Questions and Answers of Economics Today The Macro View

1.5 Given the Keynesian consumption function, how would a cut in income tax rates affect consumption?Explain your answer.
1.4 According to New Keynesian economists, why might business firms pay wage rates above market-clearing levels?
1.3 Give two reasons wage rates may not fall.
1.2 Classical economists assumed that wage rates, prices, and interest rates were flexible and would adjust quickly. Consider an extreme case: Suppose classical economists believed wage rates,
1.1 How is Keynes’s position different from the classical position with respect to wages, prices, and Say’s law?
1.Why do the two economists disagree over the effect on spending of a rise in savings?
1.Why do the two economists disagree over the predicted change in output (Real GDP) and the price level?
1.Why do the two economists disagree over the predicted change in spending?
1.Why do the two economists disagree over the predicted change in the unemployment rate?
1.2. What happens in the economy if total expenditures(TE ) are greater than total production(TP )?
1.1. What happens in the economy if total production(TP ) is greater than total expenditures (TE )?
1.3. An economist who believes the economy is self-regulating is more likely to advocate laissez-faire than an economist who believes the economy is inherently unstable. Do you agree or disagree?
1.2. What will happen to Real GDP if autonomous spending rises and the economy is operating in the horizontal section of the Keynesian AS curve? Explain your answer.
1.1. What was Keynes’s position with respect to the self-regulating properties of an economy?
1.If the AD curve shifts rightward and stays within the horizontal section of the AS curve (in Exhibit 6), Real GDP will rise, but the price level will remain constant.Is this correct?
1.3. What happens to the multiplier as the MPC falls?
1.2. If the MPC is 0.70, what does the multiplier equal?
1.1. How is autonomous consumption different from consumption?
1.Let me see if I have this correct.First, someone increases his or her autonomous spending—say, by $10. Second, this$10 spending generates more spending via the multiplier. For example, if the
1.One person’s MPC is higher than another person’s MPC. What does this mean?
1.3. According to Keynes, why might aggregate demand be too low?
1.2. “What matters is not whether the economy is self-regulating or not, but whether prices and wages are flexible and adjust quickly.” Comment.
1.1. What do Keynesians mean when they say the economy is inherently unstable?
1.• Why do the two economists disagree over the effect on spending of a rise in savings?
1.• Why do the two economists disagree over the predicted change in output (Real GDP) and the price level?
1.• Why do the two economists disagree over the predicted change in spending?
1.• Why do the two economists disagree over the predicted change in the unemployment rate?
1.5 Diagrammatically show what happens when the institutional constraints in the economy become less effective
1.4 Economist Jones believes there is always sufficient(aggregate) demand in the economy to buy all the goods and services supplied at full employment. Diagrammatically represent what the economy
1.3 Diagrammatically represent the following:a An economy in which AD increases as it is selfregulating out of a recessionary gap b An economy in which AD decreases as it is selfregulating out of an
1.2 In the following figure, which of parts (a)–(c) is consistent with or representative of:a The economy operating at the natural unemployment rate b A surplus in the labor market c A recessionary
1.1 In the following figure, which point is representative of:a The economy on its LRAS curve b The economy in a recessionary gap c The economy in an inflationary gap All Other Goods 0 E A C B D
1.12 Suppose the economy is self-regulating, the price level is 110, the quantity demanded of Real GDP is $4 trillion, the quantity supplied of Real GDP in the short run is $4.9 trillion, and the
1.11 Suppose the economy is self-regulating, the price level is 132, the quantity demanded of Real GDP is $4 trillion, the quantity supplied of Real GDP in the short run is $3.9 trillion, and the
1.10 Explain the importance of the real balance, interest rate, and international trade effects to long-run (equilibrium)adjustment in the economy.
1.9 If wage rates are not flexible, can the economy be selfregulating?Explain your answer.
1.8 According to economists who believe in a self-regulating economy, what happens—step by step—when the economy is in a recessionary gap? What happens when the economy is in an inflationary gap?
1.7 Explain how an economy can operate beyond its institutional PPF but not beyond its physical PPF.
1.6 Diagrammatically represent an economy in (a) an inflationary gap, (b) a recessionary gap, and (c) long-run equilibrium.
1.5 Describe the relationship of the (actual) unemployment rate to the natural unemployment rate in each of the following economic states: (a) a recessionary gap, (b) an inflationary gap, and (c)
1.4 What does it mean to say the economy is in a recessionary gap? in an inflationary gap? in long-run equilibrium?
1.3 According to classical economists, does an increase in saving shift the AD curve to the left? Explain your answer.
1.2 According to classical economists, does Say’s law hold in a money economy? Explain your answer.
1.1 What is the classical economics position with respect to(a) wages, (b) prices, and (c) interest rates?
1.What does the economy have to do with Yvonne possibly having to move back in with her parents?
1.Can people saving more be bad for the economy?
1.What is Say’s law and what does it say about production and consumption?
1.Would it be correct to say that a selfregulating economy can “heal itself”of a recessionary gap?
1.3. If the economy is in an inflationary gap, locate its position in terms of the two PPFs discussed in this section
1.2. What is the state of the labor market when the economy is in a recessionary gap? in an inflationary gap?
1.1. What is a recessionary gap? an inflationary gap?
1.One Nagging Question: How Can the Unemployment Rate Be Less Than the Natural Unemployment Rate?
1.Are we saying here that an economy has to be in one of three states? Isn’t this the case for markets too?
1.3. What is the classical position on prices and wages?
1.2. According to classical economists, if saving rises and consumption spending falls, will total spending in the economy decrease? Explain your answer.
1.1. Explain Say’s law in terms of a barter economy.
1.• According to José, how does the economy work?
1.• What is Say’s law and what does it say about production and consumption?
1.• Can people saving more be bad for the economy?
1.• What does the economy have to do with Yvonne possibly having to move back in with her parents?
1.5 In the following figure, which of the points is representative of each of the following:a The lowest Real GDP b The highest Real GDP c A decrease in SRAS that is greater than an increase in AD 0
1.4 In the following figure, which part is representative of each of the following:a A decrease in wage rates b An increase in the price level c A beneficial supply shock d An increase in the price
1.3 Diagrammatically represent the following and identify the effect on Real GDP and the price level in the short run:a An increase in SRAS that is greater than the increase in AD b A decrease in AD
1.2 Diagrammatically represent the effect on the price level and Real GDP in the short run of each of the following:a An increase in wealth b An increase in wage rates c An increase in labor
1.1 Suppose that at a price index of 154, the quantity demanded of (U.S.) Real GDP is $10.0 trillion worth of goods. Do these data represent aggregate demand or a point on an aggregate demand curve?
1.12 What is the difference between short-run equilibrium and long-run equilibrium?
1.11 Identify the details of each of the following explanations for an upward-sloping SRAS curve:a Sticky-wage explanation b Worker-misperception explanation
1.10 In the short run, what is the impact on the price level, and Real GDP of each of the following:a An increase in consumption brought about by a decrease in interest rates b A decrease in exports
1.9 A change in the price level affects which of the following?a The quantity demanded of Real GDP b Aggregate demand c Short-run aggregate supply d The quantity supplied of Real GDP
1.8 What is the difference between a change in the quantity supplied of Real GDP and a change in short-run aggregate supply?
1.7 Explain how each of the following will affect short-run aggregate supply:a An increase in wage rates b A beneficial supply shock c An increase in the productivity of labor d A decrease in the
1.6 Will a direct increase in the price of U.S. goods relative to foreign goods lead to a change in the quantity demanded of Real GDP or to a change in aggregate demand?Will a change in the exchange
1.5 Explain what happens to aggregate demand in each of the following cases:a The interest rate rises.b Wealth falls.c The dollar depreciates relative to foreign currencies.d Households expect lower
1.4 The amount of Real GDP (real output) that households are willing and able to buy may change if there is a change in either (a) the price level or (b) some nonprice factor, such as wealth,
1.3 Graphically portray each of the following: (a) a change in the quantity demanded of Real GDP and (b) a change in aggregate demand.
1.2 Explain each of the following: (a) real balance effect,(b) interest rate effect, and (c) international trade effect.
1.1 Is aggregate demand a specific dollar amount? For example, would it be correct to say that aggregate demand is $9 trillion this year?
1.How can foreign income affect U.S. unemployment?
1.If you study economics and still end up in the unemployment line, will you really know why you’re there?
1.Why is Marcy’s trip to Europe getting more expensive?How can a change in exchange rates affect a person’s life?
1.Why does Toby wish interest rates were lower? How can a change in interest rates affect a person’s buying behavior?
1.3. Discuss the details of the worker misperceptions explanation for the upward-sloping SRAS curve.
1.2. Give an example of an increase in labor productivity.
1.1. If wage rates decline, explain what happens to the short-run aggregate supply (SRAS)curve.
1.3. Explain what happens to the AD curve if personal income taxes decline.
1.2. Explain what happens to the AD curve if the dollar appreciates relative to other currencies.
1.1. Explain the real balance effect.
1.If you had to summarize what this section is about, what would you say?
1.Earlier it was stated, “If spending increases at a given price level, aggregate demand rises; if spending decreases at a given price level, aggregate demand falls.”Why was it so important to
1.• How can foreign income affect U.S.unemployment?
1.• If you study economics and still end up in the unemployment line, will you really know why you’re there?
1.• Why is Marcy’s trip to Europe getting more expensive? How can a change in exchange rates affect a person’s life?
1.• Why does Toby wish interest rates were lower? How can a change in interest rates affect a person’s buying behavior?
1.12 Using the following data, calculate (a) gross domestic product (GDP); (b) net domestic product (NDP);(c) national income (NI); (d) personal income (PI). All numbers are in billions of dollars.
1.11 The following figure shows a business cycle. Identify each of the following as a phase of the business cycle:a Point A b Between point A and point B c Point B d Between point B and point C e
1.10 If Real GDP in year 1 is $487 billion and it is $498 billion in year 2, what is the economic growth rate equal to?
1.9 GDP $100 billion, NDP $95 billion, and investment $33 billion.What does the capital consumption allowance equal?
1.8 National income $500 billion, income earned from the rest of the world $10 billion, income earned by the rest of the world $12 billion, indirect business taxes $2 billion, capital
1.7 How would you redraw the circular flow diagram in Exhibit 5 if you wanted to show (a) taxes that firms and households pay to government and (b) transfer payments that government makes to
1.6 According to the circular flow diagram in Exhibit 5, consumption spending flows into U.S. product markets but import spending does not. But U.S. households buy imported goods in U.S. markets,

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