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business
economics 14th global

Questions and Answers of Economics 14th Global

What phase of the business cycle (the demand-pull or the cost-push phase of an expansion or a recession) is the economy in when these statements are made?a. “Unions have negotiated for lower wages
Wage inflation is related to expected inflation by the following equation:If expected inflation is 10 percent and productivity increases by 2 percent, how much will wages change? Percent Change in
Use the following graph to answer these questions (assume the economy starts at Point A):a. If the Fed increases the growth rate of the money supply, to which point is the economy most likely to move
“Changes in employment and output are caused by how wages and prices change relative to each other.” Explain.
Suppose you own International Widget Works. How could you evade wage and price controls before and after they are enacted?
How could wage and price controls appear to be holding down inflation when in fact they are not?
Suppose you have the price level forecasts that business leaders have made in the past. How can you tell whether their forecasts are unbiased and without systematic error?
Why do rational-expectations economists not expect people to make systematic errors in their forecasts?
If forecast errors are random, can one predict when a recession is going to occur?
Why do workers supply more labor in response to an unanticipated increase in inflation?
Why will workers supply no more labor in response to an anticipated increase in inflation?
With rational expectations, why can the government not stimulate the economy out of every recession?
How will an expansion caused by an unanticipated fiscal and monetary policy differ from one caused by “real causes,” as in the real business cycle?
If firms know the price of their output is going up because people have changed their tastes and increased their demand for the firms’output (this being a real shock), how will firms change their
If firms know the price increase is due to a nominal shock, how will they change output?
How can an active discretionary governmental policy that is designed to increase output actually reduce output in the long run?
If a baseball player has a .300 batting average, why is it unbiased to predict that for every ten times at bat, he or she should have three hits? Why is predicting four hits (out of ten) a biased
Use the following table to answer the questions below. This table shows the supply and demand for labor in an economy.a. What is the real wage (W/P) at full employment?b. If workers expect a price
Suppose the Fed announces “We are not going to increase the money supply” and then surprises everyone by increasing it by 20 percent.What will happen? If the Fed does this ten times in a row,
What will happen the twelfth time the Fed announces “We are not going to increase the money supply” if it actually does not increase the money supply that time?
This problem presents a crude real business cycle model that focuses on the labor market. All households are alike and have 3,000 hours a year available for working (L) or household time (H). Each
Why is it unlikely that you will find a ten-dollar bill on the sidewalk?How does this logic apply to the stock market?
Does the random-walk model of stock prices predict that no stock newsletter will be able to beat the market consistently?
Hundreds of firms are in the fashion industry, making all types of clothing, jewelry, and other fashion accessories. Despite all this competition, only a few colors are offered each year. Firms not
This problem illustrates the rationale behind credit rationing. Suppose there are two types of borrowers. Half the potential borrowers are“good,” who want to borrow $100,000 on projects that will
The following ad ran on the radio: “Listeners, doesn’t it stand to reason that gasoline prices will go up in summer when more people are driving? And doesn’t it stand to reason that the best
What is the difference between physical and financial capital?
If the United States has a trade deficit, does that mean the United States is selling more to the world than it is buying back?
What makes up the demand for the dollar? The supply for the dollar?The net demand for the dollar?
What must change to make sure the number of dollars bought equals the number of dollars sold?
Can a nation have a fixed exchange rate, no exchange controls, and an independent monetary policy?
When a firm sells a bond, is it supplying or demanding loanable funds?
What equations describe equilibrium in the loanable funds market?
If the exchange rate rises, what will happen to the price of U.S.exports and to the price of foreign imports into the United States?
How are capital flight and a run on a currency related?
If a country has a flexible exchange rate, can the government stimulate the economy by lowering interest rates?
For each of the following events, determine whether it is supply or demand for the dollar that is affected, whether the curve shifts to the left or to the right, and whether an increase or a decrease
The exchange rate for the dollar is 0.90 British pounds per dollar and 260 yen per dollar.a. How many dollars will it take to buy 1 pound? 1 yen?b. What will a $12,000 Chevrolet cost in Britain? In
If the exchange rate for the dollar changes from Question 2’s values to 0.80 pounds and 300 yen, then answer questions (a) through (c)above, plus:d. How has the dollar appreciated or depreciated
A French company has a factory built in Utah. It could (1) have the factory shipped to France or (2) keep the factory in the United States.a. How are each of these treated in international trade
Two countries, A and B, produce and sell only wheat. In Country A, a ton of wheat sells for 20 Ables. In Country B, it sells for 5 Babels.a. If there are no trade barriers or transportation costs,
Some economists view trade flows as reflecting capital flows. If so, how will the following events affect the net exports of these countries?Event A: New investment opportunities develop in
Suppose a British bond pays 15 percent: It costs 1,000 pounds and will pay back 1,150 pounds in one year. The current U.S. rate is 2.0/$and is expected to increase 5 percent by next year to 2.10/$.a.
A nation having a fixed exchange rate has been running a deficit in its balance of payments. It is running short of foreign currency reserves.It wants to get out of this problem.a. Has it overvalued
China has one of the highest savings rates in the world (currently about 40 percent of GDP compared to 10 to 15 percent in the United States if one includes changes in personal wealth). For various
We assumed in this chapter that foreigners do not want to hold extra dollars. This is not always the case. For example, some foreign governments hold dollars to back up their own currency. In
When economists say the price elasticity of demand for bananas is 2.0, what do they mean?
If consumers of a good are very sensitive to its price, is the good’s demand elastic or inelastic?
If the output demanded is the same regardless of the price, what is the price elasticity of demand?
If one demand curve has a steeper slope than another, is the steeper demand curve more inelastic?
What is the main factor that increases the elasticity of demand for a good?
When will total revenue go up if the price is reduced?
If the income elasticity of demand for a good is greater than 1, what will happen to the demand for the good and to the good’s share of people’s income when income goes up?
How can one tell if two goods are substitutes? Complements?
Will firms produce where total revenues are highest?
If the demand for a good goes up, what will be the immediate supply response? The longer-term supply response?
For the following demand curve, calculate the slope and the price elasticity of demand over each price range ($10 to $8, $8 to $6, and so on):Now do the same, but change dollars to cents. Price
a. Compare the effect of a $1,000 tax on cars with the effect of a 10 percent tax on cars. Which tax is likely to have the same impact on the demand for cars (in percentage terms) no matter which
a. When the wheat harvest falls by 10 percent due to bad weather, wheat prices go up 40 percent. What is the price elasticity of demand for wheat?b. Using this number, what will happen to the wheat
Why will tourists likely have a more inelastic demand curve for restaurant food than will “locals”?
Why do merchants often have sales (and cut their prices) on air conditioners in spring and early summer when demand is highest?
Select from each of these groups the good that is likely to have the highest price elasticity of demand:Group A: Energy, oil, gasoline, Shell gasoline, Bill’s Shell Station gas.Group B: The
When Titantown Bus Company raised its bus fare, its total revenues fell. When Petrogard Bus Company raised its bus fare, its total revenues went up. What can we conclude about the elasticity of
The consumers in the United States and Europe reduce their demand for oil. If the price of oil were to remain unchanged, this reduction would equal 10% of the world’s consumption of oil. However,
A magician can create corn from air. In a given year, he can create enough corn to increase its supply by 10%. The absolute value of the price elasticity for demand for corn is 0.5, and the price
The magician, in problem 10, is disappointed that people are not consuming that much more corn. So instead of selling the corn, the magician gives each buyer 10% more corn for free. In the market for
Why do we add consumers’ demand curves together horizontally to get the market demand curve?
How are total utility and marginal utility related? For a given good, why is a higher total associated with a smaller marginal utility?
Does a good with a higher total utility also have a higher marginal utility?
What happens to total utility as marginal utility diminishes (as one consumes more of a good)?
If the marginal utilities per dollar of two goods are not the same, why will consumers change their consumption pattern?
What is the substitution effect of a price increase?
What is the income effect of a price increase? How does it differ for normal and inferior goods?
Is the marginal utility of a candy bar greater to a poor person or a rich person?
Bill has spent $300 for a video recorder. He would have been willing to pay $500. What is his consumer surplus?
Even if consumers could still consume the same goods they have been consuming, why will a change in relative prices cause them to change their consumption pattern?
Suppose a market has only three consumers. Derive the market demand curve from this table. Consumer ABC $4 20 0 10 Quantity Demanded $3 28 4 12 Price $2 32 8 20 $1 44 12 32
Use the following table to answer these questions. TU stands for total utility.a. What is the marginal utility (MU) of each unit? (Provide your answer in the form of a table.) Is marginal utility
For Bill, clothing has a marginal utility of 24 utils and food has a marginal utility of 24 utils. If clothing costs $4 and food $8, is Bill doing the best he can? If not, what can he do to increase
Suppose food costs $12 and clothing costs $2, and at the highest level of utility, clothing has a marginal utility of 6 utils. What is the marginal utility of food?
If you are taking a test that has several questions, how should you allocate your time among the questions in order to get the highest score?
Mary buys a Cadillac instead of a Chevrolet. The Cadillac costs exactly twice as much as the Chevrolet. What can we conclude about Mary’s marginal utility of owning a Cadillac relative to owning a
Mary values one game of golf a month at $40, a second game a month at $30, a third game at $20, a fourth game at $15, and a fifth game at$5. She would never play more than five times a month, even if
What economic law does the following statement ignore: “Consumers are crazy. They pay little for water, which is highly valuable, and pay a great deal for diamonds, which have little value.”
With linear demand and supply curves, it is possible to solve for the consumer surplus using the formula for the area of a triangle (area= ½height × base). Suppose the demand curve is P D = 100 –
A small nation produces and sells all the oil it wants at the world price of $70 per barrel. On the other hand, it sells some of its oil to its own citizens for the equivalent of $10 per barrel. For
Why are average costs lowest in the long run?
What is happening to the marginal productivity of workers as marginal costs fall?
Why do marginal costs rise?
Is the law of diminishing marginal returns true when all inputs are increased together?
How is the total variable cost curve derived from the marginal cost curve?
How is the total cost curve derived from the total variable cost curve?
When MC < AVC, how will AVC change when output is increased?
How is MC related to AVC and ATC at their respective minimum values?
Why does the ATC fall when the firm is experiencing economies of scale?
Why would a firm be better off not producing when its economic profits are negative?
Assume Q = 0 when L = 0 and the wage, W (the cost of L) = $60. Fill in the following table to answer the question below:At what L do diminishing returns set in? Labor Input (L) Output (Q) MPP MC of 1
Fill in this table.a. Where do diminishing marginal returns set in?b. What is the minimum AVC? What is MC at that level of output?c. What is the minimum ATC? What is MC at that level of output? oo L
Some quick questions:a. If ATC = $12 at Q = 5, what is TC?b. If AVC = $10 at Q = 10 and AVC = $11 at Q = 11, what is the MC of the eleventh unit?c. If ATC = $12 and MC = $15, is ATC rising or
If one added worker increases output by ten units, how much labor is embodied in each unit of output? If the added worker costs $12,000, what is the marginal cost of one extra unit of output?

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