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Economics 18th edition Campbell R. McConnell, Stanley L. Brue, Sean M. Flynn - Solutions

What are the “twin problems” of the healthcare industry as viewed by society? How are they related?
Briefly describe the main features of Medicare and Medicaid, indicating how each is financed.
What are the implications of rapidly rising healthcare prices and spending for?(a) The growth of real-wage rate,(b) Government budgets, (c) Offshoring of U.S. jobs? Explain.
Who are the main groups without health insurance?
List the special characteristics of the U.S. health care market and specify how each affects health care problems.
What are the estimated income and price elasticities of demand for health care? How does each relate to rising health care costs?
Briefly discuss the demand and supply factors that contribute to rising health costs. Specify how (a) Asymmetric information,(b) Fee-for-service payments, (c) Defensive medicine, (d) Medical ethics might cause health care costs to rise.
How do advances in medical technology and health insurance interact to drive up the costs of medical care?
Using the concepts in Chapter 7’s discussion of consumer behavior, explain how health care insurance results in an overallocation of resources to the health care industry. Use a demand and supply diagram to specify the resulting efficiency loss.
How is the moral hazard problem relevant to the health care market?
What is the rationale for exempting a firm’s contribution to its workers’ health insurance from taxation as worker income? What is the impact of this exemption on allocative efficiency in the health care industry?
Comment on or explain: a. Providing health insurance to achieve equity goals creates a trade-off with the efficient allocation of resources to the health care industry.b. If the government were to require employer-sponsored health insurance for all workers, the likely result would be an increase in
Briefly describe (a) “Play or pay,” (b) Tax credits and vouchers, and (c) National health insurance as means of increasing access to health care. What are the major criticisms of national health insurance?
What are? (a) Preferred provider organizations (b) Health maintenance organizations? In your answer, explain how each is designed to alleviate the overconsumption of health care.
What major factors led to the inclusion of prescription drug coverage under Medicare? Is the insurance purchased directly from the Federal government or from private insurers? What is the annual deductible under the coverage? In percentage terms, what is the copayment for prescription drug expenses
What are health savings accounts (HSAs)? How might they reduce the overconsumption of health care resulting from traditional insurance? How might they introduce an element of price competition into the health care system?
Compare and contrast the general policy approach of the Massachusetts health care reform of 2006 and the Federal law that created health savings accounts. Are the two laws compatible with one another? Which of the two approaches do you think has the better chance of reducing the percentage of
Which of the following statements are true? Which are false? Explain why the false statements are untrue. a. More immigrants arrive to the United States each year illegally than legally.b. The majority of legal immigrants are men.c. Over half the new legal immigrants to the United States each year
In what respect is the economic decision to move across international borders an investment decision? Why do economic migrants move to some countries, but not to others? Cite an example of an explicit cost of moving; an implicit cost of moving. How do distance and age affect the migration decision?
Suppose that the projected lifetime earnings gains from migration exceed the costs of moving. Explain how the decision to move might be reversed when a person considers present value.
Use the accompanying table for Neon and Zeon to answer the questions that follow. Assume that the wage rate shown equals hourly output and income and that the accumulated output and income are the sum of the marginal revenue products (MRPs) of each worker.a. Which country has the greater stock of
How might the output and income gains from immigration shown by the simple immigration model be affected by (a) Unemployment in the originating nation,(b) Remittances by immigrants to the home country, and(c) Backflows of migrants to the home country?
Suppose initially that immigrant labor and native-born labor are complementary resources. Explain how a substantial immigration might change the demand for native-born workers, altering their wages. Next, suppose that new immigrant labor and previous immigrant labor (not native-born) are substitute
What is a “brain drain” as it relates to international migration? If emigrants are highly educated and received greatly subsidized education in the home country, is there any justification for that country to levy a “brain drain” tax on them? Do you see any problems with this idea?
In July 2007 The Wall Street Journal (WSJ) reported that a growing shortage of skilled labor in Eastern European countries such as Slovakia was driving up wages in key industries and reducing business income. The reason for the shortages was a large migration of skilled Eastern European workers to
Why is each of these statements somewhat misleading? (a) “Illegal immigrants take only jobs that no American wants.” (b) “Deporting 100,000 illegal immigrants would create 100,000 job openings for Americans.”
Why are so many state and local governments greatly concerned about the Federal government’s allegedly lax enforcement of the immigration laws and congressional proposals to grant legal status (amnesty) to the 12 million illegal immigrants in the United States? How might an amnesty program affect
If someone favors the free movement of labor within the United States, is it inconsistent for that person also to favor restrictions on the international movement of labor? Why or why not?
What were the five main features of the proposed immigration reform of 2007? Which of these features, as general principles, do you support? Which do you oppose? Explain your reasoning.
Why do you think macroeconomists focus on just a few key statistics when trying to understand the health and trajectory of an economy? Would it be better to try to make use of all possible data?
Consider a nation in which the volume of goods and services is growing by 5 percent per year. What is the likely impact of this high rate of growth on the power and influence of its government relative to other countries experiencing slower rates of growth? What about the effect of this 5 percent
A mathematical approximation called t he rule of 70 tells us that the number of years that it will take something that is growing to double in size is approximately equal to the number 70 divided by its percentage rate of growth. Thus, if Mexico’s real GDP per person is growing at 7 percent per
Why is there a trade-off between the amount of consumption that people can enjoy today and the amount of consumption that they can enjoy in the future? Why can’t people enjoy more of both? How does saving relate to investment and thus to economic growth? What role do banks and other financial
How does investment as defined by economists differ from investment as defined by the general public? What would happen to the amount of investment made today if firms expected the future returns to such investment to be very low? What if firms expected future returns to be very high?
Why, in general, do shocks force people to make changes? Give at least two examples from your own experience.
Catalogue companies are the classic example of perfectly inflexible prices because once they print and ship out their catalogues they are committed to selling at the prices printed in their catalogues. If a catalogue company finds its inventory of sweaters rising, what does that tell you about the
Why are prices sticky? Explain the two reasons given in this chapter and then try to think of two more.
Why do some economists believe that better inventory control software may help to reduce the frequency and severity of recessions? Could differences in technology explain why recessions appear to be more frequent and more severe in poorer countries?
In what ways are national income statistics useful?
Explain why an economy’s output, in essence, is also its income.
Why do economists include only final goods and services in measuring GDP for a particular year? Why don’t they include the value of the stocks and bonds bought and sold? Why don’t they include the value of the used furniture bought and sold?
What is the difference between gross private domestic investment and net private domestic investment? If you were to determine net domestic product (NDP) through the expenditures approach, which of these two measures of investment spending would be appropriate? Explain.
Why are changes in inventories included as part of investment spending? Suppose inventories declined by $1 billion during 2008. How would this affect the size of gross private domestic investment and gross domestic product in 2008? Explain.
Use the concepts of gross investment and net investment to distinguish between an economy that has a rising stock of capital and one that has a falling stock of capital. “In 1933 net private domestic investment was minus $6 billion. This means that in that particular year the economy produced no
Define net exports. Explain how U.S. exports and imports each affect domestic production. Suppose foreigners spend $7 billion on U.S. exports in a specific year and Americans spend $5 billion on imports from abroad in the same year. What is the amount of the United States’ net exports? Explain
To the right is a list of domestic output and national income figures for a certain year. All figures are in billions. The questions that follow ask you to determine the major national income measures by both the expenditures and the income approaches. The results you obtain with the different
Using the following national income accounting data, compute(a) GDP,(b) NDP,(c) NI. All figures are in billions.Compensation of employees ......... $194.2U.S. exports of goods and services...... 17.8Consumption of fixed capital ........ 11.8Government purchases ............ 59.4Taxes on
Why do national income accountants compare the market value of the total outputs in various years rather than actual physical volumes of production? What problem is posed by any comparison over time of the market values of various total outputs? How is this problem resolved?
Suppose that in 1984 the total output in a single-good economy was 7000 buckets of chicken. Also suppose that in 1984 each bucket of chicken was priced at $10. Finally, assume that in 2000 the price per bucket of chicken was $16 and that 22,000 buckets were produced. Determine the GDP price index
The following table shows nominal GDP and an appropriate price index for a group of selected years. Compute real GDP. Indicate in each calculation whether you are inflating or deflating the nominal GDPdata.
Which of the following are included in this year’s GDP? Explain your answer in each case. a. Interest on an AT&T corporate bond.b. Social Security payments received by a retired factory worker.c. The unpaid services of a family member in painting the family home.d. The income of a dentist.e. The
What government agency compiles the U.S. NIPA tables? In what U.S. department is it located? Of the several specific sources of information, name one source for each of the four components of GDP: consumption, investment, government purchases, and net exports.
Why is economic growth important? Why could the difference between a 2.5 percent and a 3 percent annual growth rate be of great significance over several decades?
Suppose an economy’s real GDP is $30,000 in year 1 and $31,200 in year 2. What is the growth rate of its real GDP? Assume that population is 100 in year 1 and 102 in year 2. What is the growth rate of real GDP per capita?
When and where did modern economic growth first happen? What are the major institutional factors that form the foundation for modern economic growth? What do they have in common?
Why are some countries today much poorer than other countries? Are today’s poor countries destined to always be poorer than today’s rich countries? If so, explain why. If not, explain how today’s poor countries can catch up or even pass today’s rich countries.
What are the four supply factors of economic growth? What is the demand factor? What is the efficiency factor? Illustrate these factors in terms of the production possibilities curve.
Suppose that Alpha and Omega have identically sized working-age populations but that annual hours of work are much greater in Alpha than in Omega. Provide two possible explanations.
Suppose that work hours in New Zombie are 200 In year 1 and productivity is $8 per hour worked. What is New Zombie’s real GDP? If work hours increase to 210 in year 2 and productivity rises to $10 per hour, what is New Zombie’s rate of economic growth?
To what extent have increases in U.S. real GDP resulted from more labor inputs? From higher labor productivity? Rearrange the following contributors to the growth of productivity in order of their quantitative importance: economies of scale, quantity of capital, improved resource allocation,
True or false? If false, explain why. a. Technological advance, which to date has played a relatively small role in U.S. economic growth, is destined to play a more important role in the future.b. Many public capital goods are complementary to private capital goods.c. Immigration has slowed
Explain why there is such a close relationship between changes in a nation’s rate of productivity growth and changes in its average real hourly wage.
Relate each of the following to the recent productivity acceleration: a. Information technology.b. Increasing returns.c. Network effects.d. Global competition.
Provide three examples of products or services that can be simultaneously consumed by many people. Explain why labor productivity greatly rises as the firm sells more units of the product or service. Explain why the higher level of sales greatly reduces the per-unit cost of the product.
Productivity often rises during economic expansions and falls during economic recessions. Can you think of reasons why? Briefly explain.
Based on the information in this chapter, contrast the economic growth rates of the United States and China over the last 25 years. How does the real GDP per capita of China compare with that of the United States? Why is there such a huge disparity of per capita income between China’s coastal
What are the four phases of the business cycle? How long do business cycles last? How do seasonal variations and long-run trends complicate measurement of the business cycle? Why does the business cycle affect output and employment in capital goods industries and consumer durable goods industries
What factors make it difficult to determine the unemployment rate? Why is it difficult to distinguish between frictional, structural, and cyclical unemployment? Why is unemployment an economic problem? What are the consequences of a negative GDP gap? What are the noneconomic effects of unemployment?
Since the United States has an unemployment compensation program that provides income for those out of work, why should we worry about unemployment?
Explain how an increase in your nominal income and a decrease in your real income might occur simultaneously. Who loses from inflation? Who loses from unemployment? If you had to choose between(a) Full employment with a 6 percent annual rate of inflation(b) Price stability with an 8 percent
What is the Consumer Price Index (CPI) and how is it determined each month? How does the Bureau of Labor Statistics calculate the rate of inflation from one year to the next? What effect does inflation have on the purchasing power of a dollar? How does it explain differences between nominal and
If the CPI was 110 last year and is 121 this year, what is this year’s rate of inflation? What is the “rule of 70”? How long would it take for the price level to double if inflation persisted at? (a) 2, (b) 5, (c) 10 percent per year?
Distinguish between demand-pull inflation and cost-push inflation. Which of the two types is most likely to be associated with a negative GDP gap? Which with a positive GDP gap, in which actual GDP exceeds potential GDP?
Explain how hyperinflation might lead to a severe decline in total output.
Evaluate as accurately as you can how each of the following individuals would be affected by unanticipated inflation of 10 percent per year: a. A pensioned railroad worker.b. A department-store clerk.c. A unionized automobile assembly-line worker.d. A heavily indebted farmer.e. A retired business
Suppose that stock prices were to fall by 10 percent in the stock market. All else equal, would the lower stock prices be likely to cause a decrease in real GDP? How might they predict a decline in real GDP?
Very briefly summarize the relationships shown by (a) The consumption schedule, (b) The saving schedule, (c) The investment demand curve, (d) The multiplier effect. Which of these relationships are direct (positive) relationships and which are inverse (negative) relationships? Why are consumption
Precisely how do the APC and the MPC differ? Why must the sum of the MPC and the MPS equal 1? What are the basic determinants of the consumption and saving schedules? Of your personal level of consumption?
Explain how each of the following will affect the consumption and saving schedules (as they relate to GDP) or the investment schedule, other things equal:a. A large increase in the value of real estate, including private houses.b. A decline in the real interest rate.c. A sharp, sustained decline in
Explain why an upward shift of the consumption schedule typically involves an equal downshift of the saving schedule. What is the exception to this relationship?
Complete the following table:a. Show the consumption and saving schedules graphically.b. Find the break-even level of income. Explain how it is possible for households to dissave at very low income levels.c. If the proportion of total income consumed (APC) decreases and the proportion saved (APS)
What are the basic determinants of investment? Explain the relationship between the real interest rate and the level of investment. Why is investment spending unstable? How is it possible for investment spending to increase even in a period in which the real interest rate rises?
Suppose a handbill publisher can buy a new duplicating machine for $500 and the duplicator has a 1-year life. The machine is expected to contribute $550 to the year’s net revenue. What is the expected rate of return? If the real interest rate at which funds can be borrowed to purchase the machine
Assume there are no investment projects in the economy that yield an expected rate of return of 25 percent or more. But suppose there are $10 billion of investment projects yielding expected returns of between 20 and 25 percent; another $10 billion yielding between 15 and 20 percent; another $10
What is the multiplier effect? What relationship does the MPC bear to the size of the multiplier? The MPS? What will the multiplier be when the MPS is 0, .4, .6, and 1? What will it be when the MPC is 1, .90, .67, .50, and 0? How much of a change in GDP will result if firms increase their level of
Why is the actual multiplier for the U.S. economy less than the multiplier in this chapter’s simple examples?
Linear equations for the consumption and saving schedules take the general form C = a + bY and S = – a + (1 – b)Y, where C, S, and Y are consumption, saving, and national income, respectively. The constant a represents the vertical intercept, and b represents the slope of the consumption
Suppose that the linear equation for consumption in a hypothetical economy is C = 40 + .8Y. Also suppose that income (Y) is $400. Determine (a) The marginal propensity to consume, (b) The marginal propensity to save, (c) The level of consumption, (d) The average propensity to consume, (e) The level
What is the central economic idea humorously illustrated in Art Buchwald’s piece, “Squaring the Economic Circle”? How does the central idea relate to recessions, on the one hand, and vigorous expansions, on the other?
What is an investment schedule and how does it differ from an investment demand curve?
Assuming the level of investment is $16 billion and independent of the level of total output, complete the accompanying table and determine the equilibrium levels of output and employment in this private closed economy.What are the sizes of the MPC andMPS?
Using the consumption and saving data in question 2 and assuming investment is $16 billion, what are saving and planned investment at the $380 billion level of domestic output? What are saving and actual investment at that level? What are saving and planned investment at the $300 billion level of
Why is saving called a leakage? Why is planned investment called an injection? Why must saving equal planned investment at equilibrium GDP in the private closed economy? Are unplanned changes in inventories rising, falling, or constant at equilibrium GDP? Explain.
What effect will each of the changes listed in Study Question of Chapter 27 have on the equilibrium level of GDP in the private closed economy? Explain your answers. a. A large increase in the value of real estate, including private houses.b. A decline in the real interest rate.c. A sharp,
By how much will GDP change if firms increase their investment by $8 billion and the MPC is .80? If the MPC is .67?
Depict graphically the aggregate expenditures model for a private closed economy. Now show a decrease in the aggregate expenditures schedule and explain why the decline in real GDP in your diagram is greater than the initial decline in aggregate expenditures. What would be the ratio of a decline in
Suppose that a certain country has an MPC of .9 and a real GDP of $400 billion. If its investment spending decreases by $4 billion, what will be its new level of real GDP?
The data in columns 1 and 2 in the accompanying table are for a private closed economy: LO4a. Use columns 1 and 2 to determine the equilibrium GDP for this hypothetical economy.b. Now open up this economy to international trade by including the export and import figures of columns 3 and 4. Fill in
Assume that, without taxes, the consumption schedule of an economy is as follows: GDP, Consumption,Billions Billions$100 .......... $120 200 .......... 200 300 .......... 280 400 .......... 360 500 .......... 440 600 .......... 520 700 .......... 600a. Graph this
Explain graphically the determination of equilibrium GDP for a private economy through the aggregate expenditures model. Now add government purchases (any amount you choose) to your graph, showing its impact on equilibrium GDP. Finally, add taxation (any amount of lump-sum tax that you choose) to

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