Principle Of Macroeconomics 4th Edition FRANK; Ben Bernanke; Kate L. Antonovics; Ori Heffetz - Solutions

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(Production Possibilities) Under what conditions is it possible to increase production of one good without decreasing production of another good?
(Specialization and Exchange) Explain how the specialization of labor can lead to increased productivity.
(Comparative Advantage) “You should never buy precooked frozen foods because the price you pay includes the labor costs of preparing food.” Is this conclusion always valid, or can it be invalidated by the law of comparative advantage?
(Opportunity Cost) Determine whether each of the following statements is true, false, or uncertain. Explain your answers:a. The opportunity cost of an activity is the total value of all the alternatives passed up.b. Opportunity cost is an objective measure of cost.c. When making choices, people
(Opportunity Cost) Discuss the ways in which the following conditions might affect the opportunity cost of going to a movie tonight:a. You have a final exam tomorrow.b. School will be out for one month starting tomorrow.c. The same movie will be on TV next week.d. The Super Bowl is on TV.
(Case Study: College Major and Career Earnings) Because some college majors pay nearly twice as much as others, why would students pursuing their rational self-interest choose a lower paying major?
(Pitfalls of Economic Analysis) Review the discussion of pitfalls in economic thinking in this chapter. Then identify the fallacy, or mistake in thinking, in each of the following statements:a. Raising taxes always increases government revenues.b. Whenever there is a recession, imports decrease.
(Case Study: A Yen for Vending Machines) Suppose you had the choice of purchasing identically priced lunches from a vending machine or at a cafeteria.Which would you choose? Why?
(Case Study: A Yen for Vending Machines) Do vending machines conserve on any resources other than labor?Does your answer offer any additional insight into the widespread use of vending machines in Japan?
(Normative Versus Positive Analysis) Determine whether each of the following statements is normative or positive:a. The U.S. unemployment rate was below 4.6 percent in 2006.b. The inflation rate in the United States is too high.c. The U.S. government should increase the minimum wage.d. U.S. trade
(Micro Versus Macro) Some economists believe that to really understand macroeconomics, you must first understand microeconomics. How does microeconomics relate to macroeconomics?
(Micro Versus Macro) Determine whether each of the following is primarily a microeconomic or a macroeconomic issue:a. What price to charge for an automobileb. Measuring the impact of tax policies on total consumer spending in the economyc. A household’s decisions about what to buyd. A worker’s
(Economic Decision Makers) Which group of economic decision makers plays the leading role in the economic system? Which groups play supporting roles? In what sense are they supporting actors?
(Goods and Services) Explain why each of the following would not be considered “free” for the economy as a whole:a. Food stampsb. U.S. aid to developing countriesc. Corporate charitable contributionsd. Noncable television programse. Public high school education
(Resources) To which category of resources does each of the following belong?a. A taxib. Computer softwarec. One hour of legal counseld. A parking lote. A forestf. The Mississippi River g. An individual introducing a new way to market products on the Internet
A frm in a perfectly competitive market will earn an economic proft whenever (select the correct answer below and explain your answer):a. P > AVC.b. P = ATC.c. P > ATC.d. P < ATC.
Why should a frm shut down in the short run if the market price falls below the frm’s minimum average variable cost? Explain carefully.
what is accounting
what is economics
The annual demand for and supply of shekels in the foreign exchange market is as given in Problem 10. The shekel is fixed at 0.30 dollars per shekel. The country’s international reserves are $600. Foreign financial investors hold checking accounts in the country in the amount of 5,000 shekels.
The demand for and supply of shekels in the foreign exchange market arewhere the nominal exchange rate is expressed as U.S. dollars per shekel. (LO3, LO5)What is the fundamental value of the shekel?The shekel is fixed at 0.30 U.S. dollars. Is the shekel overvalued, undervalued, or neither? Find the
If the government follows an easy monetary policy and the exchange rate is flexible, which of the following will likely be the result?(LO4)A falling real interest rate but higher net exports.A higher real interest rate but lower net exports.A strong currency that helps stimulate exports.Increases
Consider an Apple iPod that costs $240. (LO3)If the euro–dollar exchange rate is 1 euro per dollar, so that it costs a European 1 euro to buy a dollar, how much will the iPod cost in France?If the euro–dollar exchange rate falls to 0.8 euros per dollar, how much will the iPod cost in
Suppose a French bottle of champagne costs 20.5 euros.(LO3)If the euro–dollar exchange rate is 0.8 euros per dollar, so that a dollar can buy 0.8 euros, how much will the champagne cost in the United States?If the euro–dollar exchange rate rises to 1.05 euro per dollar, how much will the
How would each of the following be likely to affect the value of the dollar, all else being equal? Explain. (LO3)U.S. stocks are perceived as having become much riskier financial investments.European computer firms switch from U.S.-produced software to software produced in India, Israel, and other
a. Gold is $350 per ounce in the United States and 2,800 pesos per ounce in Mexico. What nominal exchange rate between U.S. dollars and Mexican pesos is implied by the PPP theory? (LO2)Mexico experiences inflation so that the price of gold rises to 4,200 pesos per ounce. Gold remains $350 per ounce
The demand for U.S.-made cars in Japan is given by Japanese demand = 10,000 − 0.001(Price of U.S. cars in yen).Similarly, the demand for Japanese-made cars in the United States is U.S. demand = 30,000 − 0.2(Price of Japanese cars in dollars).The domestic price of a U.S.-made car is $20,000, and
Between last year and this year, the CPI in Blueland rose from 100 to 120 and the CPI in Redland rose from 100 to 115. Blueland’s currency unit, the blue, was worth 80 cents (U.S.) last year and is worth 60 cents (U.S.) this year. Redland’s currency unit, the red, was worth 20 cents (U.S.) last
A British-made automobile is priced at £20,000 (20,000 British pounds). A comparable U.S.-made car costs $26,000. One pound trades for $1.50 in the foreign exchange market. Find the real exchange rate for automobiles from the perspective of the United States and from the perspective of Great
Using the data in Table 13.1, find the nominal exchange rate between the Mexican peso and the Japanese yen. Express in two ways. How do your answers change if the peso appreciates by 10 percent against the dollar while the value of the yen against the dollar remains unchanged? (LO1)
Contrast fixed and flexible exchange rates in terms of how they affect (a) the ability of monetary policy to stabilize domestic output and (b) the predictability of future exchange rates. (LO6)
Use a supply and demand diagram to illustrate the effects of a speculative attack on an overvalued exchange rate. Why do speculative attacks often result in a devaluation? (LO5)
Define overvalued exchange rate. Discuss four ways in which government policymakers can respond to an overvaluation. What are the drawbacks of each approach? (LO5)
Under a flexible exchange rate, how does an easing of monetary policy (a lower real interest rate) affect the value of the exchange rate? Does this change in the exchange rate tend to weaken or strengthen the effect of the monetary ease on output and employment? Explain.(LO4)
Why do U.S. households and firms supply dollars to the foreign exchange market? Why do foreigners demand dollars in the foreign exchange market? (LO3)
Would you expect the law of one price to apply to crude oil? To fresh milk? To taxi rides? To music produced in different countries by local recording artists? Explain your answer in each case. (LO2)
Define nominal exchange rate and real exchange rate. How are the two concepts related? Which type of exchange rate most directly affects a country’s ability to export its goods and services? (LO1)
Japanese yen trade at 110 yen per dollar and Mexico pesos trade at 10 pesos per dollar. What is the nominal exchange rate between the yen and the peso? Express in two ways. (LO1)
Why have 19 European countries adopted a common currency?Effective January 1, 1999, eleven western European nations, including France, Germany, and Italy, adopted a common currency, called the euro. In several stages, the euro replaced the French franc, the German mark, the Italian lira, and other
How did policy mistakes contribute to the Great Depression?We introduced the study of macroeconomics with the claim that policy mistakes played a major role in causing the Great Depression. Now that we are close to completing our study of macroeconomics, we can be more specific about that claim.
What is the IMF, and how has its mission evolved over the years?The International Monetary Fund (IMF) was established after World War II.An international agency, the IMF is controlled by a 24-member executive board. Eight executive board members represent individual countries (China, France,
What were the causes and consequences of the East Asian crisis of 1997–1998?During the last three decades of the twentieth century, the countries of East Asia enjoyed impressive economic growth and stability. But the “East Asian miracle” seemed to end in 1997, when a wave of speculative
Diagram a case in which a fixed exchange rate is undervalued rather than overvalued. Show that to maintain the fixed exchange rate, the central bank must use domestic currency to purchase foreign currency in the foreign exchange market. With an undervalued exchange rate, is the country’s central
Repeat Example 13.6 under the assumption that the fixed value of the peso is 0.15 dollars per peso. What do you conclude about the relationship between the degree of currency overvaluation and the resulting balanceof-payments deficit?
Why did the dollar appreciate nearly 50 percent in the first half of the 1980s and nearly 40 percent in the second half of the 1990s?Figure 13.1 showed the strong appreciation of the U.S. dollar in 1980–1985, followed by a sharp depreciation in 1986–1987. It also showed a strong appreciation in
What is a safe haven currency?Certain currencies, such as the U.S. dollar, the Swiss franc, and the Japanese yen, are in high demand during times of global uncertainty. The tendency of individuals to “pull their wealth out” of other currencies (i.e., to sell assets denominated in other
The U.S. goes into a recession, and real GDP falls. All else equal, how is this economic weakness likely to affect the value of the dollar?
How would increased demand for German washing machines affect the euro–dollar exchange rate?Suppose German firms come to dominate the washing machine market, with washing machines that are more efficient and reliable than those produced in the United States. All else being equal, how will this
The price of gold is $900 per ounce in New York and 7,500 kronor per ounce in Stockholm, Sweden. If the law of one price holds for gold, what is the nominal exchange rate between the U.S. dollar and the Swedish krona?
The price of gold is $900 per ounce in New York and 7,500 kronor per ounce in Stockholm, Sweden. If the law of one price holds for gold, what is the nominal exchange rate between the U.S. dollar and the Swedish krona?
How many Indian rupees equal 1 Australian dollar?Suppose that a bushel of grain costs 5 Australian dollars in Sydney and 150 rupees in Mumbai. If the law of one price holds for grain, what is the nominal exchange rate between Australia and India?
Does a strong currency imply a strong economy?Politicians and the public sometimes take pride in the fact that their national currency is “strong,” meaning that its value in terms of other currencies is high or rising. Likewise, policymakers sometimes view a depreciating(“weak”) currency as
Continuing Example 13.2, compare the prices of the Japanese and American computers by expressing both prices in terms of yen.
Which computer is the better buy, the import or the domestic computer?A U.S.-made computer costs $2,400, and a similar Japanese-made computer costs 242,000 yen. If the nominal exchange rate is 110 yen per dollar, which computer is the better buy?
From the business section of the newspaper or an online source (try The Wall Street Journal, www.wsj.com), find recent quotations of the value of the U.S. dollar against the British pound, the Canadian dollar, and the Japanese yen. Based on these data, find the exchange rate (a) between the pound
What is the exchange rate between the British pound and Canadian dollar?Based on Table 13.1, find the exchange rate between the British and Canadian currencies.Express the exchange rate in both Canadian dollars per pound and pounds per Canadian dollar.
Discuss the advantages and disadvantages of flexible versus fixed exchange rates.
Explain how monetary policy impacts the exchange rate.
Summarize the law of one price and understand how purchasing power parity determines the long-run real exchange rate.
Define the nominal exchange rate, fixed versus flexible exchange rates, and real exchange rates.
Suppose the domestic demand and supply for automobiles is as given in Problem 6. (LO2, LO3)The economy opens to trade. The world price of automobiles is $10,000. Find the domestic quantities demanded and supplied and the quantity of imports or exports.Now assume that the government imposes a quota
The demand and supply for automobiles in a certain country is given in the following graph. (LO2, LO3)Assuming that the economy is closed, find the equilibrium price and production of automobiles.The economy opens to trade. The world price of automobiles is$8,000. Find the domestic quantities
Suppose that a U.S. worker can produce 1,000 pairs of shoes or 10 industrial robots per year. For simplicity, assume there are no costs other than labor costs and firms earn zero profits. Initially, the U.S.economy is closed. The domestic price of shoes is $30 a pair, so that a U.S. worker can earn
An economy has two workers, Bella and Edward. Per day of work, Bella can pick 100 apples or 25 bananas, and Edward can pick 50 apples or 50 bananas. Bella and Edward each work 200 days per year. (LO1)Which worker has an absolute advantage in apples?Which has a comparative advantage? Calculate each
Ted can wax 4 cars per day or wash 12 cars. Ishana can wax 3 cars per day or wash 6 cars. What is each person’s opportunity cost of washing a car? Who has a comparative advantage in washing cars?(LO1)
What are the effects of an import quota on trade?Suppose the supply of and demand for computers in Costa Rica, as well as the world price of computers, are as given in Figure 12.6. Suppose that the government imposes a quota of 200 on the number of computers that can be imported. What effect would
Repeat Example 11.3 under the assumption that the world price of computers is $1,200 (the tariff is still $400). What happens if the world price is $1,800?
What are the effects of a tariff on trade?Suppose that the Costa Rican market for computers is represented by Figure 12.4. Thus, if the Costa Rican economy is closed to trade, the equilibrium price for computers would be $2,000, and 2,000 computers would be bought and sold in the Costa Rican
What is the China trade shock?The China trade shock, a term most commonly associated with economists David Autor, David Dorn, and Gordon Hanson, is used to describe the dramatic change in international trade patterns that resulted from China’s rise as a major player in the global economy over the
Should Miguel update his own web page?Consider a small community in which Miguel is the only professional bicycle mechanic and Monique is the only professional web designer. If their productivity rates at the two tasks are as shown in the table, and if each regards the two tasks as equally pleasant
Should Ana update her own web page?Consider a small community in which Ana is the only professional bicycle mechanic and Xin is the only professional web designer. If the amount of time for each of them to update a web page and repair a bicycle is as shown in Table 12.1, and if each regards the two
An economy is initially in recession. Using the AD-AS diagram, show the process of adjustment. (LO2, LO4)If the Fed responds by easing monetary policy (moving its reaction function down).If the Fed takes no action.What are the costs and benefits of each approach, in terms of output loss and
Suppose that a permanent increase in oil prices both creates an inflationary shock and reduces potential output. Use an AD-AS diagram to show the effects of the oil price increase on output and inflation in the short run and the long run, assuming that there is no policy response. What happens if
Suppose that the government cuts taxes in response to a recessionary gap, but because of legislative delays, the tax cut is not put in place for 18 months. Using an AD-AS diagram and assuming that the government’s objective is to stabilize output and inflation, show how this policy action might
For each of the following, use an AD-AS diagram to show the shortrun and long-run effects on output and inflation. Assume the economy starts in long-run equilibrium. (LO1, LO2, LO3)An increase in consumer confidence that leads to higher consumption spending.A reduction in taxes.An easing of
This problem asks you to trace out the adjustment of inflation when the economy starts with an output gap. Suppose that the economy’s aggregate demand curve iswhere Y is short-run equilibrium output and π is the inflation rate, measured as a decimal. Potential output Y* equals 950, and the
An economy’s relationship between short-run equilibrium output and inflation (its aggregate demand curve) is described by the equationInitially, the inflation rate is 4 percent, or π = 0.04. Potential output Y* equals 12,000. (LO2)Find the output in short-run equilibrium.Find the inflation rate
For the economy in Problem 1, suppose that potential output Y* =960. From the policy reaction function in the table in Problem 1, what can you infer about the Fed’s objective for the inflation rate in the long term? (LO1)
We have seen that short-run equilibrium output falls when the Fed raises the real interest rate. Suppose the relationship between shortrun equilibrium output Y and the real interest rate r set by the Fed is given by Suppose also that the Fed’s reaction function is the one shown in the following
Most central banks place great value on keeping inflation low and stable. Why do they view this objective as so important? (LO4)
How does a tight monetary policy, like that conducted by the Volcker Fed in the early 1980s, affect output, inflation, and the real interest rate in the short run? In the long run? (LO4)
Why, in the absence of public beliefs that the central bank is committed to maintaining low inflation, does an adverse inflation shock pose a particularly difficult dilemma for policymakers? (LO3)
What factors led to increased inflation in the United States in the 1960s and 1970s? (LO3)
True or false: The economy’s self-correcting tendency makes active use of stabilization policy unnecessary.Explain. (LO2)
Sketch an aggregate demand–aggregate supply diagram depicting an economy away from long-run equilibrium. Indicate the economy’s short-run equilibrium point. Discuss how the economy reaches longrun equilibrium over a period of time. Illustrate the process in your diagram. (LO2)
Discuss the relationship between output gaps and inflation.How is this relationship captured in the aggregate demand–aggregate supply diagram? (LO2)
State how each of the following affects the AD curve and explain.(LO1)An increase in government purchases.A cut in taxes.A decline in investment spending by firms.A decision by the Fed to lower the real interest rate at each level of inflation.
What two variables are related by the aggregate demand (AD) curve?Explain how the behavior of the Fed helps determine the slope of this curve. List and discuss two other factors that lead the curve to have the slope that it does. (LO1)
Can inflation be too low?As the last section points out, the Federal Reserve is normally focused on keeping inflation from rising too fast, but by late 2002, some Fed policymakers began to worry that inflation might actually be too low. Why?
How was inflation conquered in the 1980s?After reaching double-digit levels in the late 1970s, inflation in the United States declined sharply in the 1980s. After peaking at 13.5 percent in 1980, the inflation rate fell all the way to 3.2 percent in 1983, and it remained in the 2–5 percent range
Show the typical time paths of output, inflation, and the real interest rate when the Fed employs an anti-inflationary monetary policy. Draw a separate graph for each variable, showing time on the horizontal axis. Be sure to distinguish the short run from the long run. Specific numerical values are
How will output, unemployment, and inflation react to a monetary-policy tightening?Suppose that, although the economy is at full employment, the inflation rate is 10 percent—too high to be consistent with economic efficiency and long-term economic growth. The Fed decides to tighten monetary
What if productivity hadn’t increased in the late 1990s? How would the economy have been different in 2000?
Inflation shocks can also be beneficial for the economy, such as when oil prices declined by 50 percent in late 2014. What effect would a decrease in oil prices have on output and inflation, if the public did not believe that the Fed would immediately act to keep inflation stable?
Why did oil price increases cause U.S. inflation to escalate in the 1970s but not in the 2000s and 2010s?Having risen in the second half of the 1960s, inflation continued to rise in the 1970s. Already at 6.2 percent in 1973, inflation jumped to 11.0 percent in 1974. After subsiding from 1974 to
In Example 11.1, we found that a decline in consumer spending tends to reduce the rate of inflation. Using the AD-AS diagram, illustrate the shortrun and long-run effects of a fall in consumer spending on inflation. How does the decline in spending affect output in the short run and in the long run?
Suppose that firms become optimistic about the future and decide to increase their investment in new capital. What effect will this have on the rate of inflation, assuming that the economy is currently operating at potential output?
How will a fall in consumer confidence affect the rate of inflation?In Chapter 9, Short-Term Economic Fluctuations and Fiscal Policy, and Chapter 10, Stabilizing the Economy: The Role of the Fed, we saw that changes in spending can create expansionary or recessionary gaps.Therefore, based on the
Based on Figure 11.4, discuss why the Federal Reserve has a strong incentive to maintain a low inflation rate in the economy.
Assume that employers and workers agree that real wages should rise by 2 percent next year.If inflation is expected to be 2 percent next year, what will happen to nominal wages next year?If inflation is expected to be 4 percent next year, rather than 2 percent, what will happen to nominal wages

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Principle Of Macroeconomics 4th Edition FRANK; Ben Bernanke; Kate L. Antonovics; Ori Heffetz - Solutions

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