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dynamic macroeconomics
Macroeconomics For Today 9th Edition Irvin B. Tucker - Solutions
What are some of the problems for LDCs of accepting foreign aid?
Without external financing from foreign private investment, foreign aid, and foreign loans, poor countries are caught in the vicious circle of poverty. Explain. How does external financing help poor countries achieve economic growth and development?
Indicate whether each of the following is associated with a high or low level of economic growth and development:High Lowa. Overpopulationb. Highly skilled laborc. High savings rated. Political stabilitye. Low capital accumulation High Lowf. Advanced technology g. Highly developed infrastructure h.
Why is the quest for economic growth and development complicated?
Explain why it is so difficult for poor LDCs to generate investment in capital in order to increase productivity and growth and therefore improve their standard of living.
Do you agree with the argument that the rich nations are getting richer and the poor nations are getting poorer? Is this an oversimplification?Explain.
What is the difference between economic development and economic growth? Give examples of how each of these concepts can be measured.
Assume you are given the following data for country Alpha and country Beta:Country GDP per capita Alpha $25,000 Beta 15,000a. Based on the GDP per capita data given above, in which country would you prefer to live?b. Now assume you are given the following additional quality-of-life data. In which
Explain why GDP per capita comparisons among nations are not a perfect measure of differences in economic well-being.
What is the difference between industrially advanced countries (IACs) and less-developed countries (LDCs)? List five IACs and five LDCs.
Karl Marx was a (an)a. 19th-century German philosopher.b. 18th-century Russian economist.c. 14th-century Polish banker.d. 19th-century Russian journalist.
In Marx’s ideal communist society, the statea. actively promotes income equality.b. follows the doctrine of laissez-faire.c. owns resources and conducts planning.d. does not exist.
How many nations in the world today operate totally according to Karl Marx’s theory of communism?a. None.b. Several.c. Only the United States.d. Many.
Karl Marx predicted which of the following?a. market system would self-destruct.b. “haves” would revolt against the“have-nots.”c. wealthy were entitled to profits as their reward for risk-taking.d. None of the answers above are correct.
According to Karl Marx, under capitalism,a. profits would be shared fairly.b. incomes would be distributed equally.c. workers would be exploited and revolt against owners of capital.d. workers would actually own the factors of production.
Which of the following is not a basic characteristic of capitalism?a. Economic decisions occur in markets.b. Factors of production are privately owned.c. Income is distributed on the basis of need.d. Businesses make their own product and price decisions.
The economic system in which private individuals own the factors of production isa. a planned economy.b. capitalism.c. collectivism.d. socialism.
Adam Smith, in his book The Wealth of Nations, advocateda. socialism.b. an economy guided by an “invisible hand.”c. government control of the “invisible hand.”d. the adoption of mercantilism.
Adam Smith wrote that thea. economic problems of the 18th-century England were caused by free markets.b. government should control the economy with an “invisible hand.”c. pursuit of private self-interest promotes the public interest in a market economy.d. public or collective interest is not
In Adam Smith’s competitive market economy, the question of what goods to produce is determined by thea. “invisible hand” of the price system.b. “invisible hand” of government.c. “visible hand” of public interest.d. “visible hand” of laws and regulations.
The doctrine of laissez-fairea. advocates an economic system with extensive government intervention and little individual decision making.b. was advocated by Adam Smith in his book The Wealth of Nations.c. was advocated by Karl Marx in his book Das Kapital.d. is described by none of the above.
When making economic decisions, Adam Smith urged society toa. follow the principle of self-interest.b. follow the principle of public interest.c. transfer wealth according to need.d. provide equal income for all citizens.
Adam Smith stated that the role of government in society should be toa. provide defense.b. enforce contracts.c. do absolutely nothing.d. Both answersa. andb. are correct.
Command economies typically suffer froma. unemployment, but not underemployment.b. neither unemployment nor underemployment.c. both unemployment and underemployment.d. underemployment, but not unemployment.
The economic system in which all of the basic decisions are made through a centralized authority, such as a government agency, is termed aa. market economy.b. capitalistic economy.c. command economy.d. traditional economy.
The term “capitalism” refers to which of the following?a. A religion based on amassing capital.b. An economic system characterized by private ownership of resources, and decentralized market allocation.c. An economic system characterized by government ownership of resources and centralized
Most of the world’s economies are mixed economies becausea. a cartel of powerful transnational firms demands it.b. the market system of allocation is always best.c. the command system of allocation is always best.d. government intervention in an overall market system exists because markets fail
Which of the following represents key strengths of the market economy as a system of allocation?a. Goods and services are allocated based on willingness and ability to pay, rather than based on need.b. Producers have strong incentives to innovate because successful innovators are rewarded with
Which of the following is a key criticism of the market economy as a system of allocation?a. Goods and services are allocated unequally based on ability to pay.b. Producers have strong incentives to innovate because successful innovators are rewarded with higher profit.c. Consumers can transmit
In a market economy, the three economic questions are answered by which of the following?a. Prices determined by the interaction of the forces of supply and demand.b. A cartel of major transnational corporations, government agencies, and consumer advocates.c. A trilateral commission of major
Suppose you are a factory manager. Describe how you might reach production goals under a system of pure capitalism and under a system of pure socialism.
If all real-world economies are mixed economies, why is the U.S. economy described as capitalist, while the Cuban economy is described as communist?
Karl Marx believed the market system was doomed. Why do you think he was right or wrong?
Suppose you are a farmer. Explain why you would be motivated to work in traditional, command, and market economies.
“The schools are not in the business of pleasing parents and students, and they cannot be allowed to set their own agendas. Their agendas are set by politicians, administrators, and various constituencies that hold the keys to political power. The public system is built to see to it that the
Suppose a national program of free housing for the elderly is paid for by a sizable increase in income taxes. Explain a trade-off that might occur between economic security and efficiency.
Explain the advantages and disadvantages of any two of the three basic types of economic systems.
Give an example of how a nation’s culture affects its economic system.
Which of the following would cause the U.S.dollar to depreciate against the Japanese yen?a. Greater popularity of U.S. exports in Japan.b. A higher price level in Japan.c. Higher real interest rates in the U.S.d. Higher incomes in the U.S.
If the dollar appreciates (becomes stronger), this causesa. the relative price of U.S. goods to increase for foreigners.b. the relative price of foreign goods to decrease for Americans.c. U.S. exports to fall and U.S. imports to rise.d. a balance of trade deficit for the U.S.e. all of the above to
An increase in the equilibrium price of a nation’s money could be caused by a (an)a. decrease in the supply of money curve.b. decrease in the demand for money curve.c. increase in the supply of money curve.d. increase in the demand for money curve.
Which of the following would cause a decrease in the demand for euros by those holding U.S.dollars?a. Inflation in France, but not in the United States.b. Inflation in the United States, but not in France.c. An increase in the real rate of interest on investments in France above the real rate of
Suppose the exchange rate changes so that fewer Japanese yen are required to buy a dollar. We would conclude thata. the Japanese yen has depreciated in value.b. U.S. citizens will buy fewer Japanese imports.c. Japanese will demand fewer U.S. exports.d. None of the above will occur.
The United Statesa. was on a fixed exchange rate system prior to late 1971, but now is on a flexible exchange rate system.b. has been on a fixed exchange rate system since 1945.c. has been on a flexible exchange rate system since 1945.d. was on a flexible exchange rate system prior to late 1983,
If a Japanese radio priced at 2,000 yen can be purchased for $10, the exchange rate isa. 200 yen per dollar.b. 20 yen per dollar.c. 20 dollars per yen.d. None of the answers above are correct.
Which of the following international accounts records the purchase and sale of financial assets and real estate between the United States and other nations?a. The balance of trade account.b. The current account.c. The capital account.d. The balance of payments account.
Which of the following international accounts records payments for exports and imports of goods, military transactions, foreign travel, investment income, and foreign gifts?a. The capital account.b. The goods account.c. The current account.d. The official reserve account.
The figure that results when goods imports are subtracted from goods exports isa. the capital account balance.b. the balance of trade.c. the current account balance.d. always less than zero.
The infant industry argument for protectionism is based on which of the following views?a. Foreign buyers will absorb all of the output of domestic producers in a new industry.b. The growth of an industry that is new to a nation will be too rapid unless trade restrictions are imposed.c. Firms in a
A tariff increases thea. quantity of imports.b. ability of foreign goods to compete with domestic goods.c. prices of imports to domestic buyers.d. All of the answers above are correct.
If the countries in Exhibit 14 follow the principle of comparative advantage, the United States shoulda. buy all of its potatoes from Ireland.b. buy all of its wheat from Ireland.c. buy all of its potatoes and wheat from Ireland.d. produce both potatoes and wheat and not trade with Ireland.
In Exhibit 14, the opportunity cost of potatoes isa. 1/2 ton of wheat in the United States and 2/3 ton of wheat in Ireland.b. 2 tons of wheat in the United States and 1 1/2 tons of wheat in Ireland.c. 16 tons of wheat in the United States and 6 tons of wheat in Ireland.d. 3 tons of wheat in the
In Exhibit 14, the opportunity cost of wheat isa. 1/3 ton of potatoes in the United States and 1/2 ton of potatoes in Ireland.b. 2 tons of potatoes in the United States and 1 1/2 tons of potatoes in Ireland.c. 8 tons of potatoes in the United States and 4 tons of potatoes in Ireland.d. 1/2 ton of
In Exhibit 14, which country has the comparative advantage in the production of potatoes?a. The United States because it requires fewer resources to produce potatoes.b. The United States because it has the lower opportunity cost of potatoes.c. Ireland because it requires fewer resources to produce
According to the theory of comparative advantage, a country should produce anda. import goods in which it has an absolute advantage.b. export goods in which it has an absolute advantage.c. import goods in which it has a comparative advantage.d. export goods in which it has a comparative advantage.
Which of the following is true when two countries specialize according to their comparative advantage?a. It is possible to increase their total output of all goods.b. It is possible to increase their total output of some goods only if both countries are industrialized.c. One country is likely to
Free-trade theory suggests that when trade takes placea. both nations will be worse off.b. one nation must gain at the other nation’s expense.c. both nations are better off.d. one nation will gain and the other nation will be neither better nor worse off.
With trade, the production possibilities for two nations liea. outside their consumption possibilities.b. inside their consumption possibilities.c. at a point equal to the world production possibilities curve.d. None of the answers above are correct.
The following table summarizes the supply and the demand for euros:Using the above table:a. graph the supply and demand curves for euros.b. determine the equilibrium exchange rate.c. determine what the effect of a fixed exchange rate at $0.10 per euro would be.
For each of the following situations, indicate the direction of the shift in the supply curve or the demand curve for dollars, the factor causing the change, and the resulting movement of the equilibrium exchange rate for the dollar in terms of foreign currency:a. American-made cars become more
Discuss this statement: “Because each nation’s balance of payments equals zero, it follows that there is actually no significance to a balance of payments deficit or surplus.”
Do you support a constitutional amendment to prohibit the federal government from imposing any trade barriers, such as tariffs and quotas, except in case of war or national emergency?Why or why not?
Consider this statement: “Unrestricted foreign trade costs domestic jobs.” Do you agree or disagree? Explain.
Now consider Question 5 in terms of the law’s impact on domestic producers that export goods.Does this policy adversely affect domestic producers that export goods?
Suppose the United States passed a law stating that we would not purchase imports from any country that imposed any trade restrictions on our exports. Who would benefit and who would lose from such retaliation?
Would the U.S. government gain any advantage from using tariffs or quotas to restrict imports?
Consider this statement: “The principles of specialization and trade according to comparative advantage among nations also apply to states in the United States.” Do you agree or disagree? Explain.
Bill can paint either two walls or one window frame in one hour. In the same time, Frank can paint either three walls or two window frames.To minimize the time spent painting, who should specialize in painting walls, and who should specialize in painting window frames?
The countries of Alpha and Beta produce diamonds and pearls. The production possibilities schedule below describes their potential output in tons per year:Points on production possibilities curve Alpha Beta Diamonds Pearls Diamonds Pearls A 150 0 90 0 B 100 25 60 60 C 50 50 30 120 D 0 75 0 180
As shown in Exhibit 11, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will causea. labor to adjust nominal wages sluggishly.b. the aggregate supply curve to remain at SRAS1.c. the price level to eventually rise from 100 to
As shown in Exhibit 11, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the economy to movea. directly from E1 to E3 and then remain at E3.b. directly from E1 to E2 and then remain at E2.c. from E1 to E2 initially and
As shown in Exhibit 11, if people behave according to adaptive expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the price level to movea. directly from 100 to 110 and then remain at 110.b. directly from 100 to 105 and then remain at 105.c. directly from 100
Which of the following government policies is an incomes policy?a. A reduction in welfare expenditures.b. The publication of a list of guidelines suggesting maximum wage and price increases.c. An increase in the money supply.d. All of the above answers are correct.
Voluntary wage-price restraints are known asa. wage-price controls.b. price rollbacks.c. wage–price guidelines.d. anti-inflation commitments.
Suppose the government shown in Exhibit 10 uses contractionary monetary policy to reduce inflation from 9 to 6 percent. If people have rational expectations, thena. the economy will remain stuck at point E1.b. the natural rate will permanently increase to 8 percent.c. unemployment will rise to 8
Suppose the government shown in Exhibit 10 uses contractionary monetary policy to reduce inflation from 9 to 6 percent. If people have adaptive expectations, thena. the economy will remain stuck at point E1.b. the natural rate will permanently increase to 8 percent.c. unemployment will rise to 8
According to rational expectations theory, systematic and predictable expansionary monetary and fiscal policies used to reduce unemployment are and .a. useful; can permanently reduce both unemployment and inflationb. useless; in fact are harmful because the only result is inflationc. useful; can
How does rational expectations differ from adaptive expectations?a. Rational expectations uses all available information, whereas adaptive expectations is heavily weighed toward recent information.b. Rational expectations is heavily weighted toward recent information, whereas adaptive expectations
According to adaptive expectations theory, expansionary monetary and fiscal policies to reduce unemployment are in the long run. After a short-run reduction in unemployment, the economy will at a inflation rate.a. productive; permanently shift to lower unemployment, lowerb. useless; self-correct to
According to adaptive expectations theory and the short-run Phillips curve, which of the following is true?a. People persistently underestimate inflation when it is both accelerating and slowing down.b. People persistently underestimate inflation when it is accelerating and overestimate inflation
Which of the following is a correct description of the natural rate hypothesis?a. In the long run, the economy will self-correct to the natural rate of unemployment, and therefore in the long run the Phillips curve is a vertical line.b. In the long run, the economy is highly unstable and therefore
Rational expectations theorists advise the federal government toa. change policy often.b. pursue stable policies.c. do the opposite of what the public expects.d. ignore future economic predictions.
Most macroeconomic policy changes, say the rational expectations theorists, area. unpredictable.b. predictable.c. slow to take place.d. irrational.
The conclusion of adaptive expectations theory is that expansionary monetary and fiscal policies intended to reduce the unemployment rate area. effective in the long run.b. effective in the short run.c. unnecessary and cause inflation in the long run.d. necessary and reduce inflation in the long
Adaptive expectations theorya. argues that the best indicator of the future is recent information.b. underestimates inflation when it is accelerating.c. overestimates inflation when it is slowing down.d. None of the answers above are correct.e. All of the answers above are correct.
According to the natural rate hypothesis,a. the Phillips curve is quite flat, so that a large reduction in employment can be achieved without inflation.b. workers only adapt their wage demands to inflation after a considerable time lag.c. the Phillips curve is vertical in the long run at full
Since the 1970s, thea. Phillips curve has not been stable.b. inflation rate and the unemployment rate have been about equal.c. Phillips curve has proven to be a reliable model to guide public policy.d. relationship between the inflation rate and the unemployment rate moved in a counterclockwise
A difficulty in using the Phillips curve as a policy menu is thea. fact that the natural rate of unemployment does not exist.b. fact that the curve would not remain in one position.c. difficulty deciding between monetary and fiscal policies.d. fact that Democrats choose one point on the curve and
The Phillips curve depicts the relationship between thea. unemployment rate and the change in GDP.b. inflation rate and the interest rate.c. level of investment spending and the interest rate.d. inflation rate and the unemployment rate.
Based on rational expectations theory, what happens to the inflation rate and the unemployment rate in the following situations?a. Initially, the economy is operating at the natural unemployment rate of 4 percent, and the inflation rate is also 4 percent. People correctly anticipate that an
Use Exhibit 8 to answer the questions that follow.a. Which points represent the natural unemployment rate?b. Which points represent an unemployment rate below the natural unemployment rate?c. Which points represent an unemployment rate above the natural unemployment rate?d. Explain points A and D
Keynesians believe monetary and fiscal policymakers should stabilize the business cycle. Compare the political business cycle to Keynesian policy objectives.
Explain what happens under adaptive expectations theory when monetary and fiscal policymakers use expansionary policy to achieve an unemployment rate below the natural rate.
According to adaptive expectations, what happens to the inflation rate and the unemployment rate in the following situations?a. Initially, the economy is operating at the natural rate of 6 percent unemployment. The anticipated rate of inflation is 6 percent, and the actual rate is also 6 percent.b.
Suppose you flipped an honest coin ten times and heads came up eight times. You are about to toss the coin another ten times. Using adaptive expectations, how many heads do you expect? Based on rational expectations, how many heads do you expect?
What happened in the 1970s and early 1980s to cast doubt on the Phillips curve?
What were the inflation rate and the unemployment rate last year? Do these rates lie on a Phillips curve?
What is a Phillips curve? Assuming the economy’s aggregate supply curve is stable, how would an increase in aggregate demand affect the unemployment rate and the inflation rate?
As shown in Part (b) of Exhibit A-4, assume classical nonintervention policy is adopted. Which of the following would cause the economy to selfcorrect?a. Competition among firms for workers increases the nominal wage and SRAS shifts rightward.b. Long-run equilibrium will be established at Y1 and
In Part (b) of Exhibit A-4, an expansionary stabilization policy designed to move the economy from Y1 to Yp would attempt to shifta. the aggregate demand curve (AD) leftward.b. SRAS1 to SRAS2.c. the aggregate demand curve (AD) rightward.d. the LRAS rightward.
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