Fundamentals Of Economics 6th Edition William Boyes, Michael Melvin - Solutions

1. A country’s social, economic and legal institutions(affect, do not affect) its ability to grow.
10. Which of the following is not one of the determi nants of economic growth?&a. the size and quality of the labor force&b.the amount of capital goods available&c. technology&d.natural resources&e. the shape of the aggregate demand curve Practice Questions and Problems
9. Growth in a country’s capital stock is tied to&a. increases in the amounts of natural resources available.&b.current and future saving.&c. improvements in technology.&d. increases in the amount of labor available.&e. decreases in the labor force participation ratio.
8. Which of the following is false?&a. In most developed countries, monetary and fiscal policies are conducted by separate independent agencies.&b.Fiscal policy can impose an inflationary burden on monetary policy.&c. In typical developing countries, monetary and fiscal policies are controlled by
5. Which of the following would not be a cause of a real business cycle?&a. a decrease in government borrowing
4. Unexpected increases in aggregate demand inventories and prices. Unemployment .&a. lower; raise; decreases&b. lower; raise; increases&c. lower; lower; increases&d.raise; lower; increases&e. raise; lower; decreases
7. A drought in the Midwest would cause to shift to the , which would realGDP.&a. aggregate demand; left; decrease&b.aggregate demand; right; increase&c. aggregate supply; left; increase&d.aggregate supply; left; decrease&e. aggregate supply; right; increase wage adjustments than in employment
6. The existence of a political business cycle implies that, prior to the election, the incumbent administration would&a. increase aggregate demand by increasing government spending and the money supply.&b. increase aggregate demand by increasing government spending and decreasing the money
3. Which of the following is false?&a. The short-run effect of unexpected disinflation is rising unemployment.&b.The short-run Phillips curve assumes a constant reservation wage and a constant expected rate of inflation.&c. The tradeoff between inflation and unemploy ment comes from expected
2. Which of the following is an example of rational rather than adaptive expectations?&a. The crowd expects a 95 percent free-throw shooter to sink the free throw to win the state basketball championship.&b.A professor has been 10 minutes late to class three times in a row. Students come to the
1. Which of the following could not cause a movement along the Phillips curve?&a. a change in inflation that is not expected by workers&b.an unexpected increase in inflation that causes inventories to decline&c. wage contracts that did not correctly anticipate the inflation rate&d.an anticipated
14. What is the growth rate for an economy in which TFP grows at a rate of 3 percent per year, the size of the labor force is unchanged, the capital stock grows at a rate of 2 percent per year, and labor and capital each account for 50 percent of output?
13. What is the growth rate for an economy in which TFP is constant, labor grows at a rate of 1 percent per year, capital grows at a rate of 2 percent per year, labor’s share of output equals 60 percent, and capital’s share equals 40 percent?
12. What is the growth rate for an economy in which there is no growth of resources but TFP grows at a rate of 1 percent per year?
11. Is the following statement true or false? Explain your answer. “Abundant natural resources are a necessary condition for economic growth.”
10. Suppose labor’s share of GDP is 70 percent and capital’s is 30 percent, total factor productivity is growing at an annual rate of 2 percent, the labor force is growing at a rate of 1 percent, and the capital stock is growing at a rate of 3 percent. What is the annual growth rate of real GDP?
9. Suppose labor’s share of GDP is 70 percent and capital’s is 30 percent, real GDP is growing at a rate of 4 percent a year, the labor force is growing at 2 percent, and the capital stock is growing at 3 percent. What is the growth rate of total factor productivity?
8. Using an aggregate demand and aggregate supply diagram, illustrate and explain how a political business cycle is created.
7. Discuss how each of the following sources of real business cycles would affect the economy:a. Farmers go on strike for six months.b. Oil prices fall substantially.c. Particularly favorable weather increases agricul tural output nationwide.
6. If the government budget deficit equals $240 billion and the money supply increases by $100 billion, how much must the government borrow?
5. If tax revenues equal $100 billion, government spending equals $135 billion, and the government borrows $25 billion, how much do you expect the money supply to increase given the government budget constraint?
4. Write down the government budget constraint and explain how it can be used to understand the relationship between fiscal and monetary policies.
3. Economists have identified two kinds of macroeco nomic expectations.a. Define them.b. What are the implications for macroeconomic policy of these two forms of expectations?
2. Give two reasons why there may be a short-run trade-off between unexpected inflation and the unemployment rate.
1. What is the difference between the short-run Phillips curve and the long-run Phillips curve? Use an aggregate supply and demand diagram to explain why there is a difference between them.
II Bond Prices and Interest Rates Fill in the gaps in these typical quotations from articles from the Wall Street Journal.a. “The benchmark 10-year Treasury bond rose more than 1/4 point to 106, a gain of more than $2.50 for a bond with a $1,000 face amount. Its yield, which moves in the
In the absence of any sterilization actions by the Fed, domestic interest rates will (increase, decrease) as a result of the change in the money supply.The change in domestic interest rates will(increase, decrease) the demand for U.S. securities. The dol lar will (appreciate, depreciate) in value.
I More on Foreign Exchange Market Intervention If the Fed feels that the price of the dollar in terms of U.K. pounds is unacceptably high, it may choose to intervene directly in the foreign exchange markets. To bolster the pound, the Fed will (buy, sell) pounds. In the process, the domestic money
24. A decrease in the money supply causes interest rates to (rise, fall),whichcauses con sumption and investment to (rise, fall). The changes in consumption and investment cause aggregate demand to(increase, decrease), which causes equilibrium income to (rise, fall). Use the fol lowing graphs to
23. You read in the Wall Street Journal that the bond markets rallied yesterday (bond prices increased).Interest rates must have (increased, decreased).
22. If nominal income increases, the demand for money (shiftstotheleft, does not change, shifts to the right).
21. A young couple cashes in a bond to buy a crib and changing table to prepare for the birth of their first child. This is an example of the demand for money.
20. Norm and Debbie keep 1.5 months’ income in a NOWaccount for emergencies. This is an example of the demandformoney.
19. The supply of money (does,does not) depend on interest rates and nominal income.
18. The Fed’s traditional tools-the reserve requirement, discount rate, and open market operations- may not have much effect in stimulating the economy if banks do not .
17. There is a(n) relationship between the interest rate and the quantity of money demanded.
16. The demand for money depends on and .
15. If the Fed wishes to support a foreign currency, it (increases,decreases) the domes tic money supply unless offsetting operations are undertaken.
14. If the Fed wants the dollar to appreciate against the yen, it will buy (dollars, yen).
13. To increase the money supply, the Fed (buys, sells)bonds.
12. If the Fed wants to increase the money supply, it (raises, lowers)thediscount rate.
11. The rateistherateof interest the Fed charges banks. In other countries, this rate is often called the rate.
7. What is LSAP?
2. What is the Fed’s target inflation rate?.
1. The Federal Reserve System was intended to be a (centralized,decentralized)system.
6. If the money supply is $500, the price level is 3.0, and the velocity of money is equal to 6, Q will be ,andnominalGDPwill be .&a. 250; $1,500&b.3,000; $9,000&c. 18; $54&d.1,000; $3,000&e. 100; $3,000
17. Visit the Federal Reserve Economic Data website maintained by the St. Louis Fed at research.stlouisfed.org/fred2. Make a graph of the excess reserves of depository institutions from 1959 to the present.
15. Which countries have their monetary policy made by the ECB?
10. Suppose the Fed has a target range for the yen–dol lar exchange rate. How would it keep the exchange rate within the target range if free market forces push the exchange rate out of the range? Use a graph to help explain your answer.
9. Suppose you are a member of the FOMC, and the U.S. economy is entering a recession. Write a directive to the New York Fed about the conduct of monetary policy over the next two months. Your directive should address targets for the federal funds rate. You may refer to the Federal Reserve Bulletin
8. First Bank has total deposits of $2,000,000 and legal reserves of $220,000.a. If the reserve requirement is 10 percent, what is the maximum loan that First Bank can make, and what is the maximum increase in the money supply based on First Bank’s reserve position?b. If the reserve requirement
7. There are several tools the Fed uses to implement monetary policy.a. Briefly describe these tools.b. Explain how the Fed would use each tool in order to increase the money supply.
6. Describe the quantity theory of money, defining each variable. Explain how changes in the money supply can affect real GDP and the price level.Under what circumstances could an increase in the money supply have no effect on nominal GDP?
5. When the Fed decreases the money supply, the equilibrium level of income changes. Illustrate and explain how.
18-5 Can recent financial crises be linked to globalization?
18-4 How has globalization affected economic growth and poverty?
18-3 What are the arguments in support of globalization?
18-2 What are the arguments against globalization?
18-1 What is globalization?
17-5 What kinds of exchange rate arrangements exist today?
17-4 How do countries restrict the entry of foreign goods and promote the export of domestic goods?
17-3 Whydocountries restrict international trade?
17-2 What are the sources of comparative advantage?
17-1 What determines the goods a nation will export?
16-9 What is productivity?
16-8 How are economic growth rates determined?
16-7 How is inflationary monetary policy related to government fiscal policy?
16-6 How do real shocks to the economy affect business cycles?
16-5 Are business cycles related to political elections?
16-4 How are macroeconomic expectations formed?
16-3 What is the relationship between unexpected inflation and the unemployment rate?
16-2 How does the trade-off between inflation and the unemployment rate vary from the short to the long run?
16-1 Is there a trade-off between inflation and the unemployment rate?
15-7 What does the ECB do?
15-6 How does monetary policy affect the equilibrium level of real GDP?
15-5 What are the determinants of the demand for money?
15-4 What role do central banks play in the foreign exchange market?
15-3 What are the tools of monetary policy?
15-2 How is monetary policy set?
15-1 What does the Federal Reserve do?
II The Components of the Monetary Aggregates The following table lists the components of the monetary aggregates in billions of dollars.Travelers’ checks Savings deposits Demand deposits Other checkable deposits Currency Retail money market mutual funds Small-denomination time deposits 8.1
I How Banks Create Money The State Bank of Oswald has cash reserves of $5,000, loans of $495,000, and deposits of $500,000. The bank maintains a reserve requirement of 1 percent.a. Calculate this bank’s excess reserves.b. The bank receives a new cash deposit of$100,000. What is the largest loan
18. Banks increase the money supply by .
17. Any single bank can lend only up to the amount of its .
16. If people withdraw deposits from banks, occurs, and the deposit expansion multiplier will be less than the reciprocal of the reserve requirement.
15. The deposit expansion multiplier tells us the (maximum,minimum)change in total deposits when a new deposit is made.
14. The deposit expansion multiplier equals(formula).
13. A bank occurswhendepositors, fearing a bank’s closing, rush to withdraw their funds.
12. Eurodollar transactions are (more risky, less risky) than domestic transactions in the United States because of the lack of regulation and deposit insurance.
11. (Domestic,Offshore) banks are usually able to offer better terms to their customers.
10. Thrift institutions include ,, and .
9. True or false? U.S. currency is backed by gold.
8. Small-denomination time deposits are also called .
7. depositsaredeposits at banks and at savings and loans that earn interest but offer no check-writing privileges.
6. For a barter system to work, there must be a .
4. arenonprofitsavingsandloan institutions.
1. List the four functions of money.
9. Abank has $200,000 in deposits and $10,000 in cash. The reserve requirement is 4 percent.The bank’s required reserves are , and its excess reserves are .&a. $400; $199,600 &b.$199,600; $400 &c. $8,000; $192,000 &d.$2,000; $8,000 &e. $8,000; $2,000
6. Which of the following statements is false?&a. The FDIC does not permit banks to fail for fear of causing a bank panic.&b.Almost all states permit entry to banks located out of state.&c. A Eurodollar is a dollar-denominated deposit outside the U.S. banking industry.&d.International banking
5. Which of the following statements is true?&a. The laws regulating international banks typi cally are very restrictive whereas domestic banks go relatively unregulated.&b.Offshore banking, called the Eurocurrency market, refers to international banking trans actions among the seven Western

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Fundamentals Of Economics 6th Edition William Boyes, Michael Melvin - Solutions

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