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Questions and Answers of
Economics
What does the balance of international indebtedness measure? How does this statement differ from the balance-of-payments?
The supply and demand for foreign exchange are considered to be derived schedules. Explain.
What factors underlie changes in a currency's value in the short run?
Under a fixed exchange rate system, what automatic adjustments promote current account equilibrium?
How do adjustments in domestic interest rates help affect international investment flows?
When analyzing the income adjustment mechanism, one must account for the foreign repercussion effect. Explain.
According to the absorption approach, does it make any difference whether a nation's currency depreciates when the economy is operating at less than full capacity versus at full capacity?
Suppose ABC Inc., a U.S. auto manufacturer, obtains all of its auto components in the United States and that its costs are denominated in dollars. Assume the dollar's exchange value appreciates by 50
What techniques can a central bank use to stabilize the exchange value of its currency?
What is the purpose of currency devaluation? What about a currency revaluation?
In terms of volume, which component of world reserves is currently most important? Which is currently least important?
1. What is the nature of the incentive that appears to have predominated in influencing Howard's choice about where to play basketball? 2. Does Howard appear to have engaged in behavior consistent
1. Why do you suppose that people with student loan debts wait longer to get married and to have children than people without debts? 2. Is regretting a previous decision inconsistent with the
Explain which is the independent variable and which is the dependent variable for each of the following examples. a. Once you determine the price of a flash drive at the college bookstore, you will
1. Why do you think that some firms now require workers to stand during meetings? 2. How can companies readily assign a dollar value to the opportunity cost of time that employees spend e-mailing
1. How might the fact that more females than males now obtain college degrees contribute to the relative shift in earned incomes from husbands to wives? 2. Each day, the average wife spends about 35
You and a friend decide to spend $100 each on concert tickets. Each of you alternatively could have spent the $100 to purchase a textbook, a meal at a highly rated local restaurant, or several
After the concert discussed in Problem 2-3 is over and you and your friend are traveling home, you discuss how each of you might otherwise have used the four hours devoted to attending the concert.
The following table illustrates the points a student can earn on examinations in economics and biology if the student uses all available hours for study. Plot this student's production possibilities
Based on the information provided in Problem 2-6, what is the opportunity cost to this student of allocating enough additional study time on economics to move her grade up from a 90 to a 100? In
Consider a change in the table in Problem 2-6. The student's set of opportunities is now as follows: Does the PPC illustrate the law of increasing additional cost? What is the opportunity cost to
1. In which direction has Finland's market ice cream supply curve shifted? 2. The amount of the tax on ice cream is 0.75 euro per kilogram sold. What is the vertical amount of the shift in the
1. What has happened to the market demand curves in the markets for barge, truck, and rail transportation services? 2. In the short run, have the markets for barge, truck, and rail transportation
Suppose that in a recent market period, the following relationship existed between the price of tablet devices and the quantity supplied and quantity demanded.Price ______Quantity Demanded
Consider the market for smartphones. Explain whether the following events would cause an increase or a decrease in supply or an increase or a decrease in the quantity supplied. Illustrate each, and
Suppose that in a later market period, the quantities supplied in the table in Problem 3-1 are unchanged. The amount demanded, however, has increased by 30 million at each price. Construct the
For each of the following shifts in the demand curve and associated price change of a complement or substitute item, explain whether the price of the complement or substitute must have increased or a
Consider the following diagram of a market for one-bedroom rental apartments in a college community.a. At a rental rate of $1,000 per month, is there an excess quantity supplied, or is there an
1. Why does a zero-price restriction for a scarce good necessarily lead to a shortage? 2. Why do you suppose that some frequent LAX travelers bought electric cars?
1. Market prices of drugs periodically rise above ceilings that the federal government imposes on hundreds of pharmaceuticals, including a number of cancer drugs. Why do you think that about 300 drug
In recent years, technological improvements have greatly reduced the costs of producing basic cell phones, and a number of new firms have entered the cell phone industry. At the same time, prices of
In 2011, the government of a nation established a price support for wheat. The government's support price has been above the equilibrium price each year since, and the government has purchased all
There are simultaneous changes in the demand for and supply of global-positioning-system (GPS) devices, with the consequences being an unambiguous increase in the market clearing price of these
There are simultaneous changes in the demand for and supply of tablet devices, with the consequences being an unambiguous decrease in the equilibrium quantity of these devices but no change in the
Suppose that the government places a ceiling on the price of a medical drug below the equilibrium price.a. Show why there is a shortage of the medical drug at the new ceiling price.b. Suppose that a
1. What guidance does the economic theory of the correction of externalities offer regarding the amounts of financial penalties to be imposed on polluters? 2. Why might the Chinese government
1. Why is it unrealistic for government projections to assume that the quantity of health care services demanded will not increase when Medicare subsidies push down the out-of-pocket prices of people
Suppose that the current price of a tablet device is $300 and that people are buying 1 million drives per year. The government decides to begin subsidizing the purchase of new tablet devices. The
Consider a nation with a government that does not provide people with property rights for a number of items and that fails to enforce the property rights it does assign for remaining items. Would
Many economists suggest that our nation's legal system is an example of a public good. Does the legal system satisfy the key properties of a public good? Explain your reasoning.
1. Why is Chicago borrowing hundreds of millions of dollars each year? 2. What steps must Chicago consider taking to satisfy its budget constraint?
1. For some taxpayers, why might sudden enforcement of previously weakly enforced tax requirements be equivalent to an unexpected tax rate increase? 2. Why do you suppose that a growing number of
Consider the table below when answering the questions that follow. Show your work, and explain briefly.a. What is Christino's marginal tax rate?b. What is Jarius's marginal tax rate?c. What is Meg's
Refer to the table in Problem 6-3 when answering the following questions. Show your work, and explain briefly.a. Does Christino experience progressive, proportional, or regressive taxation?b. Does
Suppose that a state has increased its sales tax rate every other year since 2005. Assume the state collected all sales taxes that residents legally owed. The table below summarizes its experience.
The sales tax rate applied to all purchases within a state was 0.04 (4 percent) throughout 2012 but increased to 0.05 (5 percent) during all of 2013. The state government collected all taxes due, but
The British government recently imposed a unit excise tax of about $154 per ticket on airline tickets applying to flights to or from London airports. In answering the following questions, assume
To raise funds aimed at providing more support for public schools, a state government has just imposed a unit excise tax equal to $4 for each monthly unit of wireless phone services sold by each
1. Why might small businesses reduce hiring if wages for scarce skilled workers rise? 2. How might federal small-business regulations affect structural unemployment?
1. Why does the overall level of employment often tend to increase as overall labor force participation rises? 2. If male unemployment were to decrease at the same time that male labor force
Consider the following price indexes: 90 in 2015, 100 in 2016, 110 in 2017, 121 in 2018, and 150 in 2019. Answer the following questions. a. Which year is likely the base year? b. What is the
Suppose that in 2019 there is a sudden, unanticipated burst of inflation. Consider the situations faced by the following individuals. Who gains and who loses? a. A homeowner whose wages will keep
Suppose that in 2015, a typical U.S. student attending a state-supported college bought 10 textbooks at a price of $100 per book and enrolled in 25 credit hours of coursework at a price of $360 per
1. How do purchasing power parities enable global price comparisons? 2. Could the purchasing power parities for per capita real GDP levels in Table 8-5 be expressed in terms of work time instead of
1. Why do you think that the BEA decided to count as intangible investment only the estimated values of copyrighted artwork, musical performances, and videos while excluding estimated values of
Explain in your own words why the flow of gross domestic product during a given interval must always be equivalent to the flow of gross domestic income within that same period.
Suppose that in 2017, geologists discover large reserves of oil under the tundra in Alaska. These new reserves have a market value estimated at $50 billion at current oil prices. Oil companies spend
Consider the diagram below, and answer the following questions.a. What is the base year? Explain. b. Has this country experienced inflation or deflation since the base year? How can you tell?
Look back at Table 8-4 on page 189, which explains how to calculate real GDP in terms of 2009 constant dollars. Change the base year to 2005. Recalculate the price index, and then recalculate real
Consider the following hypothetical data for the U.S. economy in 2018 (in trillions of dollars), and assume that there are no statistical discrepancies or other adjustments. Profit
1. How could higher barriers to immigration of highly skilled immigrants tend to reduce overall U.S. labor productivity and, consequently, economic growth? 2. What relationship might exist between
1. Why do the efforts of foreign scientists and engineers contribute much more to labor productivity and economic growth than the exertions of foreign sports stars? 2. In your view, are rules that
In 2016, a nation's population was 10 million. Its nominal GDP was $40 billion, and its price index was 100. In 2017, its population had increased to 12 million, its nominal GDP had risen to $57.6
A nation's per capita real GDP was $2,000 in 2015, and the nation's population was 5 million in that year. Between 2015 and 2016, the inflation rate in this country was 5 percent, and the nation's
1. As more highway and rail bridges become deficient, what is happening to the pace at which the U.S. production possibilities curve shifts outward over time? 2. How are bridge deficiencies
1. In what direction is Greenland's LRAS curve currently shifting? Explain. 2. If aggregate demand were to remain unchanged, what likely would happen to Greenland's inflation rate during the coming
Identify the combined shifts in long-run aggregate supply and aggregate demand that could explain the following simultaneous occurrences. a. An increase in equilibrium real GDP and an increase in the
1. How has the drought affected the position of the U.S. SRAS curve? 2. Ceteris paribus, what is the effect of the drought on the equilibrium price level?
1. Does the fact that sales at larger firms now contribute more to aggregate demand shocks or aggregate supply shocks necessarily imply that these shocks have greater magnitudes than in the past?
Between early 2008 and the beginning of 2009, a gradual stock-market downturn and plummeting home prices generated a substantial reduction in U.S. household wealth that induced most U.S. residents to
Between early 2005 and late 2007, total planned expenditures by U.S. households substantially increased in response to an increase in the quantity of money in circulation. Explain, from a short-run
1. If the hukou system were ended, what would happen to China's C + I + G + X curve? 2. Why do you think some economists argue that the hukou system artificially depresses China's equilibrium annual
1. Why do both movements along and any shifts in the consumption function simultaneously explain observed changes in desired aggregate consumption spending? 2. If the decline in net wealth following
Consider the diagram below, which applies to a nation with no government spending, taxes, and net exports. Use the information in the diagram to answer the following questions, and explain your
Given each of the following values for the multiplier, calculate both the MPC and the MPS. a. 20 b. 10 c. 8 d. 5
1. In the short run, could Social Security add to equilibrium real GDP on net if recipients allocate a larger share of income to consumption than taxed workers? 2. If the assessment of Social
1. How could the Keynesian spending multiplier have a value of 5 while the value of the impact fiscal multiplier is only equal to 1? 2. Some economists have estimated negative values for the
In May and June of 2008, the federal government issued one-time tax rebates-checks returning a small portion of taxes previously paid-to millions of U.S residents, and U.S. real disposable income
Assume that equilibrium real GDP is $18.2 trillion and full-employment equilibrium (FE) is $18.55 trillion. The marginal propensity to save is 1/7. Answer the questions using the data in the
Assume that MPC = 4/5 when answering the following questions. a. If government expenditures rise by $2 billion, by how much will the aggregate expenditure curve shift upward? By how much will
Assume that MPC = 4/5 when answering the following questions. a. If government expenditures rise by $1 billion, by how much will the aggregate expenditure curve shift upward? b. If taxes rise by $1
1. Why was an "austerity" budget consistent with a lower annual public deficit? 2. Why do you suppose that Ireland's government required several straight years of "austerity" budgets to reduce the
1. Are historically high ratios of the net public debt to GDP necessarily "bad"? Explain your answer. 2. Why do you think that most economists examine ratios of the net public debt to GDP instead of
To eliminate the deficit (and halt the growth of the net public debt), a politician suggests that "we should tax the rich." The politician makes a simple arithmetic calculation in which he applies a
Refer back to Problem 14-11. If the politician defines "the rich" as people with annual taxable incomes exceeding $1 million per year, what is another difficulty with the politician's reasoning,
In each of the past few years, the federal government has regularly borrowed funds to pay for at least one-third of expenditures that tax revenues were insufficient to cover. More than 60 percent of
Suppose that the share of U.S. GDP going to domestic consumption remains constant. Initially, the federal government was operating with a balanced budget, but this year it has increased its spending
Suppose that the economy is experiencing the short-run equilibrium position depicted at point A in the diagram below. Then the government raises its spending and thereby runs a budget deficit in an
1. What is one key function of money performed by airtime minutes? Explain. 2. What other key function of money do airtime minutes exhibit? Explain.
1. In principle, which functions of money can digital currencies such as bitcoins perform? Explain. 2. What do you suppose is the main economic interest of federal and state governments in the fact
1. Why are future Fed policy intentions, such as those communicated by today's Fed chair, Janet Yellen, of particular interest to securities traders? 2. Why do you think traders regard Martin's
1. If the public's desired money balances were to increase and the Fed were to allow the quantity of money in circulation to rise, how would such a Fed policy response influence the short-run
To implement a credit policy intended to expand liquidity of the banking system, the Fed desires to increase its assets by lending to a substantial number of banks. How might the Fed adjust the
During an interval between mid-2010 and early 2011, the Federal Reserve embarked on a policy it termed "quantitative easing." Total reserves in the banking system increased. Hence, the Federal
On the basis of Problem 16-1, imagine that initially the market interest rate is 5 percent and at this interest rate you have decided to hold half of your financial wealth as bonds and half as
Assume that the following conditions exist:a. All banks are fully loaned up-there are no excess reserves, and desired excess reserves are always zero.b. The money multiplier is 3.c. The planned
Assume that the following conditions exist: a. All banks are fully loaned up-there are no excess reserves, and desired excess reserves are always zero. b. The money multiplier is 4. c. The planned
1. Did Fed critics perceive the position of the long-run Phillips curve as being to the right or left of an unemployment rate of 6.5 percent? Explain. 2. Which of the Fed studies emphasizes the
1. Why would the Fed likely have faced difficulties in its effort to combine activist and passive policymaking if the inflation rate had increased substantially while the unemployment rate remained
Suppose that people who previously had held jobs become cyclically unemployed at the same time the inflation rate declines. Would the result be a movement along or a shift of the short-run Phillips
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