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Questions and Answers of
Economics
This year's value of the economy's price index is 100, and people anticipate that next year's value will be 103. The current nominal interest rate is 5 percent. What is the real interest rate?
This year is the base year for computing the nation's price index. The current nominal interest rate is 6 percent, and the real interest rate is 3.5 percent. What is the anticipated value of next
Suppose that the U.S. nonmilitary, noninstitutionalized adult population is 254 million, the number employed is 156 million, and the number unemployed is 8 million. a. What is the unemployment
If market tuition rate for college courses were used as implicit dollar valuations of "free" Internet courses for inclusion in GDP, what assumption would be adopted in comparing the "free" courses
Why might current intangible investments in recorded music by Katie Perry or Rihanna be easier to measure with greater precision today than long-past investments in the recorded music of, say, Elvis
What is the percentage increase in China's per capita GDP when one switches from foreign exchange rates to purchasing power parity?
1. Why might it be difficult to measure natural resource depletion or pollution and convert the resulting quantity into a dollar-denominated amount? 2. Why do you suppose that many economists worry
1. Why do you suppose that there is a positive relationship between nations' tax rates and the relative size of their underground economies? 2. How do you suppose that differing levels of government
Which of the following activities of a computer manufacturer during the current year are included in this year's measure of GDP? a. The manufacturer produces a chip in June, uses it as a component
Look back at Table 8-3, which explains how to calculate real GDP in terms of 2009 constant dollars. Change the base year to 2007. Recalculate the price index, and then recalculate real GDP-that is,
Consider the following hypothetical data for the U.S. economy in 2020 (in trillions of dollars), and assume that there are no statistical discrepancies or other
Which of the following are production activities that are included in GDP? Which are not? a. Mr. King performs the service of painting his own house instead of paying someone else to do it. b. Mr.
"The largest change is from zero to one." Does this statement have anything to do with relative growth rates in poorer versus richer countries?
1. Why do you suppose that nations with higher degrees of measured distrust of strangers tend to observe lower rates of economic growth, other things being equal? 2. Who benefits from the exclusion
1. Why does it appear to be difficult to assess whether there is a direct or inverse relationship between inequality and economic growth? 2. Could higher economic growth cause greater income
1. Why might a stringent rule that induces a few firms to reduce production be less likely to reduce economic growth rate than a less stringent but broader regulation that causes all industries to
On the basis of the information in Problem 9-10 and reference to Table 9-3, about how many more dollars' worth of real GDP per capita would the person in China be earning 50 years from now than the
1. Has China's production possibilities curve been shifting outward or inward over the past 40 years? Explain your answer. 2. Why do you suppose that economists generally are more interested in the
1. As more of the nation's systems of river locks become deficient, what is happening to the pace at which the U.S. production possibilities curve shifts outward over time? 2. How are deficiencies
1. How could a return of the U.S. population growth rate to its previous level reduce the disinflationary effect of secular stagnation? 2. Why might a return of the U.S. population growth rate to
In Figure 10-2, if the economy acquires a larger amount of capital goods in the current year, does a larger or smaller onward shift in the production possibilities curve result? Does the LRAS curve
Consider Figure 10-4, what are the three effects of decreases in the price level, and do these generate upwards or downward movements along the economy's aggregate demand curve?
Take a look at panel (a) of Figure 10-6. In the absence of a change in aggregate demand, what effect does economic growth have on the price level over time, other things being equal? Why?
Take a look at panel (b) of Figure 10-6. If the Federal Reserve seeks to prevent secular deflation from taking place as a consequence of economic growth, how should it change the quantity of money in
Consider panel (a) of Figure 10-8. What type of variation in the position of the long-run aggregate supply curve could generate inflation-that is, an increase in the equilibrium, price level? In a
Take a look at panel (b) of Figure 10-8. What change in the position of the aggregate demand curve could generate inflation-that is, an increase in the equilibrium price level? What type of variation
Why do you suppose that throughout this decade the rate of employment among male workers has exceeded the unemployment rate among female workers?
How do you suppose that the increase in Japan's consumption tax rate affected the nation's equilibrium price level, other things being equal?
Why do you suppose that a number of economists are advising the Bank of Japan to boost the nation's money supply when the government implements its additional consumption tax increase?
How has the fact that thousands of people from Puerto Rico have moved to the United States to search for jobs likely influenced Puerto Rico's official unemployment rate? Explain your reasoning.
Why do you suppose that the effects of the minimum-wage-generated aggregate supply shock in Puerto Rico have persisted for several years?
In Figure 11-2, if planned saving was less than planned investment, what would be true of the interest rate in relation to its equilibrium value? How would the interest rate adjust?
Consider Figure 11-3. Will all people who desire to work be employed if the current wage rate is $28 per hour? How many people will be employed and unemployed at this wage rate?
Take a look at Figure 11-4. If the Federal Reserve increase the quantity of money in circulation sufficiently to generate a rightward shift in the aggregate demand curve by $0.5 trillion, will actual
Consider Figure 11-9. Suppose that businesses in this nation initially had been exporting significant amounts of domestically produced goods and services abroad. Assume that other nations of the
Consider Figure 11-10. Suppose that the real interest rate suddenly declines for reasons that have nothing to do with the value of the price level. What happens to the nation's aggregate demand
Take a look at Figure 11-11. If this country's government decides to enact short-term barriers to international trade and substantial regulations of domestic businesses, what happens to the short-run
1. When the average propensity to save declines as real disposable income increases, what must happen to the average propensity to consume? Explain your reasoning. 2. In principle, what might be
In light of the above discussion, how is a greater degree of habit persistence in consumption likely to affect the marginal propensity to save? Explain your reasoning.
1. According to Keynesian theory, what should have determined the actual amount of the response of real consumption expenditures to the small increase in real GDP? 2. What does the theory of
1. How could toughened federal regulations of businesses during the current decade have inhibited a rightward shift in the investment function? 2. How might recent increases in state and federal tax
If a government agency decided to fund construction of a private hospital in an area in which other private hospitals already are just breaking even why might one of the other private hospitals
Based on Schwinn's conclusions, is the government likely to be able to boost real GDP with an increase in government spending if it has raised and lowered its expenditures a number of times in
1. How does unemployment compensation function as an automatic stabilizer? 2. Why do you suppose that many economists perceive a trade-off between short-term stabilization benefits of unemployment
1. Other things being equal, what features of a nation's economy do you think would tend to contribute to a higher value for its stabilization coefficient? 2. Why do you suppose that some economist
Consider the accompanying diagram, in which the current short-run equilibrium is at point A, and answer the questions that follow. a. What type of gap exists at point A? b. If the marginal propensity
Recall that the Keynesian spending multiplier equals 1/ (1 - MPC). Suppose that in panel (a) of Figure 13-1, the government determined that the amount by which the AD curve had to be shifted directly
Recall that the Keynesian spending multiplier equals 1/ (1 - MPC). Suppose that in panel (b) of Figure 13-1, the government knows that the MPC is equal to 0.75 and that the amount of the horizontal
Recall that the Keynesian spending multiplier equals 1/ (1 - MPC). Suppose that in Figure 13-4, the MPC is equal to 0.9. In addition, the amount of the horizontal leftward shift from AD2 to AD3
Every 1-percentage-point increase in the marginal income tax rate induces some workers to supply less labor, which cuts real GDP by $0.2 trillion. At the same time, each 1-percentage-point increase
A government has found that 2 months elapse before it can identify a problem to address with a policy action. It has found that 1 month is required to determine the appropriate policy action.
In Figure 13-6, explain why a budget deficit naturally tends to arise at a real GDP level such as Y2 to the left of Yf?
Consider the diagram below, in which the current short-run equilibrium is at point A, and answer the questions that follow.a. What type of gap exists at point A? b. If the marginal propensity to save
1. Who ultimately provides the funds to cover the expense of forgiving the qualifying portion of U.S.-government-provided student loans? 2. How might the fact that many people who vote in national
1. Why do you suppose that governments do not rely on asset sales as a major revenue source over many years? 2. Why might nations' governments earn lower-than-anticipated revenues from asset sales
1. To which key set of expenditures do you suppose that "other things being equal" definitely applies in the government's projections displayed in panel (b) of Figure 14-6? 2. If the federal
Take a look at Figure 14-1. During the brief green-shaded intervals, is the amount of the U.S. net public debt more likely to be increasing or decreasing? Explain your reasoning.
Consider Figure 14-2. The years immediately after 2008 stand out as having the highest values in the figure. The main reason is that the dollar magnitudes of the federal government's deficits were
Take a look at the most recent years of data on the net public debt displayed in Figure 14-3, and then examine the most recent years of data on federal budget deficits shown in Figure 14-2. Why do
A fraction of the funds borrowed by the federal government between 2008 and 2015 were utilized to fund public investments in a number of solar power companies that produced little output and halted
Consider Figure 14-4, which shows that trade deficits usually accompany federal budget deficits. Explain why we might anticipate that federal budget deficits and trade deficits would tend to be
The long-run effect of higher government budget deficits on the equilibrium annual flow of real GDP is zero. Who, therefore, benefits in the long run from higher government deficits?
1. Why do you suppose that people first stopped regularly using Zimbabwean dollars as a store of value before deciding to halt their use as a medium of exchange? 2. If interest rates earned by banks
Why does a credit-card transaction to buy an item fail to count as part of the M1 measure of money?
1. How do you suppose that the willingness of European banks to make adjustable-rate mortgage loans has been affected by the decrease in interest rates that they earn? 2. Why do you suppose that
Consider Figure 15-1, which focuses on liquidity. How might limited acceptability of old masters paintings in exchange and difficulties in predicting the values of these paintings from year to year
Does Figure 15-3 depict direct finance or indirect finance? Explain. How could the figure be revised to illustrate the alternative form of finance?
Consider Figure 15-4. Explain how Jill Jones's debit-card transaction affects the assets and liabilities of Citibank and of Bank of America. Why does this transaction leave unchanged the total
Take a look at Figure 15-5. Suppose that the Federal Reserve's focus of monetary policymaking shifted away from buying and selling U.S. government securities to utilizing the discount rate or the
Consider Figure 15-7. Describe the basic shape that this figure would take if the Fed had instead generated a multiple contraction in the money supply by removing $100,000 in reserves from the
In Problem 15-24, what would be the amount of the potential money multiplier that applies to a $100,000 decrease in reserves caused by a Fed open market sale of that amount? How much would the money
Why might the fact that private economic forecasters complete to sell their services help to constrain behavioral tendencies for too much optimism in projections of real GDP growth? Explain your
1. What do you suppose might be gained-and by whom-if the Fed were to follow an easily understood rule as a guide for conducting monetary policy? Explain. 2. What do you think might be lost-and by
1. Why do you think that many people pay so much attention to likely future movements in the federal funds rate? 2. If the FOMC were to aim to attain targets for M1 or M2 instead of the federal funds
Consider the two panels of Figure 16-2. Suppose that instructions in the latest FOMC Directive call for a monetary policy action aimed at pushing down the rate of interest prevailing in the economy.
Take a look at the two panels of Figure 16-2, and also consider Figure 16-1. Suppose that instructions in the latest FOMC Directive call for a monetary policy action aimed at inducing individuals and
Take a look at Figure 16-3. Discuss a policy action that the Trading Desk at the Federal Reserve Bank of New York could undertake in order to bring about the increase in aggregate demand displayed in
Consider Figure 16-3. Discuss a policy action that the Trading Desk at the Federal Reserve Bank of New York could undertake in order to generate the decrease in aggregate demand displayed in this
Take a look at Figure 16-6. Suppose that a multiple reduction in real GDP is the final outcome that the Fed desires in the last box in the figure. Explain the required directions of effects-that is,
Consider Figure 16-7. Discuss a specific monetary policy action that the Fed's Trading Desk could implement in order to induce the effects traced out by this figure.
Suppose that the economy currently is in long-run equilibrium. Explain the short-and long-run adjustments that will take place in an aggregate demand-aggregate supply diagram if the Fed expands the
Suppose that each 0.1-percentage-point decrease in the equilibrium interest rate induces a $10 billion increase in real planned investment spending by businesses. In addition, the investment
Suppose that each 0.1-percentage-point increase in the equilibrium interest rate induces a $5 billion decrease in real planned investment spending by businesses. In addition, the investment
1. Why do you suppose that uncertainty about tax rates is a key element of Baker, Bloom, and Davis's policy-uncertainty index? 2. Why might it be the case that even if distorted beliefs alter real
Why might Fed policymakers, in turn, experience difficulties determining which of the public's inflation expectations are the best signals of inflationary pressures in the economy?
1. How might low inflation expectations on the part of the public help to hold down actual inflation? Explain. 2. According to the quantity equation, how else besides using interest-rate-based
1. Would a U6 version of the natural unemployment rate likely be higher or lower than the traditional natural unemployment rate? Explain your reasoning? 2. Why would using the U6 unemployment rate
Consider the diagram below, which is drawn under the assumption that the new Keynesian sticky-price theory of aggregate supply applies. Assume that at present, the economy is in long-run equilibrium
Take a look at Figure 17-1. What is the most recent approximate interval during which the cyclical unemployment rate has been positive? During what most recent approximate interval was the cyclical
Consider Figure 17-2. Explain whether the cyclical unemployment rate is positive, zero, or negative at point E2, after the shift in the aggregate demand curve from AD1 to AD2. In addition, explain
Take a look at Figure 17-3. Explain whether the cyclical unemployment rate is positive, zero, or negative at point E2, after the shift in the aggregate demand curve from AD1 to AD2. In addition,
Consider Figure 17-4, and suppose that the economy initially operates at point A, at which the inflation rate is 0 percent and the unemployment rate is 6 percent, which is the natural rate of
Take a look at Figure 17-4, and suppose that the economy initially operates at point A, at which the inflation rate is 0 percent and the unemployment rate is 6 percent, which is the natural rate of
Consider Figure 17-5, and suppose that the economy initially operates at point A, at which the inflation rate is 0 percent and the unemployment rate is 6 percent, which is the natural rate of
1. Some international policymakers argue that the world's poor require stronger "nudges," such as policies that prevent them from making "bad" choices. How might stronger nudges limit economic
Why do you suppose that many observers regard India's agricultural productivity issues related to land use as analogous to the problems arising from dead capital?
1. In terms of the basic arithmetic of economic growth, through what mechanism do improvements in labor and capital productivity help to boost the rate of growth of per capita real GDP? 2. How might
1. Why does the fact that population growth has ambiguous effects on real GDP growth complicate the Chinese government's efforts to accomplish its growth objective? 2. In principle, how could a
Consider Table 18-1. Based on the basic arithmetic of economic growth, what were the average annual rates of real GDP growth since 1990 for those nations experiencing positive rates of annual growth
Take a look at Table 18-1. Based on the basic arithmetic of economic growth, what were the average annual rates of real GDP growth since 1990 for those nations experiencing negative rates of annual
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