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Economics
In 2014-2015, by what percentage did (a) The nominal price and (b) The real price of tuition at private colleges increase?
Nominal GDP increased from roughly $10 trillion in 2000 to $16 trillion in 2012. In the same period prices rose on average by roughly 30 percent. By how much did real GDP increase?
What will the real value of $100 be in 10 years if you hide the money under your mattress and the inflation rate is: (a) 0% (b) 2% (c) 8%
According to the following data,(a) By what percentage did nominal wages increase between 2000 and 2015?(b) By what percentage did real wages increase?
In Zimbabwe the rate of inflation hit 90 sextillion percent in 2009, with prices increasing tenfold every day. At that rate, how much would a $100 textbook cost one week later?
The following table lists the prices of a small market basket purchased in both 2005 and 2015. Assuming that this basket of goods is representative of all goods and services,(a) Compute the cost of
If the price level were below PE in Figure 11.5, what macro problems would we observe? Why is PE considered an equilibrium?
What factors might cause a rightward shift of the aggregate demand curve? What might induce a rightward shift of aggregate supply?
What kind of external shock would benefit an economy?
What would a horizontal aggregate supply curve imply about producer behavior? How about a vertical AS curve?
If equilibrium is compatible with both buyers' and sellers' intentions how can it be undesirable?
From March 2009 to 2013, the U.S. stock market more than doubled in value. How might this have affected aggregate demand? What happens to aggregate demand when the stock market plunges?
President George H. Bush maintained hands off policy during the 1990- 1991 recession. How did he expect the economy to recover on its own?
Why did President Obama assert that government intervention was needed to get the economy out of the 2008-2009 recession? Could the economy have recovered on its own?
In Figure 11.8,(a) what is the level of full employment? How much is the rate of output reduced when(b) AD shifts leftward?(c) AS shifts leftward?(d) both AD and AS shift leftward?Figure 11.8
Suppose a nation's maximum GDP (with 0 percent unemployment) is $20 trillion. 1. Assuming that full employment occurs when there is 5 percent unemployment, how much is full employment GDP? 2. If
In Figure 11.8 does the price level increase or decrease when(a) AD shifts leftward?(b) AS shifts leftward?Figure 11.8
Illustrate these events with AS or AD shifts:
Based on the News Wire "Shifting Aggregate Supply,"a. Illustrate the AS shift that occurs.b. Identify the old (E0) and new (E1) macro equilibrium.c. What are the macro results?d. How can the economy
Graph the following aggregate supply and demand curves (be sure to draw to scale).1. What is the equilibrium price level? 2. What is the equilibrium output? 3. If the quantity of output demanded at
Draw a conventional aggregate demand curve on a graph. Then add three different aggregate supply curves, labeled S1: Horizontal curve S2: Upwards loping curve S3: Vertical curve all intersecting the
The following schedule provides information with which to draw both an aggregate demand curve and an aggregate supply curve. Both curves are assumed to be straight lines. Average Price )Dollar per
If AD shifts by $60 for every $1,000 change in consumer wealth, by how much will AD increase when the stock market rises in value by $400 billion?
If AS decreases by $50 billion for every 1 percentage point increase in business tax rates, by how much will AS shift to the left when the tax rate is raised from 35 percent to 40 percent?
Why was the author of the News Wire "Shifts in Aggregate Demand" so confident that a recession was coming?
How long does it take you to spend any income you receive? Where do the dollars you spend end up?
What is your MPC? Would a welfare recipient and a millionaire have the same MPC? What determines a person's MPC?
Why was Walmart worried about the 2013 payroll tax hike (News Wire "Fiscal Restraint")?
If the guidelines for fiscal policy (Table 12.2) are so simple, why does the economy ever suffer from unemployment or inflation?
At the end of 2012 businesses bought more inventory, increasing GDP. What would happen if consumers didn't buy those goods?
Would a constitutional amendment that would require the federal government to balance its budget (incur no deficits) be desirable? Explain.
What government programs would you cut in the pursuit of fiscal restraint?
In Figure 12.2,(a) Identify the GDP gap when the demand curve is at AD1,(b) Identify the shortfall when the demand curve is at AD.Figure 12.2
If the MPC was 0.90,(a) How much did consumer spending decline initially in response to the 2013 expiration of the payroll tax cut (essentially, a tax hike to consumers)? (News Wire "Fiscal
If an initial fiscal restraint of $100 billion is desired, by how much must 1. Government spending be reduced? or 2. Taxes be raised? Assume MPC = 0.75.
If the marginal propensity to save is 0.20,(a) What is the MPC?(b) How large is the multiplier?
What was the short run (one month) MPC for the 2008 tax rebates (News Wire "Fiscal Stimulus: Tax Cuts")?
If the MPC were 0.8,(a) How much spending would occur in the third cycle of Figure 12.6?(b) How many spending cycles would occur before consumer spending increased by $200 billion?Figure 12.6
(a) The multiplier process depicted in Table 12.1 is based on an MPC of 0.75. Recompute the first four cycles using an MPC of 0.80.(b) How much more consumption occurs in the first four cycles?(c)
Suppose the government increases education spending by $20 billion. If the marginal propensity to consume is 0.80, how much will total spending increase?
By how much would the 2008 tax rebates have shifted aggregate demand if the MPC was 0.95? (See the News Wire "Fiscal Stimulus: Tax Cuts.")
If taxes were cut by $1 trillion and the MPC was 0.75, by how much would total spending 1. Increase in the first year with two spending cycles per year? 2. Increase over three years, with two
If consumers had an MPC of 0.90, by how much would aggregate demand have eventually increased with Obama's first year spending stimulus assuming the stimulus was entirely government spending (News
Do eggs satisfy the three conditions for money? Did barter make it easier or more difficult to go to the movies in Russia? (See the News Wire "Barter.")
Why aren't mobile payments counted as money?
If a friend asked you how much money you had to spend, what items would you include in your response?
Does money have any intrinsic value? If not, why are people willing to accept money in exchange for goods and services?
Have you ever borrowed money to buy a car, pay tuition, or for any other purpose? In what form did you receive the money? How did your loan affect the money supply? Aggregate demand?
Does the fact that your bank keeps only a fraction of your account balance in reserve worry you? Why don't people rush to the bank and retrieve their money? What would happen if they did?
If all banks heeded Shakespeare's admonition "Neither a borrower nor a lender be," what would happen to the supply of money?
Why would a bank ever hold excess reserves rather than make new loans?
What percent of the money supply depicted in Figure 13.1 is cash?Figure 13.1
If a bank has $100 million in deposits and $18 million in reserves with a reserve requirement of 0.15, 1. How much are its required reserves? 2. How much excess reserves does it have? 3. How much can
How large is the money multiplier when the required reserve ratio is 0.20? If the required reserve ratio increases to 0.25, what happens to the money multiplier?
If a bank has total reserves of $200,000 and $1 million in deposits, how much money can it lend if the required reserve ratio is 1. 5 percent? 2. 10 percent?
What volume of loans can the banking system in Figure 13.2 support? If the reserve requirement were 80 percent rather than 75 percent, what would the system's lending capacity be?Figure 13.2
Suppose that a lottery winner deposits $5 million in cash into her transactions account at the Bank of America. Assume a reserve requirement of 20 percent and no excess reserves in the banking system
In December 1994, a man in Ohio decided to deposit all of the 8 million pennies he had been saving for nearly 65 years. (His deposit weighed over 48,000 pounds!) With a reserve requirement of 10
Why do banks want to maintain as little excess reserves as possible? Under what circumstances might banks desire to hold excess reserves?
Why do people hold bonds rather than larger savings account or checking account balances? Under what circumstances might they change their portfolios, moving their funds out of bonds and into bank
If the Federal Reserve banks mailed everyone a brand new $100 bill, what would happen to prices, output, and income? Illustrate with aggregate demand and supply curves.
How does an increase in the money supply get into the hands of consumers? What do they do with it?
Is a reduction in interest rates likely to affect spending on pizza? What kinds of spending are sensitive to interest rate fluctuations?
Which aggregate supply curve in Figure 14.6 does the Fed chair fear the most? Why?
Would you advocate monetary restraint or stimulus for today's economy? Who would disagree with you?
Like all human institutions, the Fed makes occasional errors in altering the money supply. Would a constant (fixed) rate of money supply growth eliminate errors?
Congress sometimes demands more control of monetary policy. Is this a good idea? Why is fiscal policy, but not monetary policy, entrusted to elected politicians?
Suppose the following data apply: Total reserves: ......................................$36 billion Transactions deposits:........................... $600 billion Cash held by public:
Assume that the following data describe the condition of the commercial banking system:Total reserves: ....................................$85 billionTransactions deposits: ....................$800
Suppose the Federal Reserve decided to purchase $30 billion worth of government securities in the open market. 1. By how much will M1 change initially if the entire $30 billion is deposited into
Suppose the economy is initially in equilibrium at an output level of 100 and a price level of 100. The Fed then manages to shift aggregate demand rightward by 20. 1. Illustrate the initial
What was the money multiplier in China 1. Before the change in reserve requirements? 2. After the change in reserve requirements?
According to the News Wire "Reserve Requirements," 1. By how much did excess reserves in China increase (in yuan)? 2. By how much did the lending capacity of Chinese banks increase as a result?
If every one point change in the federal funds rate alters aggregate demand by $200 billion, how far did AD shift in response to the News Wire "Discount Rates"?
From June 2008 to June 2009, M1 increased from $1,400 billion to $1,656 billion. 1. By what percentage did M1 increase? 2. If the Fed had used a fixed rule of 3 percent growth of M1, how large would
In what specific ways (if any) does a college education increase a worker's productivity?
Notice in the News Wire "Improved Living Standards" how the time spent working on the job and at home has declined. How are these changes indicative of economic growth?
How would the following factors affect a nation's growth potential? 1. Legal protection of private property. 2. High tax rates. 3. Judicial corruption. 4. Government price controls. 5. Free trade.
Should the United States adopt a skill based immigration policy (see the News Wire "Labor Supply") or continue to give preference to relatives of U.S. residents?
Is limitless growth really possible? What forces do you think will be most important in slowing or halting economic growth?
How did GDP growth contribute to the last two items in the News Wire "Improved Living Standards"?
Suppose that economic growth could be achieved only by increasing inequality (e.g., via tax incentives for investment). Would economic growth still be desirable?
According to the Rule of 72 (Table 15.1), how many years will it take for GDP to double if GDP growth is 1. 4 percent? 2. 2 percent? 3. 1 percent?
China's output grew at an amazing rate of 8 percent per year from 2010 to 2014. 1. At that rate how long would it take for China's GDP to double? 2. With its population increasing at 0.6 percent per
In 2015, approximately 59 percent of the adult population (250 million) was employed, among the lowest employment rates in 20 years. If the employment rate increased to the prerecession level of 62
According to the data in Figure 15.4, by what percent did world GDP per capita grow from1. 1000 to 1500?2. 1500 to 1820?3. 1820 to 1995?Figure 15.4
According to Figure 15.4, by what percentage did GDP per capita increase between 1820 and 1995 in1. North America?2. Latin America?3. Africa?Figure 15.4
According to the News Wire "Saving Rates," if a German and an American both had $100,1. How many more dollars would the German save in 2012?2. Why are higher saving rates desirable?
Suppose that every additional 3 percentage points in the investment rate (I ÷ GDP) boosts GDP growth by 1 percentage point. Assume also that all investment must be financed with consumer saving. The
The World Bank projects that the world's population will increase from 7 billion today to 8 billion in 2025. World output today is roughly $80 trillion. 1. What is global per capita income today? 2.
What policies would Keynesians, monetarists, and supply siders advocate for1. Restraining inflation?2. Reducing unemployment?
Should economic policies respond immediately to any changes in reported unemployment or inflation rates? When should a response be undertaken?
Suppose it is an election year and aggregate demand is growing so fast that it threatens to set off an inflationary movement. Why might Congress and the president hesitate to cut back on government
Should military spending be subject to macroeconomic constraints? What programs should be expanded or contracted to bring about needed changes in the budget?
Republicans asserted that many of President Obama's fiscal spending projects were "wasteful and ineffective." Does the content of fiscal stimulus spending matter?
Outline a macro policy package for attaining full employment and price stability in the next 12 months. What obstacles, if any, will impede attainment of these goals?
Which nation had the best macro performance in 2004-2014?
According to the News Wire "Comparative Performance," which country had(a) The fastest growth and highest inflation?(b) The slowest growth and the lowest inflation?(c) Why might these performance
The 2008 fiscal policy package included roughly $100 billion in tax rebates that were mailed to taxpayers. By how much would aggregate demand shift(a) Initially(b) Ultimately as a result of these
The expiration of the FICA payroll tax cut of January 1, 2013 raised taxes by $110 billion per year. If the marginal propensity to save was 0.20, (a) By how much did consumer spending decrease
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