 7.4% for Iceland in 2016.Approximately what was the percentage change in prices?
In 2018, India was the world’s seventh largest economy, with a $2.69 trillion GDP (as measured in U.S. dollars). India was also one of the world’s fastest-growing economies, with an annual growth
All U.S. states require children to attend school. Mandatory school attendance ends at ages 16–18, depending on the state. The adult literacy rate in North America was 100% in 2016. Discuss how
Your friend Owen is a bit of a pessimist. “The world already has 7 billion people,” he says. “The population is growing too fast. Soon, there will be a food shortage—especially for people in
In Uganda GDP per person is $1,280 per year, and in Japan it is $39,100. What do you think is likely to happen to each country’s GDP per person if they both increase their physical capital per
In the debate over the Tax Cuts and Job Act of 2018, Republicans argued that businesses needed an incentive to invest more in physical capital in order for the United States to see much faster
Both CPI and the GDP deflator measure the change in the price of goods and services and tend to change in similar ways over time. In the third quarter of 2018, CPI rose by 1.5% from the previous
Which of the following are signs of inflation?a. The price of a house in a high-demand market increased by 6% last year.b. CPI in the European Union was 101 in 2017 and 104 in 2018.c. The price of
CPI in the United States was 245.1 in 2017 and 251.1 in 2018. What was the inflation rate in 2018?
Suppose the typical college student spends money primarily on the products in the following table.a. What is the cost of the basket in 2019?b. What is the cost of the basket in 2020?c. What is the
The average household income in the United States in 1975 was $13,800 and CPI was 53.8. Convert the average income in 1975 to 2018 dollars if CPI was 251.1 in 2018.
In 2014, Apple’s revenue was $183 billion, and it grew to $267 billion in 2018.a. What is the nominal growth rate of Apple’s revenue from 2014 to 2018?b. What is the value of Apple’s 2018
The cost of the average consumer’s basket of goods and services in 2018 is roughly 10 times what it was in 1950. In other words, what the average consumer bought for $100 in 1950 would cost a
You buy $1,000 worth of Walmart stock. Why wouldn’t a macroeconomist call this investment?
Describe how something you purchased depreciated over time and how its value changed.
Describe, using flows, stocks, and depreciation, why big changes in investment have relatively small impacts on the amount of capital in the economy.
Explain, using the opportunity cost principle, why building a new house for personal use counts as investment.
Would you prefer $1 million when you retire in 40 years, or $70,000 today that’s put in a bank account to compound for the next 40 years?
Would you be better off saving for retirement early in your career or later when you’re earning more? Explain.
Explain how you applied the Rational Rule for Investors to your own choice to invest in a college education, using the marginal principle, the cost-benefit principle, and the opportunity cost
Do you think that people always follow the Rational Rule for Investors? Why or why not? Explain.
Think about how much you paid for your smartphone and how much it’s worth today. What’s the depreciation rate of your phone? Why has it lost value?
Do you think that companies should engage in investment during recessions? Explain.
Use the opportunity cost principle to explain the relationship between the real interest rate and investment spending. What does this tell you about the slope of the investment line?
Use the cost-benefit principle to describe how expectations change manager’s decisions to make new investments.
Are you currently a participant in the market for loanable funds? If so, which side? What effect does your current participation (or lack thereof) have on the market? Explain.
Come up with a real-world example of how an increase in the budget deficit would crowd out private investment.
Determine if the following scenarios are describing savings or investment. If they describe investment, which type of investment? Explain.a. Amazon purchases $100 million worth of products from a
How do the following impact the capital stock? Be sure to identify depreciation and investment flows. Explain.a. A consultant drops her laptop on the way to a big meeting and her IT department buys a
If GDP is confidently expected to grow at a rapid 4% rate this year, how do you predict investment spending to change? Is it likely to grow at a larger, smaller, or the same rate as GDP? Why?
Capital per worker in China almost doubled between the 1990 and 2010. How do you expect China’s output per worker to have changed over the same period? Why?
Use the compounding or discounting formula to answer the following questions.a. Your small business has a cash reserve of about $200,000, earning 2% annual interest. How much will that be worth in 3
If you deposit $1,200 in your retirement account in your first year of work, how much will that $1,200 be worth after 5, 10, 20, 30, 40, and 50 years at an 8% interest rate? Graph your results. What
Nigeria’s real GDP is expected to grow by about 5% per year for the next 5 years and inflation is expected to be about 8% per year. If its GDP is $300 billion, what will its nominal and real GDP be
Management at TJX Companies is deciding whether to build a new goods distribution center that will cost $60 million to build; the estimated additional first-year revenue will be $5 million. Future
Consider the owner of a local boutique. She is deciding if she should upgrade the storage and display containers. The total cost would be $2,000, and the depreciation rate is 8% per year. The
Martha is considering acquiring another piano for her piano academy. The cost of a new Steinway grand is around $148,000. Pianos depreciate at a rate of about 5% per year, and the academy’s
The manager of a T-shirt company is considering investing in a new embroidery machine that would cost $8,500, and the depreciation rate is 6.5% per year. The expected increase in next year’s
You are working for a major bank, forecasting investment. Consider what happens to investment in each of the following scenarios. Show the change graphically, using the investment line.a. The economy
Determine if the following people are demanders, suppliers, or not involved in the market for loanable funds.a. Latisha wants to save up for a new laptop to use in her business, so she puts aside
Evaluate the effect of each of the following events on the market for loanable funds. Explain the effects on savings, investment, and the neutral real interest rate.a. The government runs a
Which of the following factors could cause the neutral real interest rate to fall?a. Massive government budget deficits in the United Statesb. Slowing population growthc. A global savings glutd. The
Expert economists in the economy of Bongo estimate the following:Assume that Bongoliers consume 80 percent of their disposable incomes and save 20 percent.a. You are asked by the business editor of
Assume that in 2019, the following prevails in the Republic of Nurd:Assume that households consume 80 percent of their income, they save 20 percent of their income, MPC = 0.8, and MPS = 0.2. That is,
For each of the following sets of data, determine if output will need to increase, decrease, or remain the same to move the economy to equilibrium: a. Y = 1,000; C = 150+ 0.5(YT); I = 100; G = 200; T
Use your answer to Problem 1.6 to calculate the MPC, MPS, government spending multiplier, and tax multiplier. Draw a graph showing the data for consumption spending, planned aggregate
A $1 increase in government spending will raise equilibrium income more than a $1 tax cut will, yet both have the same impact on the budget deficit. So if we care about the budget deficit, the best
What is the balanced-budget multiplier? Explain why the balanced-budget multiplier is equal to one.
Excessive and cumulative public deficits might lead to an increase in the debt-to-GDP ratio, often used to measure the “weight”of public debt on the economy. In 2014, the average debt-to-GDP
Interest rates in Turkey were relatively stable at 8 percent from 2015 through April 2018 but were increased to 17.75 percent in June of that year for two months. Higher interest rates increase the
In 2016, Italy, which is a highly indebted nation, sold 50-year bonds at a yield of 2.8 percent, and buyers were given access to 5 billion euros in the form of these bonds.Would you consider this a
The Republic of South Africa is one of the strongest economies in Africa, with a per-capita GDP at $13,400 in 2017.The World Bank has estimated that South Africa has a Gini index of 63 (out of a
In some extreme cases, an individual’s labor supply curve may be downward sloping at higher hourly wage rates. That is, further increases in the worker’s wage lead them to work fewer
In some extreme cases, an individual’s labor supply curve may be downward sloping at higher hourly wage rates. That is, further increases in the worker’s wage lead them to work fewer hours. Why
Which of the following are capital, and which are not?Explain your answers.a. Emergency Medical Responder (EMR) training and certification from the Red Crossb. Khanna Paper Mills in Amritsar, Indiac.
You play for your college basketball team and enjoy the sport. You have the option to heavily invest in training to become a professional basketball player and earn $1 million per match. However, the
Despite the European debt crisis, in July 2011, the European Central Bank (ECB) focused on its “day job” of fighting inflation and lifted its benchmark rate by quarter of a point to 1.5 percent.
From either an international newspaper such as the Financial Times, the business section of a local daily business newspaper, or the Internet, look up the prime interest rate, the corporate bond
Founded in April 1994, Netscape Communications Corporation is often credited as the creators of the JavaScript in the era when the Internet was evolving as a revolutionizing phenomenon.Netscape
In September 2017, the Federal Reserve called a historic end to its quantitative easing program, a decision that increased the dollar index to 0.7 percent. The yield on the 10-year Treasury also
What factors might cause the supply curve for loanable funds to increase (shift to the right)? Identify the effect that this shift would have on the equilibrium level of the interest rate.What
Figure 11.2 depicts the Investment Demand curve. Suppose that the government were to increase taxes on firms’ profits. How would you expect this tax increase to affect the Investment Demand
During an economic expansion, it is common for the value of property to rise. This means that the value of households’ wealth rises without them taking any specific action. How would you expect
Suppose you are an investor and can buy a stock that will be worth €150 in one year. Further suppose you have the alternative of buying a bond that will be worth €150 in one year and pays an
The town council’s finance committee has evaluated data and determined that the present discounted value of the benefits from a proposed dog park comes to $3,250,000. The total construction cost of
Calculate the present value of the income streams A to E in Table 1 at an 8 percent interest rate and again at a 10 percent rate.Suppose the investment behind the flow of income in E is a machine
Determine what someone should be willing to pay for each of the following bonds when the market interest rate for borrowing and lending is 3.5 percent.a. A bond that promises to pay $15,000 in a
What should someone be willing to pay for each of the bonds in question 1A.5 if the interest rate doubled to 7 percent?Data from question 1A.5Determine what someone should be willing to pay for each
Assume that the present discounted value of an investment project (commercial development) at a discount rate of 7 percent is $825,445,000. Assume that the building just sold for $850 million. Will
Teresa won the Florida lottery and was given the option of receiving $22 million immediately or $1,250,000 at the end of each year for 30 years.a. If Teresa opts for the 30 annual payments, how much
You have just won a million-dollar lottery and will receive $50,000 at the end of each year for 20 years. What is the present value of the 20 annual payments to you today?

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