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business
dynamic macroeconomics

Macroeconomics For Today 7th Edition Irvin B. Tucker - Solutions

1. Contractionary fi scal policy is deliberate government action to infl uence aggregate demand and the level of real GDP througha. expanding and contracting the money supply.b. encouraging business to expand or contract investment.c. regulating net exports.d. decreasing government spending or
11. Indicate how each of the following would change either the aggregate demand curve or the aggregate supply curve.a. Expansionary fi scal policyb. Contractionary fi scal policyc. Supply-side economicsd. Demand-pull infl atione. Cost-push infl ation
10. Suppose Congress enacts a tax reform law and the average federal tax rate drops from 30 percent to 20 percent. Researchers investigate the impact of the tax cut and fi nd that the income subject to the tax increases from $600 billion to $800 billion.The theoretical explanation is that workers
9. Assume you are a supply-side economist who is an adviser to the president. If the economy is in recession, what would your fi scal policy prescription be?
8. What is the difference between discretionary fi scal policy and automatic stabilizers? How are federal budget surpluses and defi cits affected by the business cycle?
7. Why is a $100 billion increase in government spending for goods and services more expansionary than a $100 billion decrease in taxes?
6. Consider an economy that is operating at the full-employment level of real GDP.Assuming the MPC is 0.90, predict the effect on the economy of a $50 billion increase in government spending balanced by a $50 billion increase in taxes.
5. Suppose you are an economic adviser to the president and the economy needs a real GDP increase of $500 billion to reach full-employment equilibrium. If the marginal propensity to consume (MPC) is 0.75 and you are a Keynesian, by how much do you believe Congress must increase government spending
4. Why does a reduction in taxes have a smaller multiplier effect than an increase in government spending of an equal amount?
3. In each of the following cases, explain whether the fi scal policy is expansionary, contractionary, or neutral.a. The government decreases government spending.b. The government increases taxes.c. The government increases spending and taxes by an equal amount.
2. How does each of the following affect the aggregate demand curve?a. Government spending increases.b. The amount of taxes collected decreases.
1. Explain how discretionary fi scal policy fi ghts recession and infl ation.
15. Beginning from short-run equilibrium at point E2 in Exhibit A-9, the economy’s movement to a new position of long-run equilibrium would best be described asa. a movement along the AD2 curve with a shift in the SRAS1 curve.b. a movement along the SRAS2 curve with a shift in the AD2 curve.c. a
14. Beginning from long-run equilibrium at point E1 in Exhibit A-9, the aggregate demand curve shifts to AD2. The real GDP and price level(CPI) in short-run equilibrium will bea. $12 billion and 200.b. $8 billion and 250.c. $8 billion and 150.d. $12 billion and 250.
13. Given the shift of the aggregate demand curve from AD1 to AD2 in Exhibit A-9, the real GDP and price level (CPI) in long-run equilibrium will bea. $8 billion and 150.b. $12 billion and 200.c. $8 billion and 250.d. $8 billion and 200.
12. As shown in Exhibit A-9, and assuming the aggregate demand curve shifts from AD1 to AD2, the full-employment level of real GDP isa. $12 billion.b. $8 billion.c. $150 billion.d. unable to be determined.
11. Which of the following is most likely to cause a leftward shift in the long-run aggregate supply curve?a. An increase in laborb. An increase in capitalc. An advance in technologyd. Destruction of resources
10. In Exhibit A-8, the self-correcting AD-AS model predicts that the long-run result of the decrease from AD1 to AD2 will be a (an)a. higher price level and higher unemployment rate.b. lower price level and higher unemployment rate.c. unchanged price level and full employment.d. lower price level
9. In Exhibit A-8, the self-correcting AD-AS model theory is that in the long run the economy willa. remain where SRAS intersects AD1.b. shift to the intersection of AD2 and SRAS.c. shift to the intersection of AD2 and LRAS.d. shift to the intersection of AD2 and a new leftward-shifted SRAS.
8. In Exhibit A-8, the self-correcting AD-AS model argument is that competitiona. from unemployed workers causes an increase in nominal wages and a rightward shift in SRAS.b. from unemployed workers causes a rightward shift in LRAS.c. among fi rms for workers increases nominal wages, and this
7. In Exhibit A-8, the intersection of AD2 with SRAS indicatesa. short-run equilibrium.b. long-run equilibrium.c. that the economy is operating at full employment.d. that prices and wages are infl exible.
5. An increase in aggregate demand in the long run will result in ____ in full-employment real GDP and _____ in the price level.a. no change; an increaseb. an increase; no changec. a decrease; no changed. no change; a decrease
4. An increase in nominal incomes of workers results in thea. aggregate demand curve shifting to the left.b. long-run aggregate supply curve shifting to the right.c. short-run aggregate supply curve shifting to the left.d. short-run aggregate supply curve shifting to the right.
3. Graphically, long-run macro equilibrium occurs at thea. midpoint of the aggregate demand curve.b. intersection of the aggregate demand and long-run aggregate supply curves regardless of the short-run aggregate supply curve.c. midpoint of the long-run aggregate supply curve.d. intersection of the
2. The long-run aggregate supply curve is based on the assumption thata. both the price level and nominal incomes are fi xed.b. prices are fl exible after one year.c. both the price level and nominal incomes change by the same percentage.d. potential GDP is undetermined.
1. An assumption for the short-run aggregate supply curve is that it is a period of time in whicha. knowledge is complete.b. wages are fi xed.c. wages are constant for under one year.d. prices fi rms charge for products are fi xed.
5. The economy shown in Exhibit A-7 is initially in equilibrium at point E1, and the aggregate demand curve decreases from AD1 to AD2.Explain the long-run adjustment process.
4. Based on the assumptions of question 3, explain verbally the impact of an increase of$4 trillion in aggregate demand on short-run equilibrium.
3. Use the graph drawn in question 1 and assume the initial equilibrium is E1. Next, assume aggregate demand increases by$4 trillion. Draw the effect on short-run equilibrium.
2. Using the graph from question 1 and assuming long-run equilibrium at $12 trillion, explain the impact of a 10 percent increase in workers’income.
1. The economy of Tuckerland has the following aggregate demand and supply schedules, refl ecting real GDP in trillions of dollars:
15. Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is on the intermediate range of the aggregate supply curve, thena. both real GDP and the price level will fall.b. real GDP will fall and the price level will rise.c.
14. An increase in the price level caused by a rightward shift of the aggregate demand curve is calleda. cost-push infl ation.b. supply shock infl ation.c. demand shock infl ation.d. demand-pull infl ation.
13. Assuming a fi xed aggregate demand curve, a leftward shift in the aggregate supply curve causes a (an)a. increase in the price level and a decrease in real GDP.b. increase in the price level and an increase in real GDP.c. decrease in the price level and a decrease in real GDP.d. decrease in the
12. Other factors held constant, a decrease in resource prices will shift the aggregatea. demand curve leftward.b. demand curve rightward.c. supply curve leftward.d. supply curve rightward.
11. Along the classical or vertical range of the aggregate supply curve, a decrease in the aggregate demand curve will decreasea. both the price level and real GDP.b. only real GDP.c. only the price level.d. neither real GDP nor the price level.
10. Macroeconomic equilibrium occurs whena. aggregate supply exceeds aggregate demand.b. the economy is at full employment.c. aggregate demand equals aggregate supply.d. aggregate demand equals the average price level.
9. Which of the following is not a range on the eclectic or general view of the aggregate supply curve?a. Classical rangeb. Keynesian rangec. Intermediate ranged. Monetary range
8. Classical economists believed that thea. price system was stable.b. goal of full employment was impossible.c. price system automatically adjusts the economy to full employment in the long run.d. government should attempt to restore full employment.
7. The popular theory prior to the Great Depression that the economy will automatically adjust to achieve full employment isa. supply-side economics.b. Keynesian economics.c. classical economics.d. mercantilism.
6. Which of the following will not shift the aggregate demand curve to the left?a. Consumers become more optimistic about the future.b. Government spending decreases.c. Business optimism decreases.d. Consumers become pessimistic about the future.
5. Which of the following will shift the aggregate demand curve to the left?a. An increase in exportsb. An increase in investmentc. An increase in government spendingd. A decrease in government spending
4. The net exports effect is the inverse relation ship between net exports and the of an economy.a. real GDPb. GDP defl atorc. price leveld. consumption spending
3. The real balances effect occurs because a higher price level reduces the real value of people’sa. fi nancial assets.b. wages.c. unpaid debt.d. physical investments.
2. When the supply of credit is fi xed, an increase in the price level stimulates the demand for credit, which, in turn, reduces consumption and investment spending. This effect is called thea. real balances effect.b. interest-rate effect.c. net exports effect.d. substitution effect.
1. The aggregate demand curve is defi ned as thea. net national product.b. sum of wages, rent, interest, and profi ts.c. real GDP purchased at different possible price levels.d. total dollar value of household expectations.
11. Explain demand-pull infl ation graphically using aggregate demand and supply analysis.Assess the impact on the price level, real GDP, and employment.
10. Explain cost-push infl ation verbally and graphically, using aggregate demand and aggregate supply analysis. Assess the impact on the price level, real GDP, and employment.
9. What shifts in aggregate supply or aggregate demand would cause each of the following conditions for an economy?a. The price level rises, and real GDP rises.b. The price level falls, and real GDP rises.c. The price level falls, and real GDP falls.d. The price level rises, and real GDP falls.e.
8. Assume an economy operates in the intermediate range of its aggregate supply curve. State the direction of shift for the aggregate demand or aggregate supply curve for each of the following changes in conditions. What is the effect on the price level? On real GDP? On employment?a. The price of
7. In which direction would each of the following changes in conditions cause the aggregate supply curve to shift? Explain your answers.a. The price of gasoline increases because of a catastrophic oil spill.b. Labor unions and all other workers agree to a cut in wages to stimulate the economy.c.
6. Assume the aggregate demand and aggregate supply curves intersect at a price level of 100.Explain the effect of a shift in the price level to 120 and to 50.
5. Consider this statement: “Equilibrium GDP is the same as full employment.” Do you agree or disagree? Explain.
4. Identify the three ranges of the aggregate supply curve. Explain the impact of an increase in the aggregate demand curve in each segment.
3. In which direction would each of the following changes in conditions cause the aggregate demand curve to shift? Explain your answers.a. Consumers expect an economic downturn.b. A new U.S. president is elected, and the profi t expectations of business executives rise.c. The federal government
2. Explain the theory of the classical economists that fl exible prices and wages ensure that the economy operates at full employment.
1. Explain why the aggregate demand curve is downward sloping. How does your explanation differ from the reasons behind the downward-sloping demand curve for an individual product?
15. Use the aggregate expenditures model and assume an economy is in equilibrium at $5 trillion, which is $250 billion below full-employment GDP. If the marginal propensity to consume(MPC) is 0.60, full-employment GDP can be reached if government spendinga. decreases by $60 billion.b. decreases by
14. Using the aggregate expenditures model, assume the aggregate expenditures (AE) line is above the 45-degree line at full-employment GDP. This vertical distance is called a (an)a. infl ationary gap.b. recessionary gap.c. negative GDP gap.d. marginal propensity to consume gap.
13. To close the recessionary gap and achieve fullemployment real GDP as shown in Exhibit 9, the government should cut taxes bya. $0.60 trillion.b. $1 trillion.c. $2 trillion.d. $3 trillion.
12. To close the recessionary gap and achieve fullemployment real GDP as shown in Exhibit 9, the government should increase spending bya. $1 trillion.b. $1.2 trillion.c. $2.0 trillion.d. $2.5 trillion.
11. In Exhibit 9, the spending multiplier for this economy is equal toa. 12⁄3.b. 2½.c. 3.d. 5.Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook
10. The equilibrium level of real GDP is $1,000 billion, the full-employment level of real GDP is$1,250 billion, and the marginal propensity to consume (MPC) is 0.60. The full-employ ment target can be reached if government spending isa. increased by $60 billion.b. increased by $100 billion.c.
9. Keynes’s criticism of the classical theory was that the Great Depression would not correct itself. The multiplier effect would restore an economy to full employment ifa. government would follow a “least government is the best government”policy.b. government taxes were increased.c.
8. If the marginal propensity to consume (MPC)is 0.90, a $100 billion increase in planned investment expenditure, other things being equal, will cause an increase in equilibrium output ofa. $90 billion.b. $100 billion.c. $900 billion.d. $1,000 billion.
7. If the marginal propensity to consume(MPC) is 0.75, a $50 billion decrease in government spending would cause equilibrium output toa. increase by $50 billion.b. decrease by $50 billion.c. increase by $200 billion.d. decrease by $200 billion.
6. If the marginal propensity to consume (MPC) is 0.80, the value of the spending multiplier isa. 2.b. 5.c. 8.d. 10.
5. If the value of the marginal propensity to consume(MPC) is 0.50, the value of the spending multiplier isa. 0.50.b. 1.c. 2.d. 5.
4. The spending multiplier is defi ned asa. 1/(1 2 marginal propensity to consume).b. 1/(marginal propensity to consume).c. 1/(1 2 marginal propensity to save).d. 1/(marginal propensity to consume 1 marginal propensity to save).
3. John Maynard Keynes proposed that the multiplier effect can correct an economic depression.Based on this theory, an increase in equilibrium output would be created by an initiala. increase in investment.b. increase in government spending.c. decrease in government spending.d. both (a) and (b).e.
2. There will be unplanned inventory investment accumulation whena. aggregate output (real GDP) equals aggregate expenditures.b. aggregate output (real GDP) exceeds aggregate expenditures.c. aggregate expenditures exceed aggregate output (real GDP).d. fi rms increase output.
1. The net exports line can bea. positive.b. negative.c. zero.d. any of the above.
10. Suppose the government wishes to eliminate an infl ationary gap of $100 billion and the MPC is 0.50. How much must the government cut its spending? Instead of decreasing government spending by the amount you calculate, what would be the effect of the government increasing taxes by this amount?
9. Assume an economy is in recession with a MPC of 0.75 and there is a GDP gap of $100 billion. How much must government spending increase to eliminate the gap? Instead of increasing government spending by the amount you calculate, what would be the effect of the government cutting taxes by this
7. Suppose autonomous investment increases by$100 billion and the MPC is 0.75.a. Use the following table to compute four rounds of the spending multiplier effect:output and employment? Does a recessionary gap or an infl ationary gap exist? Second, assume the level of autonomous investment is$150
6. Assume the MPC is 0.90 and autonomous investment increases by $500 billion. What will be the impact on real GDP?
5. How are changes in the MPC, changes in the MPS, and the size of the multiplier related?Answer the following questions:a. What is the multiplier if the MPC is 0?0.33? 0.90?b. Suppose the equilibrium real GDP is$100 billion and the MPC is 4/5. How much will the equilibrium output change if
4. Use the aggregate expenditures model to demonstrate the multiplier effect.
3. Explain the determination of equilibrium real GDP by drawing an abstract graph of the aggregate expenditures model.Label the aggregate expenditures line AE and the aggregate output line AO. Explain why the interaction of AE and AO determines the Keynesian equilibrium level of real GDP.
1. Assume the level of autonomous investment is $100 billion and aggregate expenditures equal consumption and investment. Based on the table below, answer the following questions.$50 billion. What is the equilibrium level of employment and output?
In a speech delivered in the summer of 2011, President Barack Obama observed, “Even though the economy is growing, even though it’s created more than two million jobs over the past 15 months, we still face some tough times.” Is it likely that the U.S. economy created only about two million
Suppose that you are the vice president of operations of a manufacturing firm that sells an industrial lubricant in a competitive market. Further suppose that your economist gives you the following demand and supply functions:Demand: QD = 45 - 2P Supply: QS = -15 + P What is the consumer surplus in
What is producer surplus? How does producer surplus change as the equilibrium price of a good rises or falls?
In the United States, to receive a medical license, a doctor must complete a residency program at a hospital. Hospitals are not free to expand their residency programs in a particular medical specialty without approval from a Residency Review Committee (RRC), which is made up of physicians in that
[Related to the Don’t Let This Happen to You on page 15]Explain which of the following statements represent positive analysis and which represent normative analysis.a. A 50-cent-per-pack tax on cigarettes will lead to a 12 percent reduction in smoking by teenagers.b. The federal government should
[Related to the Chapter Opener on page 3] In recent years, many doctors have decided to give up running their practices as small businesses and have become salaried employees of hospitals.a. What important differences exist between doctors’practices and other small businesses, such as restaurants
[Related to the Making the Connection on page 15] The Making the Connection explains that there are both positive and normative elements to the debate over whether medical schools should charge tuition and whether hospitals should continue to pay residents who pursue primary care but not residents
Dr. Strangelove’s theory is that the price of mushrooms is determined by the activity of subatomic particles that exist in another universe parallel to ours. When the subatomic particles are emitted in profusion, the price of mushrooms is high. When subatomic particle emissions are low, the price
Suppose an economist develops an economic model and finds that “it works great in theory, but it fails in practice.”What should the economist do next?
Do you agree with the following assertion: “The problem with economics is that it assumes that consumers and firms always make the correct decision. But we know everyone’s human, and we all make mistakes.”
What is the difference between normative analysis and positive analysis? Is economics concerned mainly with normative analysis or with positive analysis? Briefly explain.
Describe the five steps by which economists arrive at a useful economic model.
15. As shown in Exhibit 12, the marginal propensity to save (MPS) isa. 0.33.b. 0.50.c. 0.67.d. 0.75.
14. As shown in Exhibit 12, saving occursa. at 0.b. between 0 and $4 trillion.c. where disposable income is greater than $4 trillion.d. at $2 trillion.
13. As shown in Exhibit 12, autonomous consumption isa. 0.b. $1 trillion.c. $2 trillion.d. $3 trillion.e. $6 trillion.
12. In Exhibit 11, aggregate disposable income will equal consumption plus investment (aggregate expenditures), and the economy will be in equilibrium when real disposable income isa. $2.33 trillion.b. $3 trillion.c. $6 trillion.d. $10 trillion.
11. In Exhibit 11, what is the households’ marginal propensity to consume (MPC)?a. 0.50b. 0.67c. 0.75d. 0.80
10. The aggregate expenditures function (AE) represents which of the following?a. The consumption function onlyb. Autonomous consumption onlyc. The investment demand curve onlyd. All three of the above combinede. A combination of (a) and (c)
9. Which of the following changes produces a leftward shift in the investment demand curve?a. A wave of optimism about future profi tabilityb. Technological changec. High plant capacity utilizationd. An increase in business taxes

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