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microeconomics

Questions and Answers of Microeconomics

Find an article in today’s news that could indicate a shift in aggregate supply and/or demand, and draw corresponding aggregate supply and demand curves.
Why do we study the consumption and saving functions together?
Explain the difference between a flow variable and a stock variable. Classify each of the following as a stock or a flow: income, wealth, saving, savings, consumption, investment, government
Why is consumption so much more stable over the business cycle than investment? In formulating your answer, discuss household behavior as well as business behavior.
Assuming investment is autonomous, draw an investment function with income on the horizontal axis. Show how the function shifts if:a. The interest rate falls.b. An investment tax credit is repealed
Use the following table to answer these questions:a. What is the MPC?b. What is the MPS?c. What is the MPI?d. What is the level of aggregate expenditures at each level of income?e. Graph the
Based on the table in exercise 6, what is the linear equation for each of the following functions?data from in exercise 6Use the following table to answer these questions:a. Consumptionb.
Is the AE function the same thing as a demand curve? Why or why not?
What is the level of saving if:a. Disposable income is \($500\) and consumption is \($450\)?b. Disposable income is \($1,200\) and the APS is .9?c. The MPC equals .9, disposable income rises from
What is the marginal propensity to consume if:a. Consumption increases by \($75\) when disposable income rises by \($100\)?b. Consumption falls by \($50\) when disposable income falls by
How can the APC fall as income rises if the MPC is constant?
Why would economies with older populations tend to have consumption functions with greater slopes?
Draw a diagram and illustrate the effects of the following on the net exports function for the United States:a. The French government imposes restrictions on French imports of U.S. goods.b. The U.S.
Why is the slope of the C + I + G function different from the slope of the C + I + G + X function?
Suppose the consumption function is C = $200 + 0.8Y.a. What is the amount of autonomous consumption?b. What is the marginal propensity to consume?c. What would consumption equal when real GDP equals
Explain why the consumption function is flatter in the short run than in the long run. Draw a diagram to illustrate your answer.
Explain the role of inventories in keeping actual expenditures equal to real GDP.
Rework Figure 1 assuming a closed economy (net exports equal zero at all levels of income). What is the equilibrium level of real GDP? What is the spending multiplier? FIGURE 1 The Equilibrium Level
Draw a graph representing a hypothetical economy.Carefully label the two axes, the S + T + IM curve, the I + G + EX curve, and the equilibrium level of real GDP. Illustrate the effect of an increase
Given the following information, what is the spending multiplier in each case?a. MPC = .90, MPI = .10b. MPC = .90, MPI = .20c. MPC = .80, MPI = .30d. MPC = .90, MPI = 0
Draw a graph representing a hypothetical economy in a recession. Carefully label the two axes, the 45-degree line, the AE curve, and the equilibrium level of real GDP. Indicate and label the GDP gap
Explain the effect of foreign repercussions on the value of the spending multiplier.
Suppose the MPC is .80, the MPI is .10, and the income tax rate is 15 percent. What is the multiplier in this economy?
What is the MPC?Use the information in the following table Y C G X $100 $120 $20 $30 $10 $300 $300 $20 $30 -$10 $500 $480 $20 $30 -$30 $700 $660 $20 $30 -$50
What is the MPI?Use the information in the following table Y C G X $100 $120 $20 $30 $10 $300 $300 $20 $30 -$10 $500 $480 $20 $30 -$30 $700 $660 $20 $30 -$50
What is the MPS?Use the information in the following table Y C G X $100 $120 $20 $30 $10 $300 $300 $20 $30 -$10 $500 $480 $20 $30 -$30 $700 $660 $20 $30 -$50
What is the multiplier?Use the information in the following table Y C G X $100 $120 $20 $30 $10 $300 $300 $20 $30 -$10 $500 $480 $20 $30 -$30 $700 $660 $20 $30 -$50
What is the equilibrium level of real GDP?Use the information in the following table Y C G X $100 $120 $20 $30 $10 $300 $300 $20 $30 -$10 $500 $480 $20 $30 -$30 $700 $660 $20 $30 -$50
What is the value of autonomous consumption?Use the information in the following table Y C G X $100 $120 $20 $30 $10 $300 $300 $20 $30 -$10 $500 $480 $20 $30 -$30 $700 $660 $20 $30 -$50
If government spending increases by $15, what is the new equilibrium level of real GDP?Use the information in the following table Y C G X $100 $120 $20 $30 $10 $300 $300 $20 $30 -$10 $500 $480 $20
What are the equations for the consumption, net exports, and aggregate expenditures functions?Use the information in the following table Y C G X $100 $120 $20 $30 $10 $300 $300 $20 $30 -$10 $500
Derive the aggregate demand curve from an aggregate expenditures diagram. Explain how aggregate demand relates to aggregate expenditures.
In the chapter titled ‘‘Macroeconomic Equilibrium:Aggregate Demand and Supply,’’ the aggregate supply (AS) curve was upward sloping. Now, in this chapter, we have a flat AS curve. What are
Why should the business cycles of Canada and Mexico be much like the U.S. business cycle, while those of South Africa and Turkey may differ from the U.S. pattern of economic expansion and contraction?
What is the role of aggregate demand in eliminating the GDP gap? How does the slope of the AS curve affect the fiscal policy actions necessary to eliminate the GDP gap?
What is the ‘‘government budget constraint’’? In other words, what are the sources of financing government spending?
In what ways are government deficits harmful to the economy?
Define and give three examples of automatic stabilizers.
Briefly describe the major differences between fiscal policy in industrial countries and that in developing countries.
Why will real GDP tend to rise when government spending and taxes rise by the same amount?
How can a larger government fiscal deficit cause a larger international trade deficit?
Why do government budget deficits grow during recessions?
Taxes can be progressive, regressive, or proportional.Define each, and briefly offer an argument for why income taxes are usually progressive.
What is a value-added tax (VAT), and what is an advantage of such a tax relative to an income tax?
What is the size of the GDP gap?Assume that equilibrium real GDP is \($800\) billion, potential real GDP is \($900\) billion, the MPC is .80, and the MPI is .40.
How much must government spending increase to eliminate the GDP gap?Assume that equilibrium real GDP is \($800\) billion, potential real GDP is \($900\) billion, the MPC is .80, and the MPI is .40.
How much must taxes fall to eliminate the GDP gap?Assume that equilibrium real GDP is \($800\) billion, potential real GDP is \($900\) billion, the MPC is .80, and the MPI is .40.
If government spending and taxes both change by the same amount, how much must they change to eliminate the recessionary gap?Assume that equilibrium real GDP is $800 billion, potential real GDP is
Suppose the MPC is .90 and the MPI is .10. If government expenditures go up \($100\) billion while taxes fall \($10\) billion, what happens to the equilibrium level of real GDP?
What is the equilibrium level of real GDP?Use the following equations C $100+.8Y 1 = $200 G= $250 X $100 2Y
What is the new equilibrium level of real GDP if government spending increases by $150?Use the following equations C $100+.8Y 1 = $200 G= $250 X $100 2Y
What is the new equilibrium level of real GDP if government spending and taxes both increase by$150?Use the following equations C $100+.8Y 1 = $200 G= $250 X $100 2Y
Make a graph showing the spending and tax revenue of your state government for as many years as you can find (use the government of your home country if you are not from the United States).What
Describe the four functions of money, using the U.S. dollar to provide an example of how dollars serve each function.
During World War II, cigarettes were used as money in prisoner of war camps. Considering the attributes that a good money should possess, why would cigarettes emerge as money among prisoners?
What is a financial intermediary? Give an example of how your bank or credit union serves as a financial intermediary between you and the rest of the economy.
What is the Eurocurrency market, and how is banking in the Eurocurrency market different from domestic banking?
What are IBFs? Why do you think they were legalized?
First Bank has cash reserves of \($200,000,\) loans of \($800,000,\) and deposits of \($1,000,000\).a. Prepare a balance sheet for the bank.b. If the bank maintains a reserve requirement of 15
Yesterday Bank A had no excess reserves. Today it received a new deposit of $4,000.a. If the bank maintains a reserve requirement of 2 percent, what is the maximum loan that Bank A can make?b. What
‘‘M2 is a better definition of the money supply than M1.’’ Agree or disagree with this statement. In your argument, clearly state the criteria on which you are basing your decision.
The deposit expansion multiplier measures the maximum possible expansion of the money supply in the banking system. What factors could cause the actual expansion of the money supply to differ from
What is liquidity? Rank the following assets in order of their liquidity: \($10\) bill, personal check for \($20,\) savings account with \($400\) in it, stereo, car, house, traveler’s check.
What is the value of M1 in the above table?Use the following table on the components of money in a hypothetical economy Money Component Traveler's checks Amount $ 100 Currency $2,000
What is the value of M2 in the above table?Use the following table on the components of money in a hypothetical economy Money Component Traveler's checks Amount $ 100 Currency $2,000
The deposit expansion multiplier has been defined as the reciprocal of the reserve requirement. Suppose that banks must hold 10 percent of their deposits in reserve. However, banks also lose 10
The Federal Reserve System divides the nation into 12 districts.a. List the 12 cities in which the district banks are located.b. Which Federal Reserve district do you live in?
Briefly describe the functions that the Fed performs for the banking community. In what sense is the Fed a banker’s bank?
Draw a graph showing equilibrium in the money market. Carefully label all curves and axes, and explain why the curves have the slopes that they do.
Using the graph you prepared for exercise 3, illustrate and explain what happens when the Fed increases the money supply.Data from exercise 3Draw a graph showing equilibrium in the money market.
When the Fed decreases the money supply, the equilibrium level of income changes. Illustrate and explain how.
Describe the quantity theory of money, defining each variable. Explain how changes in the money supply can affect real GDP and the price level.Under what circumstances could an increase in the money
There are several tools that the Fed uses to implement monetary policy.a. Briefly describe these tools.b. Explain how the Fed would use each tool in order to increase the money supply.c. Suppose the
First Bank has total deposits of \($2,000,000\) and legal reserves of \($220,000\).a. If the reserve requirement is 10 percent, what is the maximum loan that First Bank can make, and what is the
Suppose you are a member of the FOMC and the U.S. economy is entering a recession. Write a directive to the New York Fed about the conduct of monetary policy over the next two months. Your directive
Suppose the Fed has a target range for the yen–dollar exchange rate. How would it keep the exchange rate within the target range if free market forces push the exchange rate out of the range? Use a
Why do you demand money? What determines how much money you keep in your pocket, purse, or bank accounts?
What is the current yield on a bond? Why do interest rates change when bond prices change?
If the Fed increases the money supply, what will happen to each of the following (other things being equal)?a. Interest ratesb. Money demandc. Investment spendingd. Aggregate demande. The equilibrium
It is sometimes said that the Federal Reserve System is a nonpolitical agency. In what sense is this true?Why might you doubt that politics have no effect on Fed decisions?
Suppose the banking system has vault cash of \($1,000,\) deposits at the Fed of \($2,000,\) and demand deposits of \($10,000\).a. If the reserve requirement is 20 percent, what is the maximum
What does ECB stand for? Where is the ECB located?In what way is central banking in the euro-area countries similar to the Federal Reserve System?
What is the difference between the short-run Phillips curve and the long-run Phillips curve? Use an aggregate supply and demand diagram to explain why there is a difference between them.
Give two reasons why there may be a short-run tradeoff between unexpected inflation and the unemployment rate.
‘‘Unexpected increases in the money supply cause clockwise movements in the Phillips curve diagram;unexpected decreases in the money supply cause counterclockwise movements in the Phillips curve
Economists have identified two kinds of macroeconomic expectations.a. Define them.b. What are the implications for macroeconomic policy of these two forms of expectations?
Write down the government budget constraint and explain how it can be used to understand the relationship between fiscal and monetary policies.
Using the government budget constraint, explain:a. Why some countries experience hyperinflation.b. How fiscal policy must change in order to implement a noninflationary monetary policy.
Parents, like governments, establish credibility by seeing to it that their ‘‘policies’’ (the rules that they outline for their children) are time consistent.Analyze the potential for time
Suppose an economy has witnessed an 8 percent rate of growth in its money supply and prices over the last few years. How do you think the public will respond to an announced plan to increase the
What are the implications for the timing of business cycle fluctuations over the years if all business cycles are:a. Manipulated by incumbent administrations.b. A product of real shocks to the
Suppose the Federal Reserve System were abolished and Congress assumed responsibility for monetary policy along with fiscal policy. What potential harm to the economy could result from such a change?
Suppose tax revenues equal \($100\) billion, government spending equals \($130\) billion, and the government borrows \($25\) billion. How much do you expect the money supply to increase, given the
If the government budget deficit equals \($240\) billion and the money supply increases by \($100\) billion, how much must the government borrow?
Discuss how each of the following sources of real business cycles would affect the economy.a. Farmers go on strike for six months.b. Oil prices fall substantially.c. Particularly favorable weather
Using an aggregate demand and aggregate supply diagram, illustrate and explain how a political business cycle is created.
Use a Phillips curve diagram to illustrate and explain how a political business cycle is created.
What is the natural rate of unemployment? What can cause it to change over time?
Many developing countries have experienced high money growth rates and, consequently, high inflation. Use the government budget constraint to explain how a poor country that wants to increase
What factors should affect the variability of the growth rate of real output? Which do you think could provide for more stability going forward, and which are likely to be less important?

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