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dynamic macroeconomics

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

8. The investment demand curve represents the relationship between business spending for investment goods anda. GDP.b. interest rates.c. disposable income.d. saving.
7. An upward shift in the consumption schedule, other things being equal, could be caused by householdsa. becoming optimistic about the state of the economy.b. becoming pessimistic about the state of the economy.c. expecting future income and wealth to decline.d. doing none of the above.
6. Which of the following changes produces an upward shift in the consumption function?a. An increase in consumer wealthb. A decrease in consumer wealthc. A decrease in autonomous consumptiond. Both (b) and (c)
5. Above the break-even disposable income for the consumption function, which of the following occurs?a. Dissavingb. Savingc. Neither (a) nor (b)d. Both (a) and (b)
4. John Maynard Keynes’s proposition that a dollar increase in disposable income will increase consumption, but by less than the increase in disposable income, implies a marginal propensity to consume that isa. greater than or equal to one.b. equal to one.c. less than one, but greater than
3. The consumption function represents the relationship between consumer expenditures anda. interest rates.b. saving.c. the price level.d. disposable income.
2. Autonomous consumption isa. positively related to the level of consumption.b. negatively related to the level of consumption.c. positively related to the level of disposable income.d. independent of the level of disposable income.
1. The French classical economist Jean-Baptiste Say transformed the equality of production and spending into a law that can be expressed as follows:a. The invisible hand creates its own supply.b. Wages always fall to the subsistence level.c. Supply creates its own demand.d. Aggregate output does
9. The levels of real disposable income and aggregate expenditures for a two-sector economy (consumption and investment) are given in the following table:a. Construct a graph of the aggregate expenditures function (AE).b. Determine the autonomous consumption, MPC, and MPS for this hypothetical
8. Suppose most business executives expect a slowdown in the economy. How might this situation affect the economy?
7. Why is the investment demand curve less stable than the consumption and saving schedules?What are the basic determinants that can shift the investment demand curve?
6. Your college is considering investing $6 million to add 10,000 seats to its football stadium.The athletic department forecasts it can sell all these extra seats each game for a ticket price of $20 per seat, and the team plays six home games per year. If the school can borrow at an interest rate
5. Explain how each of the following affects the consumption function:a. The expectation is that a prolonged recession will occur in the next year.b. Stock prices rise sharply.c. The price level rises by 10 percent.d. The interest rate on consumer loans rises sharply.e. Income taxes increase.
4. How do households “dissave”?
3. Explain why the MPC and the MPS must always add up to one.
2. Use the consumption function data below to answer the following questions:a. Calculate the saving schedule.b. Determine the marginal propensities to consume (MPC) and save (MPS).c. Determine the break-even income.d. What is the relationship between the MPC and the MPS?
1. Explain how the classical economists concluded that Say’s Law is valid and long-term unemployment impossible.
15. Which of the following statements is true?a. Demand-pull infl ation is caused by excess total spending.b. Cost-push infl ation is caused by an increase in resource costs.c. If nominal interest rates remain the same and the infl ation rate falls, real interest rates increase.d. If real interest
14. Suppose you place $10,000 in a retirement fund that earns a nominal interest rate of 8 percent.If you expect infl ation to be 5 percent or lower, then you are expecting to earn a real interest rate of at leasta. 1.6 percent.b. 3 percent.c. 4 percent.d. 5 percent.
13. Cost-push infl ation is due toa. excess total spending.b. too much money chasing too few goods.c. resource cost increases.d. the economy operating at full employment.
12. Demand-pull infl ation is caused bya. monopoly power.b. energy cost increases.c. tax increases.d. full employment.
11. If the nominal rate of interest is less than the infl ation rate,a. lenders win.b. savers win.c. the real interest rate is negative.d. the economy is at full employment.
10. Last year the Harrison family earned $50,000.This year their income is $52,000. In an economy with an infl ation rate of 5 percent, which of the following is correct?a. The Harrisons’ nominal income and real income have both risen.b. The Harrisons’ nominal income and real income have both
9. When the infl ation rate rises, the purchasing power of nominal incomea. remains unchanged.b. decreases.c. increases.d. changes by the infl ation rate minus one.
8. Suppose a typical automobile tire cost $50 in the base year and had a useful life of 40,000 miles. Ten years later, the typical automobile tire cost $75 and had a useful life of 75,000 miles.If no adjustment is made for mileage, the CPI woulda. underestimate infl ation between the two years.b.
7. Which of the following would overstate the consumer price index?a. Substitution biasb. Improving quality of productsc. Neither (a) nor (b)d. Both (a) and (b)
6. Defl ation is a (an)a. increase in most prices.b. decrease in the general price level.c. situation that has never occurred in U.S.history.d. decrease in the infl ation rate.
5. As shown in Exhibit 6, the rate of infl ation for Year 5 isa. 4.2 percent.b. 5 percent.c. 20 percent.d. 25 percent.Exhibit 6 Consumer Price Index Year Consumer price index 1 100 2 110 3 115 4 120 5 125
4. As shown in Exhibit 6, the rate of infl ation for Year 2 isa. 5 percent.b. 10 percent.c. 20 percent.d. 25 percent.
3. Consider an economy with only two goods:bread and wine. In the base year, the typical family bought 4 loaves of bread at $2 per loaf and 2 bottles of wine for $9 per bottle. In a given year, bread cost $3 per loaf, and wine cost$10 per bottle. The CPI for the given year isa. 100.b. 123.c. 126.d.
2. If the consumer price index in year X was 300 and the CPI in year Y was 315, the rate of infl ation wasa. 5 percent.b. 15 percent.c. 25 percent.d. 315 percent
1. Inflation isa. an increase in the general price level.b. not a concern during war.c. a result of high unemployment.d. an increase in the relative price level.
11. Explain this statement: “If everyone expects infl ation to occur, it will.”
10. How does demand-pull infl ation differ from cost-push infl ation?
9. When the economy approaches full employment, why does demand-pull infl ation become a problem?
8. Suppose the annual nominal rate of interest on a bank certifi cate of deposit is 12 percent.What would be the effect of an infl ation rate of 13 percent?
7. Suppose you borrow $100 from a bank at 5 percent interest for one year and the infl ation rate that year is 10 percent. Was this loan advantageous to you or to the bank?
6. Who loses from infl ation? Who wins from infl ation?
5. Explain how a person’s purchasing power can decline in a given year even though he or she received a salary increase.
4. Suppose you earned $100,000 in a given year.Calculate your real income, assuming the CPI is 200 for this year.
3. What are three criticisms of the CPI?
2. Suppose, in the base year, a typical market basket purchased by an urban family cost$250. In Year 1, the same market basket cost$950. What is the consumer price index (CPI)for Year 1? If the same market basket cost$1,000 in Year 2, what is the CPI for Year 2?What was the Year 2 rate of infl
1. Consider this statement: “When the price of a good or service rises, the infl ation rate rises.”Do you agree or disagree? Explain.
15. The economy is considered to be at full employment whena. the actual rate of unemployment is less than the natural rate.b. the leading economic indicators are unchanged for two consecutive quarters.c. structural unemployment is zero.d. frictional plus structural unemployment is less than the
14. Which of the following statements is true?a. The GDP gap is the difference between actual real GDP and full-employment real GDP.b. We desire economic growth because it increases the nation’s real GDP.c. Economic growth is measured by the annual percentage increase in a nation’s real GDP.d.
13. Which of the following groups typically has the highest unemployment rate?a. White men and women as a groupb. African-American men and women as a groupc. Teenagers as a groupd. Persons who completed high school
12. Which of the following statements is true?a. The four phases of the business cycle, in order, are peak, recovery, trough, and recession.b. When unemployment is rising, then real GDP is rising.c. The economic problem typically associated with a recovery is rising unemployment.d. Full employment
11. The sum of the frictional and structural unemployment rates is equal to thea. potential unemployment rate.b. actual unemployment rate.c. cyclical unemployment rate.d. full employment rate.
10. Unemployment that is due to a recession isa. involuntary unemployment.b. frictional unemployment.c. structural unemployment.d. cyclical unemployment.
9. Structural unemployment is caused bya. shifts in the economy that make certain job skills obsolete.b. temporary layoffs in industries such as construction.c. the impact of the business cycle on job opportunities.d. short-term changes in the economy.
8. Frictional unemployment applies toa. workers with skills not required for existing jobs.b. short periods of unemployment needed to match jobs and job seekers.c. people who spend long periods of time out of work.d. unemployment related to the ups and downs of the business cycle.
7. The number of people offi cially unemployed is not the same as the number of people who can’t fi nd a job becausea. people who have jobs continue to look for better ones.b. the armed forces are included.c. discouraged workers are not counted.d. all of the above.
6. People who are not working will be counted as employed if they area. on vacation.b. absent from their job because of bad weather.c. absent from their job because of a labor dispute.d. all of the above.
5. The labor force consists of all personsa. 21 years of age and older.b. 21 years of age and older who are working.c. 16 years of age and older.d. 16 years of age and older who are working or actively seeking work.
4. Which of the following is a coincident indicator?a. Personal incomeb. Industrial productionc. Manufacturing and trade salesd. All of the above
3. Which of the following is not a variable in the index of leading indicators?a. New consumer goods ordersb. Delayed deliveriesc. New building permitsd. Prime rate
2. The phase of a business cycle during which real GDP reaches its minimum level is thea. recession.b. depression.c. recovery.d. trough.
1. The phases of a business cycle area. upswing and downswing.b. full employment and unemployment.c. peak, recession, trough, and recovery.d. full employment, depression, expansion, and plateau.
11. Explain the GDP gap.
10. Speculate on why teenage unemployment rates exceed those for the overall labor force.
9. In the 1960s, economists used 4 percent as their approximation for the natural rate of unemployment. Currently, full employment is on the order of 5 percent unemployment.What is the major factor accounting for this rise?
8. Is it reasonable to expect the unemployment rate to fall to zero for an economy? What is the relationship of frictional, structural, and cyclical unemployment to the full-employment rate of unemployment, or natural rate of unemployment?
7. How does structural unemployment differ from cyclical unemployment?
6. Why is frictional unemployment inevitable in an economy characterized by imperfect job information?
5. How has the offi cial unemployment rate been criticized for overestimating and underestimating unemployment?
4. Describe the relevant criteria that government statisticians use to determine whether a person is “unemployed.”
3. In a given year, there are 10 million unemployed workers and 120 million employed workers in an economy. Excluding members of the armed forces and persons in institutions, and assuming these fi gures include only civilian workers, calculate the civilian unemployment rate.
2. Following are real GDP fi gures for 10 quarters:Plot these data points, and identify the four phases of the business cycle. Give a theory that may explain the cause of the observed business cycle. What are some of the consequences of a prolonged decline in real GDP? Is the decline in real GDP
1. What is the basic cause of the business cycle?
15. Which of the following items is included in the calculation of GDP?a. Purchase of 100 shares of General Motors stockb. Purchase of a used carc. The value of a homemaker’s servicesd. Sale of Gulf War military surpluse. None of the above would be included.
14. Which of the following is a shortcoming of GDP?a. GDP measures nonmarket transactions.b. GDP includes an estimate of illegal transactions.c. GDP includes an estimate of the value of household services.d. None of the above are true.
13. Which of the following statements is true?a. The inclusion of intermediate goods and services in GDP calculations would underestimate our nation’s production level.b. The expenditure approach sums the compensation of employees, rents, profi ts, net interest, and nonincome expenses for
12. The GDP chain price index isa. widely reported in the news.b. broadly based.c. adjusted for government spending.d. a measure of changes in consumer prices.
11. Gross domestic product data that refl ect actual prices as they exist in a given year are expressed in terms ofa. fi xed dollars.b. current dollars.c. constant dollars.d. real dollars.
10. Which of the following statements is true?a. National income is total income earned by households whereas personal income is total income received by households.b. Disposable personal income equals personal income minus personal taxes.c. The expenditure approach and the income approach yield
9. Disposable personal incomea. is the income people spend for personal items, such as homes and cars.b. includes transfer payments.c. excludes transfer payments.d. includes personal taxes.
8. Personal income equals disposable income plusa. personal savings.b. transfer payments.c. dividend payments.d. personal taxes.
7. Adding all incomes earned by households from the sale of resources yieldsa. intermediate goods.b. indirect business taxes.c. national income.d. personal income.
6. Subtracting an allowance for depreciation of fi xed capital from gross domestic product yieldsa. real GDP.b. nominal GDP.c. personal income.d. national income
5. GDP is a less-than-perfect measure of the nation’s economic pulse because ita. excludes nonmarket transactions.b. does not measure the quality of goods and services.c. does not report illegal transactions.d. all of the above are true.
4. The expenditure approach measures GDP by adding all the expenditures for fi nal goods made bya. households.b. businesses.c. government.d. foreigners.e. all of the above.
3. The circular fl ow model does not include which of the following?a. The quantity of shoes in inventory on January 1.b. The total wages paid per month.c. The percentage of profi ts paid out as dividends each year.d. The total profi ts earned per year in the U.S.economy.
2. Based on the circular fl ow model, money fl ows from businesses to households ina. factor markets.b. product markets.c. neither factor nor product markets.d. both factor and product markets.
1. The dollar value of all fi nal goods and services produced within the borders of a nation isa. GNP defl ator.b. gross national product.c. net domestic product.d. gross domestic product.
13. Explain why comparing the GDPs of various nations might not tell you which nations are better off.
12. Which of the following are counted in this year’s GDP? Explain your answer in each case.a. Flashy Car Company sold a used car.b. Juanita Jones cooked meals for her family.c. IBM paid interest on its bonds.d. José Suarez purchased 100 shares of IBM stock.e. Bob Smith received a welfare
11. Suppose U.S. nominal GDP increases from one year to the next year. Can you conclude that these fi gures present a misleading measure of economic growth? What alternative method would provide a more accurate measure of the rate of growth?
10. Again using the data from Exhibit 11, derive personal income (PI) from national income(NI). Then make the required adjustments to PI to obtain disposable personal income (DI).
9. Using the data in Exhibit 11, compute national income (NI) by making the required subtraction from GDP. Explain why NI might be a better measure of economic performance than GDP.
8. Suppose the data in Exhibit 11 are for a given year from the annual Economic Report of the President. Calculate GDP, using the expenditure and the income approaches.
7. Explain how net exports affect the U.S.economy. Describe both positive and negative impacts on GDP. Why do national income accountants use net exports to compute GDP, rather than simply adding exports to the other expenditure components of GDP?
6. Explain why the government spending (G)component of GDP falls short of actual government expenditures.
5. Explain why a new forklift sold for use in a warehouse is a fi nal good even though it is fi xed investment (capital) used to produce other goods. Is there a double-counting problem if this sale is added to GDP?
4. An economy produces fi nal goods and services with a market value of $5,000 billion in a given year, but only $4,500 billion worth of goods and services is sold to domestic or foreign buyers. Is this nation’s GDP $5,000 billion or $4,500 billion? Explain your answer.
3. A small economy produced the following fi nal goods and services during a given month:3 million pounds of food, 50,000 shirts, 20 houses, 50,000 hours of medical services, 1 automobile plant, and 2 tanks. Calculate the value of this output at the following market prices:$1 per pound of food$20
2. Using the basic circular fl ow model, explain why the value of businesses’ output of goods and services equals the income of households.
1. Which of the following are fi nal goods or services, and which are intermediate goods or services?a. A haircut purchased from a hair salonb. A new automobilec. An oil fi lter purchased in a new automobiled. Crude oil
15. Beginning from an equilibrium at point E1 in Exhibit 11, an increase in demand for good X, other things being equal, would move the equilibrium point toa. E1 (no change).b. E2.c. E3.d. E4.
14. In Exhibit 11, an increase in supply would cause a move from which equilibrium point to another, other things being equal?a. E1 to E2b. E1 to E3c. E4 to E1d. E3 to E4
9. A good that provides external benefi ts to society hasa. too few resources devoted to its production.b. too many resources devoted to its production.Exhibit 11 Supply and Demand Curves Price(dollars per unit)Quantity of good X(units per time period)P3 P2 P1 0 Q2 Q1 Q3 Q4 D1 D2 S2 E3 E4 S1 E2 E1

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