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Exploring Economics 5th Edition Robert L Sexton - Solutions

To which category of U.S. GDP expenditure does each of the following correspond?a. Department of Motor Vehicles services.b. Automobiles exported to Europe.c. A refrigerator.d. A newly constructed four-bedroom house.e. A restaurant meal.f. Additions to inventory at a furniture store.g. F-16 fighter
The expenditures on tires by the Ford Motor Company are not included directly in GDP statistics while consumer expenditures on replacement tires are included. Why?
Using any relevant information below, calculate GDP using the expenditure approach.Inventory investment ................ $50 billionFixed investment ................. $120 billionConsumer durables ................ $420 billionConsumer nondurables .............. $275 billionInterest
Fill in the missing data for the following table (in billions):Consumption: ................._____________Consumption of durable goods: .......... $1,200Consumption of nondurable goods: .......... $1,800Consumption of services: ............. $2,400Investment: ................ .._____________Fixed
Answer these questions about durable goods and GDP:a. Do consumer nondurable or durable goods tend to change more over the course of a business cycle?b. How are consumer durables like investments?c. Can either fixed investment or inventory be negative in a given year?d. Why isn’t all of
How does GNP compare to GDP when:a. Earnings of foreigners and foreign firms in the United States equal earnings of American citizens and firms overseas?b. Earnings of foreigners and foreign firms in the United States exceed earnings of American citizens and firms overseas?c. Earnings of foreigners
List, from the largest magnitude to the smallest, the following categories: disposable personal income, gross national product, national income, net national product, personal income.
Nominal GDP in Nowhereland in 2005 and 2006 is as follows:NGDP 2005 NGDP 2006$4 trillion ...... $4.8 trillionCan you say that the production of goods and services in Nowhereland has increased between 2005 and 2006? Why or why not?
Answer these questions about GDP:a. Could next year’s real GDP exceed next year’s nominal GDP?b. Could real GDP grow at the same time that real GDP per capita falls?c. Could people’s real consumption possibilities expand at the same time that real GDP per capita falls?d. How does changing
Fill in the missing data for the followingtable:
True or False:1. Measuring the performance of our economy is important to private businesses and to macroeconomic policymakers in setting goals and developing policy recommendations.2. All goods and services exchanged in the current period are included in this year’s GDP.3. The value of a good or
True or False:1. Fixed investments include all spending on capital goods as well as on residential construction.2. Investment spending is the most volatile category of GDP.3. Government expenditures on goods and services as a proportion of GDP have grown slowly over the last 30 years.4. Because
True or False:1. In periods of inflation, real GDP will tend to be greater than nominal GDP growth.2. The measure of economic welfare most often cited is real per capita gross domestic product.3. In a country with a growing population, real GDP per capita could be falling at the same time that real
Multiple Choice Questions:1. John Maynard Keynes, who once said that “in the long run, we are all dead,” was primarily concerned with?a. Long-run economic growth.b. Long-run price stability.c. Redirecting short-run fluctuations in the business cycle.d. All of these issues equally.2. Economists
Multiple Choice Questions:1. According to the Rule of 70, if a nation grows at a rate of 5 percent per year, it will take roughly _____________ for national income to double.a. 10 years.b. 7 years.c. 70 years.d. 14 years.e. None of the above.2. A country will roughly double its GDP in 10 years if
Multiple Choice Questions:1. If a country increased its saving rate?a. Its current consumption would have to fall.b. Its current consumption would have to rise.c. Its future consumption possibilities will fall.d. Its future consumption possibilities will rise.e. Both a and d will occur.2. Which of
a. According to the Rule of 70, how many years will it take a country to double its output at each of the following annual growth rates?0.5 percent: ........._____ years1 percent: ............_____ years1.4 percent: ........._____ years2 percent: ............_____ years2.8 percent: ........._____
Answer these questions about GDP:a. How could real GDP grow, while, over the same period, real GDP per capita falls?b. If Country A has a 4 percent annual growth rate of real GDP and a 2 percent annual rate of population growth, while Country B has a 6 percent annual growth rate of real GDP and a 5
In which direction would the following changes alter GDP growth and per capita GDP growth in a country (increase, decrease, or indeterminate), other things beingequal?
Answer the following questions about real GDP per capita:a. If Country A had 4 times the initial level of real GDP per capita of Country B and it was growing at 1.4 percent a year, while real GDP was growing at 2.3 percent in Country B, how long would it take before the two countries had the same
Suppose that two poor countries experience different growth rates over time. Country A’s real GDP per capita grows at a rate of 7 percent per year on average, and Country B’s real GDP per capita grows at an average annual rate of only 3 percent. Predict how the standard of living will vary
Could a country experience a fall in population and a rise in real GDP at the same time? Could an increase in labor force participation allow that?
What is the difference between labor and human capital? How can human capital be increased?
Would a shift from investment in capital goods to investment in education increase or decrease the growth rate of real GDP per capita?
Which of the following are likely to improve the productivity of labor and thereby lead to economic growth? Why?a. On-the-job experienceb. Vocational schoolc. A decrease in the amount of capital per workerd. Improvements in management of resources
What is the implication about economic growth for an economic system with weak enforcement of patent and copyright laws? Why does weak property rights enforcement create an incentive problem?
How could permanently lower marginal tax rates increase the capital stock, the level of education, the level of technology, and the amount of developed natural resources over time?
True or False:1. Human welfare is greatly influenced by long-term changes in a nation’s capacity to produce goods and services.2. Emphasis on the short run of the business cycle can ignore the longer-term dynamic changes that affect output and real incomes.3. Economic growth is usually measured
True or False:1. Economic growth is a complex process involving many important factors, no one of which completely dominates.2. If the quantity of physical capital in a country increases at the same time that the quantity or quality of labor resources used falls, that country would experience
True or False:1. Technological advance permits us to economize on labor, land, or even capital.2. One of the most important determinants of economic growth is the saving rate.3. Investment alone does not guarantee economic growth.4. An important link between research and development and capital
Multiple Choice Questions:1. A firm can acquire financial resources through?a. Retained earnings.b. Selling stocks.c. Issuing bonds.d. All of the above.2. You could invest your savings in?a. Treasury billsb. Mutual funds.c. Bank deposits.d. Stocks and bonds.e. Any of the above.3. Which of the
Multiple Choice Questions:1. The random walk theory suggests?a. That stock prices fluctuate in highly predictable ways.b. That it is extremely difficult without inside information to consistently pick winners in the stock market.c. That if stock price fluctuations are scrutinized carefully, one can
Multiple Choice Questions:1. Capital outflows to foreign countries tend to?a. Make domestic real interest rates higher than they would otherwise have been.b. Reduce the funds available for domestic capital investment.c. Cause the saving supply curve to be to the left of the national saving supply
Multiple Choice Questions:1. At a higher than equilibrium real interest rate, the quantity of loanable funds supplied would be ________ than the quantity of loanable funds demanded—there would be a _________ of loanable funds at this real interest rate?a. Greater; shortageb. Greater; surplusc.
Why are firms less likely to issue new shares of stock when consumers or businesses are pessimistic about economic conditions?
In the event of a corporate bankruptcy, would you rather be a bondholder, a preferred stockholder, or a stockholder in the ailing corporation? Explain.
Why might governments sometimes try to combat recessions by lowering interest rates?
What would happen to the loanable funds demand curve if new potentially profitable technologies arise and business taxes are raised at the same time?
What would happen to the loanable funds supply curve if there was both an increase in current disposable income and a decrease in new technologies creating investment opportunities?
Starting from equilibrium in the loanable funds market, what changes in loanable funds supply or demand would tend to cause a surplus of funds at the current interest rate? What changes in loanable funds supply or demand would tend to cause a shortage of funds at the current interest rate?
What happens to net taxes when transfer payments increase? When both taxes and transfer payments increase?
Other things equal, which direction will an increasing budget deficit change the equilibrium interest rate, the loanable funds supply curve, the level of loanable funds in the economy, and the likely rate of economic growth, other things equal?
Why will a given government budget deficit have a smaller effect on investment in an open economy than a closed economy?
a. What happens to the loanable funds supply and demand curves if business expectations and disposable income both increase?b. What happens to the loanable funds supply and demand curves if profitable new technologies are invented and disposable income decreases?c. What happens to the loanable
In retrospect, what should have been the Federal Reserve’s monetary policy during the 2008 financial crisis?
If housing prices had continued to rise during the 2008 financial crisis, would we still have had the same problem with subprime borrowers? Or would it have just been delayed?
Why was home building such an important factor in this crisis?
If the government had not encouraged a goal of homeownership with easy credit, would we have the current housing market problem?
The separation of ownership and management in corporations creates what is known as a principal-agent problem (because management’s interests may diverge from that of owners). Suggest ways to ensure that management will act in the best interest of shareholders.
True or False:1. The only way for a firm to obtain resources to invest in capital is via borrowing in financial markets.2. There is no difference in meaning between the terms saving and savings.3. The amount of saving and investment are the foundation of economic growth.4. New capital and new
True or False:1. The values of securities change with the expectations of benefits and costs.2. For a firm to raise additional capital through selling new shares of stock is more common when stock prices are high thanwhen they are low.3. If you and a large group of others have all received a
True or False:1. The supply of national savings is the sum of all private savings.2. Increases in current disposable income from a tax deduction will increase the loanable funds supply curve.3. If the real interest rate is below equilibrium, the quantity of loanable funds demanded would be less
True or False:1. A move toward a government budget surplus would tend to decrease the real interest rate, other things equal.2. When foreigners supply fewer funds than they demand, a capital outflow from the United States occurs.3. When the domestic real interest rate is high, capital will tend to
True or False:1. If the loanable funds supply curve shifted right, it would cause a temporary surplus of loanable funds, which would result in a lower real interest rate.2. There were only one or two major contributing factors to the financial crisis of 2008.3. The housing market decline after 2006
True or False:1. Excessive lending to subprime borrowers did not appreciably affect other homeowners.2. The rapid increase in housing prices during the housing bubble made both borrowers and lenders expect that the risks of subprime lending was minimal.3. The traditional safety of home loans in the
Multiple Choice Questions:1. The largest component of aggregate demand is?a. Government purchases.b. Net exports.c. Consumption.d. Investment.2. A reduction in personal income taxes, other things being equal, will?a. Leave consumers with less disposable income.b. Decrease aggregate demand.c. Leave
Multiple Choice Questions:1. As the price level increases, other things being equal,a. Aggregate demand decreases.b. The quantity of real gross domestic product demanded increases.c. The quantity of real gross domestic product demanded decreases.d. Aggregate demand increases.e. Both a and c
Multiple Choice Questions:1. A decrease in the U.S. price level willa. Increase U.S. exports.b. Increase U.S. imports.c. Increase RGDP demanded in the United States.d. Do both a and c.e. Do both b and c.2. An economic bust or severe downturn in the Japanese economy will likely result in a(n)a.
Multiple Choice Questions:1. If exports increased and imports decreased?a. AD would decrease.b. AD would increase.c. AD would be unaffected.d. AD could either increase or decrease.2. The short-run aggregate supply curve slopes?a. downward because firms can sell more, and hence, will produce more
Multiple Choice Questions:1. In the short run, a decrease in the price level?a. Increases output prices relative to input prices.b. Increases the profit margins of many producers.c. Decreases RGDP supplied.d. Decreases unemployment rates.e. Does none of the above.2. Which of the following would
Multiple Choice Questions:1. A temporary positive supply shock will shift ___________; a permanent positive supply shock will shift ___________.a. SRAS and LRAS right; SRAS and LRAS right.b. SRAS but not LRAS right; SRAS and LRAS right.c. SRAS and LRAS right; SRAS but not LRAS right.d. SRAS but not
Multiple Choice Questions:1. Where SRAS and AD currently intersect at a real output level greater than the natural level of real output,a. It is a short-run equilibrium, and real output will tend to fall from its current level as it adjusts to long-run equilibrium.b. It is a short-run equilibrium,
Multiple Choice Questions:1. Starting from long-run equilibrium, an increase in aggregate demand?a. Causes an inflationary gap.b. Results in a lower price level.c. Increases unemployment.d. Does all of the above.e. Does b and c, but not a.2. During the self-correction process after a fall in
Describe what the effect on aggregate demand would be, other things being equal, ifa. Exports increase.b. Both imports and exports decrease.c. Consumption decreases.d. Investment increases.e. Investment decreases and government purchases increase.f. The price level increases.g. The price level
Fill in the blanks in the following explanations:a. The real wealth effect is described by the following: An increase in the price level leads to a(n) _____________ in real wealth, which leads to a(n) _____________ in purchasing power, which leads to a(n) _____________ in RGDP demanded.b. The
How will each of the following changes alter aggregatesupply?
Use the accompanying diagram to answer questions a and b.a. On the exhibit provided, illustrate the short-run effects of an increase in aggregate demand. What happens to the price level, real output, employment, and unemployment?b. On the exhibit provided, illustrate the long-run effects of an
Use the accompanying diagram to answer questions a and b.a. On the exhibit provided, illustrate the short-run effects of a decrease in aggregate demand. What happens to the price level, real output, employment, and unemployment?b. On the exhibit provided, illustrate the long-run effects of a
Use the accompanying diagram to answer questions a and b.a. Illustrate a recessionary gap on the diagram provided.b. Using the results in a, illustrate and explain the eventual long-run equilibrium in thiscase.
Use the accompanying diagram to answer questions a and b.a. Illustrate an inflationary gap on the diagram provided.b. Using the results in a, illustrate and explain the eventual long-run equilibrium in thiscase.
If retailers such as Wal-Mart and Target find that inventories are rapidly being depleted, would it have been caused by a rightward or leftward change in the aggregate demand curve? What are the likely consequences for output and investment?
Evaluate the following statement: “A higher price level decreases the purchasing power of the dollar and reduces RGDP.”
How does a higher price level in the U.S. economy affect purchases of imported goods? Explain.
Explain how a recession in Latin America may affect aggregate demand in the U.S. economy.
Distinguish cost-push from demand-pull inflation. Provide an example of an event or shock to the economy that would cause each.
Is it ever possible for an economy to operate above the full-employment level in the short term? Explain.
Evaluate the following statement: The Keynesian assumption of wage and price rigidity best corresponds to the steepest portion of the aggregate supply curve where factories are operating well below capacity.
Why do classical economists and Keynesian economists agree on the long-run effects of a fall in aggregate demand, but not agree on the short-run effects?
How does the slope of the Keynesian short-run aggregate supply curve depend on the degree of excess capacity in the economy?
Why does the effect of a given increase in aggregate demand have a larger effect on real output in the short run, the more excess capacity exists in the economy?
True or False:1. Aggregate demand (AD) 5 Consumption (C) 1 Investment (I) 1 Government purchases (G) 1 Net exports (X 2 M).2. Because consumption is such a stable part of GDP, analyzing its determinants is not important for an understanding of the forces leading to changes in aggregate demand.3.
True or False:1. An increase in the price level causes the quantity of RGDP demanded to fall.2. The real wealth effect reflects the fact that the real (adjusted for inflation) value of any asset of fixed dollar value, such as cash, falls as the price level increases.3. A lower price level, other
True or False:1. The real wealth effect, the interest rate effect, and the open economy effect all shift the AD curve.2. A change in the price level will not change aggregate demand.3. A decrease in C, I, G, or X – M for reasons other than changes in the price level will shift AD leftward.4. An
True or False:1. The aggregate supply curve represents how much RGDP suppliers will be willing to produce at different price levels.2. Nominal wages are assumed to adjust quickly in the short run.3. The long-run relationship refers to a period long enough for the prices of outputs and all inputs to
True or False:1. Along the short-run aggregate supply curve, we assume that wages and other input prices have time to adjust.2. Along the long-run aggregate supply curve, we are looking at the relationship between RGDP produced and the price level, once input prices have been able to respond to
True or False:1. Any permanent change in the quantity of any factor of production available—capital, entrepreneurship, land, or labor—can cause a shift in the long-run aggregate supply curve but not the short-run aggregate supply curve.2. Less and lower-quality capital will shift both the
True or False:1. If wages increase without a corresponding increase in labor productivity, SRAS will shift to the left; but LRAS will not shift, because with the same supply of labor as before, potential output does not change.2. Changes in input prices only affect SRAS if they reflect permanent
True or False:1. Demand-pull inflation causes the prices of the goods producers sell to rise faster than the costs of the inputs they use in production.2. As long as AD is increasing more rapidly than LRAS, the economy will tend toward both inflation and economic growth.3. The economy can never
True or False:1. Starting with the economy initially at full-employment equilibrium, a sudden increase in oil prices would result in a recessionary gap.2. Holding AD constant, falling oil prices would lead to lower prices, lower output, and lower rates of unemployment.3. A fall in AD would reduce
True or False:1. On the flatter part of a short-run aggregate supply curve, a decrease in aggregate demand will decrease real output and not change the price level very much.2. In the simple Keynesian model, the price level does not decrease as real output falls in the short run.3. Historically,
Multiple Choice Questions:1. Demand for consumer goods will be affected by which of the following?a. Disposable incomeb. Credit conditionsc. The level of debt outstandingd. Expectations about the futuree. All of the above2. Autonomous consumption will increase whena. Real wealth increases.b. The
Multiple Choice Questions:1. If output was greater than the equilibrium level in the aggregate expenditure model, unplanned inventory investment would be _____, leading real output to ______.a. Positive; increaseb. Positive; decreasec. Negative; increased. Negative; decrease2. If output was lower
Multiple Choice Questions:1. Which of the following is true?a. A lower price level shifts the aggregate expenditure function upward, moving the economy down along the aggregate demand curve.b. A lower price level shifts the aggregate expenditure function upward, shifting the aggregate demand curve
Which of the following are likely to cause a reduction in consumption?a. An increase in interest rates.b. An increase in the value of stock market portfolios.c. A decrease in disposable income.d. An increase in income taxes.e. Deflation
Identify the most volatile component of aggregate expenditure. Identify its largest component.
Which of the following will cause the aggregate expenditure schedule to increase?a. An increase in consumer optimismb. An increase in the purchase of importsc. An increase in the sale of exportsd. Pessimism by business owners about the outlook of the economye. An increase in government spending due
What would happen to autonomous consumption if household debt fell and the interest rate rose over the same time period?
What would happen to autonomous consumption if real wealth increased and expectations of the future became more optimistic?
Consumption equals $32,000 when disposable income equals $40,000. Consumption increases to $38,000 when disposable income increases to $50,000. What is the marginal propensity to consume? The marginal propensity to save?
If MPC was equal to 0.5, would doubling your income double your consumption spending?

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