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economics principles and policy

Questions and Answers of Economics Principles and Policy

Given all the pros and cons, do you think the Federal Reserve should try to prevent asset price bubbles from forming? If so, how would it do that?
You probably bank online, rather than go to the bank. When your parents went to college, hardly anyone did that. What jobs did online banking destroy? What jobs did it create? How might artificial
What platform markets do you participate in? Do network effects there seem important to you? Why or why not? If you pay to participate in a platform, would you still participate if the price was
Do you think it is “fair” that gig workers have no minimum wage, no health insurance, and no pension? Is it efficient?
How much student debt do you expect to have on graduation day? Could you have attended your college without incurring this debt?
You are probably covered by your parents’ health insurance policy. Where do they get health insurance?
The Affordable Care Act (known as “Obamacare”) tried to solve the adverse selection problem by getting everyone into the insurance pool. How? How well did it succeed? President Trump opposes
President Trump has said that he doesn’t see why the U.S. economy cannot grow at 3 or 4 percent per annum (or maybe higher) indefinitely. Do you see why?
What are some policies the U.S. government could pursue to ease the burden on the losers from globalization?
If the U.S. government wants to pursue a “trade war” against Country X, what weapons does it have? Would using those weapons hurt the United States as well? What if Country X retaliates in kind?
Budget projections show the debt-to-GDP ratio of the U.S. government topping its World War II high before too long. What problems does that pose?
One member of the Federal Open Market Committee says, “With the unemployment rate below 4 percent, inflation is bound to rise.” A second member objects: “There is very little reason to believe
Given the current state of the economy, what sort of fiscal-monetary policy mix seems most appropriate to you now?
Chinese policies have created a great deal of controversy and discussion. What are some of the major concerns of the countries that trade with China?
Why has India not been able to develop a large low-wage, low-skilled manufacturing sector? Can it skip this stage of development and go directly to services economy that exports high value-added
China is a middle-income country with abundant supplies of low-skilled labor. How does it manage to export high-technology products? Does it have a comparative advantage in high-technology goods?
Use the gravity model of trade to explain why China trades with Korea, Japan, the United States, the European Union, Hong Kong, and Taiwan.
Compare the role of agriculture in China and India.
Suppose the dollar-yen exchange rate is 0.01 dollar per yen. Since the base year, inflation has been 2 percent in Japan and 10 percent in the United States. What is the real exchange rate? In real
Suppose the U.S. dollar-euro exchange rate is 1.20 dollars per euro, and the U.S. dollar-Mexican peso rate is 0.10 dollar per peso. What is the euro-peso rate?
In addition to the production and consumption side deadweight losses, what are some of the other potential costs of tariffs?
Describe the main functions of each of the following:1. The IMF2. The World Bank3. The GATT4. The WTO
How can globalization and international economic integration be measured?
Try to remember where you last spent a dollar. Explain how this dollar will lead to a multiplier chain of increased income and spending.
The following table provides data on nominal gross domestic product and the money supply (M1 definition) in recent selected years. Compute velocity for each year. Do you see any trend? How does it
The following outline provides a complete description of all economic activity in Trivialand for 2014. Draw up versions of Tables 3 and 4 for Trivialand showing GDP computed in two different
The following table shows real GDP per hour of work in four imaginary countries in the years 2004 and 2014. By what percentage did labor productivity grow in each country? Is it true that
Compare your answers to Test Yourself Questions 1 and 3 and show how large a reduction in pollution emissions occurs because of the $2 tax on the polluting output.
With the tax described in Test Yourself Question 2, how much pollution will be emitted?
A firm’s marginal revenue is $133 and its marginal cost is $90. What amount of profit does the firm fail to pick up by refusing to increase output by one unit?
From Figure 5, calculate the slope of the curve at point M. Figure 5 How to Measure Slope at a Polnt on a Curved Graph 8 7 D 6 4 A B 2 3 4 5 6 7 8 9 10 1. 00 3. 2.
Portray the following hypothetical data on a two variable diagram:Academic YearTotal EnrollmentEnrollment inEconomics
For more than 30 years, imports have consistently exceeded exports in the U.S. economy. Many people consider this imbalance to be a major problem. Does this chapter give you any hints about why?
Which of the following problems are likely to be studied by a microeconomist and which by a macroeconomist?a. The rapid growth of Twitterb. Why unemployment in the United States fell from 2010 to
In recent decades, how have poverty and inequality changed in the United States? Discuss how these trends might affect future economic growth.
Discuss how education funding in the United States differs from many other developed nations and explain how this affects U.S. students’ scores on international achievement tests.
Explain how innovative entrepreneurs have contributed to the exceptional growth in the U.S. economy.
The trade deficit is sometimes cited as a prime example of American decline. Explain why this notion is not accurate.
What is the cost disease of the personal services and how does it affect expenditures on education and health care in the United States (and other wealthy nations)?
What factors have helped to spur the exceptional economic growth in America since the Industrial Revolution?
What factors—both recent and past—have contributed to the U.S. national debt?
In what ways is the United States still an economic leader in the world? In what ways has it fallen behind other nations?
Distinguish between investment and capital.
Suppose you were to design a negative income tax system for the United States. Pick a guaranteed income level and a tax rate that seem reasonable to you. What break-even level of income is implied by
Does the economy this year seem to have an inflationary gap or a recessionary gap? (If you do not know the answer from news reports, ask your instructor.)
Look back at the income-expenditure diagram in Figure 3 and explain why some level of real GDP other than $6,000 (say, $5,000 or $7,000) is not an equilibrium on the demand side of the economy. Do
Since the official poverty line was set at $3,000 in 1964, prices have risen by about a factor of 7.5. If the poverty line was adjusted only for inflation, what would it be now? How does that compare
Define the poverty rate. Does it rise or fall during recessions?
Production of Commodity X creates 10 pounds of emissions for every unit of X produced. The demand and supply curves for X are described by the following table:What is the equilibrium price and
What are some of the U.S. laws and other rules that played a critical role in the attainment of leadership in per capita income and innovation?
Why do you think per capita income in Connecticut is nearly double that in New Mexico?
How much money by the M1 definition (cash plus checking account balances) do you typically have at any particular moment? Divide this amount into your total income over the past 12 months to obtain
The marginal propensity to consume (MPC) for the United States as a whole is roughly 0.90. Explain in words what this means. What is your personal MPC at this stage in your life? How might that
If you were the youngest son of an English nobleman in the Middle Ages, what could you do to make your fortune? What kinds of innovation would be appreciated by people in power?
Between 2008 and 2009, real disposable income (in 2009 dollars) declined slightly (by $51 billion), owing to a recession. Use the data on real consumption expenditures given on the inside back cover
What are the four main components of aggregate demand? Which is the largest? Which is the smallest?
In 2010 and 2011, the international value of the dollar fell. This development was viewed with alarm in Japan. Why?
In 2001, 2002, and 2003, Congress passed the series of tax cuts that President Bush had requested. What effect did this policy likely have on the U.S. trade deficit? Why?
If inflation is lower in Germany than in Italy, and the exchange rate between the two countries is fixed (as it is, because of the monetary union), what is likely to happen to the balance of trade
In 2011 and 2012, market forces raised the international value of the Japanese yen. Why do you think the government of Japan was unhappy about this currency appreciation? If they wanted to stop the
Suppose you want to reserve a hotel room in London for the coming summer but are worried that the value of the pound may rise between now and then, making the room too expensive for your budget.
Under the old gold standard, what do you think happened to world prices when a huge gold strike occurred in California in 1849? What do you think happened when the world went without any important
During the first half of the 1980s, inflation in (West) Germany was consistently lower than that in the United States. What, then, does the purchasing-power parity theory predict should have happened
Suppose each of the transactions listed in Test Yourself Question 2 was done by many Americans. Indicate how each would affect the international value of the dollar if exchange rates were
Name some events that will cause a demand curve to shift.
Which of the following product pairs would you expect to be substitutes, and which would you expect to be complements?a. Shoes and sneakersb. Gasoline and sport-utility vehiclesc. Bread and butterd.
The following table presents the demand and supply curves for laptop computers in Japan and the United States.a. Draw the demand and supply curves for the United States on one diagram and those for
The year 2014 closed with the unemployment rate around 6 percent, real GDP growing at roughly 3 percent, inflation just below 2 percent and apparently rising a bit, and the federal budget showing a
Long-term government bonds now pay approximately 3 percent nominal interest. Would you prefer to trade yours in for an indexed bond that paid a 1 percent real rate of interest? What if the real
You have $20,000 to invest in the stock market, which has been rising rapidly for the past 18 months. What course of action seems rational?
Newspaper reports frequently suggest that the administration (regardless of who is president) wants the Fed to lower interest rates. In view of your answer to Test Yourself Question 3, why do you
Emily buys an air conditioner that costs $700. Because the air in her home is cleaner, its use saves her $250 in curtain cleaning costs over the lifetime of the air conditioner. In money terms, what
Explain how the U.S. government managed to accumulate a debt of more than $18 trillion. To whom does it owe this debt? Is the debt a burden on future generations?
Consider two alternatives for Stromboli is 2018. In one case (a) its inhabitants eat 60 million pizzas and build 6,000 pizza ovens. In case (b), the population eats 15million pizzas but builds 18,000
Graphically show the production possibilities frontier for the nation of Stromboli, using the data given in the following table. Does the principle of increasing cost hold in Stromboli?Stromboli’s
Which of the following items are likely to be normal goods for a typical consumer? Which are likely to be inferior goods?a. Expensive perfumeb. Paper platesc. Secondhand clothingd. Overseas trips
Why do we say that deposits are “liabilities” of banks?
We have said that the economy’s three coordination tasks are output selection, production planning, and product distribution. Which of these is done badly in the cases described in Discussion
From 2003 to 2011, the federal government’s budget deficit rose sharply because of tax cuts and increased spending. If the Federal Reserve wanted to maintain the same level of aggregate demand in
Roughly speaking, what fraction of U.S. labor works in factories? In service businesses? In government?
You are given a payoff matrix for a zero-sum game. You see that for one pair of strategy choices by the two firms, A’s payoff is 9 and B’s payoff is 6. For a second set of strategy choices, A’s
Explain how your answers to Test Yourself Question 5 would differ if banks decided to hold onto the $5 billion in new reserves as excess reserves.Data From Test Yourself Question 5 Explain what
Suppose banks keep no excess reserves and no individuals or firms hold on to cash. If someone suddenly discovers $12 million in buried treasure and deposits it in a bank, explain what will happen to
General Motors declared bankruptcy in 2009 but exited bankruptcy just 40 days later, after streamlining its operations and selling the U.S. government a majority stake in the company. If GM had gone
If the market price in a competitive industry were above its equilibrium level, what would you expect to happen?
A firm hires two workers and rents 15 acres of land for a season. It produces 150,000 bushels of crop. If it had doubled its land and labor, production would have been 325,000 bushels. Does it have
After 2007, a rash of bank failures occurred in the United States. Explain why these failures did not lead to runs on banks.
The example in the appendix showed that the Student Price Index (SPI) rose by 42 percent from 1983 to 2013. You can understand the meaning of this better if you do the following:a. Use Table 5 to
If the price of a company’s stock constitutes a random walk, next year its price will equal today’s price plus what?
For whom are stocks riskier than bonds? For whom are bonds riskier than stocks?
The federal government spending (relative to the size of the economy) was cut back in several dimensions after the gigantic budget deficits of 2009 and 2010. How would GDP in the United States have
Most economists believe that from 2010 to 2013, actual GDP in the United States grew slightly faster than potential GDP. What, then, should have happened to the unemployment rate over those three
If output rises by 35 percent while hours of work increase by 40 percent, has productivity increased or decreased? By how much?
Suppose that in the economy described in Test Yourself Question 1, interest rates suddenly fall to 3 percent. What will happen to the price of the bond that pays $3 per year?Data From question

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