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economics 14th global
Questions and Answers of
Economics 14th Global
The United States spends billions of dollars subsidizing the export of goods from the United States. Does this help or hurt the United States?
In science fiction literature, robots are often banned from Earth because they “can do everything better, leaving nothing for humans to do.”a. Would robots cause humans to have nothing to do?b.
Countries Y and Z have the following production possibility schedules for food and clothing:a. Before trade, what is the relative cost of food in each country?b. With trade, which country will
There are two towns on a hill called High and Low for their respective position on the hill. While High’s merchants can send goods for free to Low (as it’s downhill all the way), Low’s
Assume that the world price of oil is $15 per barrel. At that price, the United States imports 400 million barrels a day and consumes 600 million barrels a day. The government then imposes a
Suppose trade follows this pattern: The United States buys cars from Japan, Japan buys oil from the Middle East, and the Middle East buys machinery from the United States. What then is wrong with
Use the following table:a. Without trade, what will the price of clothing be?b. If the world price of clothing is $6, what will happen? If it is $2?c. Construct a table of this country’s demand for
Use this table:a. What is the excess supply curve of other nations for clothing?(Give your answer in the form of a table.)b. Using the table in Question 9 above, what will the world price of clothing
Why are only final goods and services counted in GDP ?
Why do changes in real GDP better reflect how total output is changing than changes in nominal GDP ?
What are the two basic national income identities, and how are they pictured in the circular flow of income?
What makes GDP gross and NNP net?
Which national income account best reflects total factor payments?
Which national income account best reflects the income households receive? The after-tax income that households receive?
How do households dispose of disposable income?
In a simple economy without international trade or a government, how are investment (I) and savings related?
With a government sector, how do businesses and the government in a sense compete for savings?
Does GDP measure national welfare?
Which of the following are counted in GDP ?a. Purchase of $5,000 of Walt Disney Company stock.b. A $5,000 payment to a lawyer to defend yourself in a court case.c. A consumer spends $5,000 to buy
Suppose GDP = $12,000, C = $9,600, G = $400, and NX = $320.What is I ?If exports equal $1,400, what are imports?If taxes equal $800 and transfer payments equal $480, what is thegovernment’s deficit
What are net exports equal to when GDP = $2,000, I = $200, C =$1,200, and G = $300? If taxes equal $200 and there are no transferpayments, what do savings equal? If imports equal $160, what doexports
Indicate how the following affect measured GDP and the national welfare.a. The government mandates that employers supply $100 billion of new medical care to workers. Workers value the new medical
In the 1980s, the U.S. was said to have suffered from what was called twin deficits. One deficit is the government’s deficit (Goverment Purchases of Goods and Services + Transfer Payments –
Suppose that private savings are fixed at 15 percent of GDP. Also assume that net exports are zero. If the government’s deficit equals 5 percent of GDP, what percentage of GDP is investment?
A farmer grows corn, which she sells for $10; a miller buys the corn, grinds it, and sells it as cornmeal for $15; a baker buys the cornmeal and sells it as corn muffins for $22. How much was
An economy produces $15 billion in investment goods and $100 billion in consumption goods. All investment goods were sold, but only $90 billion of the consumption goods were sold. There is no
There are only two firms in an economy. Firm A buys from Firm Band vice versa. What is the value added for each firm? What is GDP ? Show that total factor income equals GDP. Total sales Wages, rent,
How does inflation hurt those on fixed incomes?
How can savers protect themselves from inflation?
Why do interest rates eventually go up during a period of inflation?
When inflation causes greater uncertainty in the economy, workers often demand higher real wages as compensation for the higher uncertainty. How does this hurt the economy?
If real GDP is constant while the GDP Deflator increases, what will happen to nominal GDP ?
What does a price index of 180 mean? How much have prices risen since the base year?
What are the different ways someone can become unemployed?
Why does an improvement in quality cause a price index to overstate how much prices have gone up?
If the unemployment rate is 10 percent and 90 million workers are employed, how many are unemployed?
What is the main cost associated with cyclical unemployment?
Bill retires and invests $300,000 at 7 percent, earning $21,000 a year.If inflation is 3 percent, what is Bill’s real rate of return? If Bill consumes all $21,000 each year, what will happen to the
Fill in the missing numbers in this table for the mythical country of Rulgria. The price index used is the GDP Deflator. Year 1970 1980 1990 2000 Real GDP 100 300 - 1,000 Price Index 50 200 - Nominal
If inflation continues for 20 years at a 6 percent rate, by how much will prices increase?
From the following figures, calculate the price index for this worker, using 2000 as the base year. How much did prices go up? What is the real income in each year? (Assume that the worker spent all
The percent change in the CPI is equal to the sum of the percent change in its components, each weighted by its share in the base-period budget. For example, housing represented 42.6 percent of the
Indicate the labor force status of the following persons:a. A doctor who is too sick to work.b. A mechanic who could not find a job needing his skills and is waiting for the economy to improve
This example illustrates the index number problem. Suppose John consumes only bread. In Year 0, John buys four loaves of white bread and four of dark bread, all at $1 each. John likes both equally.
Historically, 20-year U.S. Treasury bonds have paid a real rate of interest of 4 percent. If these bonds pay an interest rate of 7 percent, what inflation rate do savers expect, assuming they plan to
Mr. Jones buys 100 shares of XYZ stock in 1990 for $1,000. In 1999, he sells it for $1,820. In 1999, he paid a 40 percent combined state and federal tax rate on his $820 profit. During that time, the
This problem illustrates how inflation combined with our tax code increases the tax rate on profits. (A related fact is that stock prices and inflation have been negatively related in recent years.)
What type of price does macroeconomics study and what type of price does microeconomics study?
What causes total spending to fall according to monetarists? Keynesians?
How is capital created?
What is the difference between financial and physical capital?
When General Motors sells a bond, is it demanding or supplying loanable funds?
If a firm hires more inputs and produces more output, does labor productivity increase?
A firm produces the same output as last year but with half the workers and other inputs. Is this technological progress?
If the interest rates go from 5 percent to 10 percent and the inflation rate goes from 2 percent to 9 percent, are savers better off?
If the government surplus increases, what happens to national savings?
Foreign investors want to invest more in the United States. What happens to the demand for loanable funds?
How will the following events affect the real interest rate?Event A: The government deficit grows larger. Event B: Foreigners suddenly invest more in the United States. Event C: Savers save
The market for loanable funds clears. The government deficit equals $50, domestic investment is $500, and net foreign investment is $100. What is private savings equal to? National savings?
If the capital stock increases 10 percent next year and capital’s income is 15 percent of GDP, then by how much will GDP grow? If the labor force increases by 10 percent and labor’s share of
A new discovery cuts in half the workers needed to produce any given quantity of output. This is true for the whole economy. What will happen to total output, assuming full employment? What is this
Suppose the government outlaws any worker from working more than 20 hours a week (perhaps to spread the work around). What would the effect be on per worker output (assuming the number of persons
Which of the macroeconomic schools would likely have written each of the following statements?Statement A: “Recent optimism in the investment community leads me to predict an upturn in investment
The following greatly simplified problem will give you a sense of rational expectations models. All households in an economy are exactly alike. All want the same consumption year after year and will
Another characteristic of rational expectations economics is that people make good use of all information, including the information provided by economic models. Suppose I propose the following
Wal-Mart has been accused of causing the loss of jobs in the retail sector and lowering prices. If true, how does this affect economic growth?
Suppose that doubling of all inputs doubles output (this is called constant returns to scale). Suppose that population, capital, and human capital all double but that natural resources and technology
On the aggregate demand and supply diagram (Figure 8–1), what do output and price represent?Figure 8-1: P (price level) A- AD AS (aggregate supply- short run) M Q (real output) R FE CP AD
How can the price level go up and yet the “price” of each good remain unchanged?
How does a lower price level increase the aggregate output demanded?
When prices are lower, total dollar spending may fall. Does this contradict the fact that lower prices increase aggregate demand?
Does output always go up when prices go up?
In the Great Depression, prices and output fell. What shift in aggregate demand and supply would best describe the cause of this event?
What changes in wages will cause the short-run aggregate supply curve to shift to the left?
How should the government shift the aggregate demand curve if it wants to raise output? What will happen to the price level?
How should the government shift the aggregate demand to reduce inflation? What will happen to output?
How will wages and other input costs tend to change when unemployment is above its natural rate?
Select from Figures 8–2 through 8–5 the figure that best reflects each of the following events:Event A:Workers cut wages and businesses cut prices. The falling prices encourage consumers to buy
Chapter 5 states that total spending always equals total output in national income accounting. So how can aggregate demand be different from aggregate supply in this chapter?
Use the table below to answer the following questions.a. What is the equilibrium output and price level?b. Why will the economy not be in equilibrium at a price level of 160?c. Why will the
An economy produces bread and clothing. In 2000, bread cost $2 a loaf and clothing cost $20 a unit. In the same year, the economy produced 20,000 loaves of bread and 5,000 units of clothing. In
A recent headline read “Renewed Growth Will Fuel More Inflation.” This headline reflects a common notion in the press that a high growth rate in GDP causes higher inflation rates. Use the
If aggregate supply shifts to the right each year due to technological progress, then what must the government do to maintain a stable price level?
Many economic commentators state that “recessions cause prices to fall.” If they mean that reduced output (i.e., reduced aggregate supply)causes lower prices, are they correct?
Both exports and imports have been rising as a percent of U.S. GDP, as the U.S. economy becomes more global. One consequence is that we will be more impacted by events in the rest of the world. Use
What will happen if, at the same time, workers demand and get higher wages and consumers decide to increase their real consumption spending?
In the Keynesian consumption function, if people receive $1,000 in additional income, will they increase their consumption spending by $1,000, more than $1,000, or less than $1,000?
When the economy is in equilibrium, how are spending and income related? Investment and savings?
What does the 45-degree line represent? How does it help you find equilibrium?
What is the difference between a change in autonomous spending and an induced change in spending?
How can spending go up if the price level falls?
When people save more, why do investors not invest the added savings in the Keynesian model?
What is the main variable that changes in the Keynesian model to ensure that the economy reaches equilibrium?
How will an increase in wealth shift the total spending curve?
How will an increase in the real interest rate shift the total spending curve?
How will an increase in the price level shift the total spending curve?
Fill in the table below to answer these questions (see Table 9–2 for guidance).Table 9-2:a. What is the equilibrium level of income?b. What is the MPC ? The MPS?c. If $10,000 of goods are
If desired investment spending is $2,000 no matter what output is, what must savings be when the economy is in equilibrium? What must output be if the marginal and average propensity to consume is
How will the following events affect real consumption spending?Event A: A rise in the general price level.Event B: The real values of homes increase.Event D: Taxes are increased.
Other things being equal, in which case would investment spending be highest? Case A B C D Nominal Interest Rate 5 10 9 20 Expected Rate of Inflation 0 8 3 15
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