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dynamic macroeconomics

Macroeconomics For Today 9th Edition Irvin B. Tucker - Solutions

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 not
Assume business investment spending is $10 billion when the interest rate is 2 percent. If the interest rate increases to 5 percent, investment spending willa. increase to over $10 billion.b. decrease to less than $10 billion.c. remain unchanged.d. remain unchanged until the interest rate reaches 5
Which of the following is not a component of the consumption function?a. Autonomous consumption.b. Marginal propensity to consume.c. Disposable income.d. All of the answers above are components.
The marginal propensity to consume (MPC) is between 0 and 1 based ona. Say’s Law.b. the consumption function.c. the law of demand.d. the law of supply.
Classical economists believe thata. wage, price, and interest rates are inflexible.b. wage, price, and interest rates are flexible.c. fiscal policy should be used to stabilize the economy.d. monetary policy should be used to stabilize the economy.
Say’s Law refers to the concept thata. increases in aggregate demand create unionization.b. demand creates its own supply.c. supply creates its own demand.d. flexible wages affect price levels.
The levels of real disposable income and aggregate expenditures for a two-sector economy(consumption and investment) are given in the following table:Real disposable income (trillions of dollars per year)Consumption (C)(trillions of dollars per year)$0 $3.00 1 3.25 2 3.50 3 3.75 4 4.00 5 4.25 6
Suppose most business executives expect a slowdown in the economy. How might this situation affect the economy?
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?
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 at 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
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.
How do households “dissave”?
Explain why the MPC and the MPS must always add up to one.
Use the following consumption function data to answer the questions next.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?
Explain how the classical economists concluded that Say’s Law is valid and long-term unemployment is impossible.
Which of the following statements is true?a. Demand-pull inflation is caused by excess total spending.b. Cost-push inflation is caused by an increase in resource costs.c. If nominal interest rates remain the same and the inflation rate falls, real interest rates increase.d. If real interest rates
Suppose you place $10,000 in a retirement fund that earns a nominal interest rate of 8 percent. If you expect inflation 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.
Cost-push inflation 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.
Demand-pull inflation is caused bya. monopoly power.b. energy cost increases.c. tax increases.d. full employment.
If the nominal rate of interest is less than the inflation rate,a. lenders win.b. savers win.c. the real interest rate is negative.d. the economy is at full employment.
Last year the Harrison family earned $50,000.This year their income is $52,000. In an economy with an inflation rate of 5 percent, which of the following is correct?a. The Harrison’s nominal income and real income have both risen.b. The Harrison’s nominal income and real income have both
When the inflation rate rises, the purchasing power of nominal incomea. remains unchanged.b. decreases.c. increases.d. changes by the inflation rate minus one.
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 inflation between the two years.b.
Which of the following would overstate the consumer price index?a. Substitution bias.b. Improving quality of products.c. Neither answera. norb. is correct.d. Both answersa. andb. are correct.
Deflation 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 inflation rate.
As shown in Exhibit 6, the rate of inflation for Year 5 isa. 4.2 percent.b. 5 percent.c. 20 percent.d. 25 percent.
As shown in Exhibit 6, the rate of inflation for Year 2 isa. 5 percent.b. 10 percent.c. 20 percent.d. 25 percent.
Consider an economy with only two goods bread and wine. In the base year, the typical family bought four loaves of bread at $2 per loaf and two 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.
If the consumer price index in Year X was 300 and the CPI in Year Y was 315, the rate of inflation wasa. 5 per cent.b. 15 per cent.c. 25 per cent.d. 315 per cent.
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.
If the bank offers you a nominal interest rate of 9 percent on a student loan, and if inflation is 6 percent, then what is the real interest rate?a. 15 percent.b. 9 percent.c. 6 percent.d. 3 percent.
Which of the following correctly describes a wageprice spiral?a. An increase in nominal wages causes inflation, and inflation causes workers to demand even higher wages in order to keep their real income constant. This cycle can repeat itself.b. An increase in real wages due to growth in worker
Suppose that your income during Year X was$50,000, and the CPI for Year X was 150 (base year = Z). Back in Year Z your income was$30,000. Has your real income increased or decreased from Z to year X? By how much?a. Increased by $5,000.b. Increased by $3,333.c. Unchanged.d. Decreased by $3,333.e.
If the consumer price index (CPI) in Year X was 300 and the CPI in Year Y was 325, the rate of inflation for Year Y wasa. 325 percent.b. 25 percent.c. 5 percent.d. 8 percent.
Which of the following correctly defines inflation?a. An increase in the price of a particular good or service.b. An increase in the general (average) price level of goods and services in the economy.c. The growth rate in real GDP.d. None of the answers above are correct.
Explain this statement: “If everyone expects inflation to occur, it will.”
How does demand-pull inflation differ from cost-push inflation?
When the economy approaches full employment, why does demand-pull inflation become a problem?
Suppose the annual nominal rate of interest on a bank certificate of deposit is 12 percent. What would be the effect of an inflation rate of 13 percent?
Suppose you borrow $100 from a bank at 5 percent interest for one year and the inflation rate that year is 10 percent. Was this loan advantageous to you or to the bank?
Who loses from inflation? Who wins from inflation?
Explain how a person’s purchasing power can decline in a given year even though he or she received a salary increase.
Suppose you earned $100,000 in a given year.Calculate your real income, assuming the CPI is 200 for this year.
What are three criticisms of the CPI?
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
Consider this statement: “When the price of a good or service rises, the inflation rate rises.”Do you agree or disagree? Explain.
Explain why the workers in Bolivia were striking even though wages rose at an annual rate of 1,500 percent. Do you see any connection between hyperinflation and the political system?
Can you relate inflation psychosis to these excerpts? Give an example of a debtor–lender relationship that is jeopardized by hyperinflation.
To what does the “GDP gap” refer?a. The difference between real and nominal GDP.b. The difference between this year’s real GDP and last year’s GDP.c. The difference between “full-employment”real GDP and actual real GDP.d. The difference between real GDP in the prior trough and real GDP
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
Which of the following is true?a. The GDP gap is the difference between full employment real GDP and actual 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. Discouraged
Which of the following groups typically has the highest unemployment rate?a. White men and women as a group.b. African-American men and women as a group.c. Teenagers.d. Persons who completed high school.
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
The sum of the frictional and structural unemployment rates is equal to thea. potential unemployment rate.b. actual unemployment.c. cyclical unemployment rate.d. full employment unemployment rate.
Unemployment that is due to a recession isa. involuntary unemployment.b. frictional unemployment.c. structural unemployment.d. cyclical unemployment.
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.
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.
The number of people officially unemployed is not the same as the number of people who can’t find 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 answers above are correct.
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 answers above are correct.
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.
Which of the following is a coincident indicator?a. Personal income.b. Industrial production.c. Manufacturing and trade sales.d. All of the answers above are correct.
Which of the following is not a variable in the index of leading indicators?a. New consumer goods orders.b. Delayed deliveries.c. New building permits.d. Prime rate.
The phase of a business cycle during which real GDP reaches its minimum level is thea. recession.b. depression.c. expansion.d. trough.
The phases of a business cycle area. upswing and downswing.b. full employment and unemployment.c. peak, recession, trough, and expansion.d. full employment, depression, expansion, and plateau.
Which of the following is the correct formula for determining the civilian unemployment rate?a. [(the number of unemployed, working-age civilian seeking work)/(the number of civilian in the labor force)] 100.b. C þ I þ G þ (X M).c. The total number of unemployed, workingage civilians seeking
Why might the official measure of civilian unemployment in the U.S. be an understatement of actual unemployment?a. Because some workers become discouraged and no longer are actively seeking work. Thus they are not officially counted in the labor force, and consequently are not officially
How do the Bureau of Labor Statistics and the Bureau of the Census estimate U.S. unemployment each month?a. They contact each state’s unemployment office and gather data on new claims for unemployment.b. They randomly survey about 60,000 U.S.households to determine how many people are in the
How do we measure economic growth?a. Increases in the price level, as indicated by the GDP chain price index.b. Increases in nominal GDP.c. Increases in real GDP.d. Increases in the labor force.
Explain the GDP gap.
Speculate on why teenage unemployment rates exceed those for the overall labor force.
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?
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?
How does structural unemployment differ from cyclical unemployment?
Why is frictional unemployment inevitable in an economy characterized by imperfect job information?
How has the official unemployment rate been criticized for overestimating and underestimating unemployment?
Describe the relevant criteria that government statisticians use to determine whether a person is“unemployed.”
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 figures include only civilian workers, calculate the civilian unemployment rate.
Following are real GDP figures 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 from
What is the basic cause of the business cycle?
What solution would you propose for the trumpet players mentioned above?
Which of the following items is included in the calculation of GDP?a. Purchase of 100 shares of Apple stock.b. Purchase of a used car.c. The value of a homemaker’s services.d. Sale of Gulf War military surplus.e. None of the answers above would be included.
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 answers above are correct.
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 expenditures approach sums the compensation of employees, rents, profits, net interest, and non-income expenses for
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.
Gross domestic product data that reflect actual prices as they exist in a given year are expressed in terms ofa. fixed dollars.b. current dollars.c. constant dollars.d. real dollars.
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 expenditures approach and the income approach yield the
Disposal 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.
Personal income equals disposable income plusa. personal savings.b. transfer payments.c. dividend payments.d. personal taxes.
Adding all incomes earned by households from the sale of resources yieldsa. intermediate goods.b. indirect business taxes.c. national income.d. personal income.
Subtracting an allowance for depreciation of fixed capital from gross domestic product yieldsa. real GDP.b. nominal GDP.c. personal income.d. national income.
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 answers above are correct..
The expenditure approach measures GDP by adding all the expenditures for final goods made bya. households.b. businesses.c. government.d. foreigners.e. All of the answers above are correct.
The circular flow 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 profits paid out as dividends each year.d. The total profits earned per year in the U.S. economy.
Based on the circular flow model, money flows from businesses to households ina. factor markets.b. product markets.c. neither factor nor product markets.d. both factor and product markets.
The dollar value of all final goods and services produced within the borders of a nation is thea. GNP deflator.b. gross national product.c. net national product.d. gross domestic product.
If Lacy buys a smoothie at the corner store, which of the following best relates this transaction to the circular flow model?a. Goods flow from firms and money flows from households through the product markets.b. Resources (land, labor, or capital) flow from households, and money flows from
In the circular flow model, which of the following is true?a. Household spending flows through the factor markets.b. Household spending flows back to households.c. Household spending flows through product markets.d. Dollar payments for factors of production flow to households.
Which of the following spending is larger for U.S. GDP?a. State and local government.b. Federal government.c. Net exports.d. Change in business inventories.
Which of the following is included in GDP?a. The value of “free” household services provided by at-home spouses rather than a paid cook, maid, and baby sitter.b. The value of unpaid-for volunteer time.c. The unpaid-for services provided by the natural environment, such as breathable air.d. Net
Which of the following best describes gross domestic product (GDP)?a. The market value of all inputs used to produce all final goods and services in a nation during a period of time.b. The market value of all final goods and services produced in a nation during a period of time.c. The quantity of

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