Questions and Answers of Economics Today The Micro View

Consider a nation that uses natural resources in the construction of final goods and services. For example, they cut down all their trees to make paper products. In this nation, the value of GDP is
Why do you suppose that many economists worry that including the degree of depletion or pollution of natural resources could make the value of GDP harder to interpret?
Many countries have a thriving underground economy, of which the production and consumption is not included in measures of GDP. Researchers have noticed that nations with high tax rates tend to have
According to the U.S. Bureau of Labor Statistics (BLS), U.S. labor productivity has increased by nearly 40 percent since 2000. To obtain the data used to create labor productivity measures, the BLS
In the course of a book review he wrote in 1987, Nobel economist Robert Solow made the offhand comment, “You can see the computer age everywhere but in the productivity statistics.” This comment
Japan and Germany have saving rates that are substantially higher than the U.S. As a result, they have accumulated more capital. On a per capita basis, Japan has about 22 percent more invested
Among the industries that manufacture physical goods, labor productivity has increased steadily over the years. In many manufacturing industries, production tasks that once took two weeks and a dozen
Four decades ago, one in six American businesses was automotive-related. In 2012, autos and light trucks accounted for about 2 percent of GDP, as does spending on computers and related equipment. Yet
Researchers have discovered that nations that tend to distrust strangers have lower rates of economic growth. Why do you suppose that nations with higher degrees of measured distrust of strangers
According to the late economist Julian Simon, “every time our system allows in one more immigrant, on average, the economic welfare of American citizens goes up… Additional immigrants, both the
What are the costs associated with the exclusion of skilled foreign workers?
Economic growth is often used as a measure of well-being in a nation. However, it is possible for a country to be growing, while the overall well-being of the nation declines. For years, researchers
Regulations can hinder economic growth by forcing companies to spend more time (and money) in an attempt to adhere to the rules; time workers could have spent producing output. However, economists
Between the second quarter of 2006 and the second quarter of 2009, real gross private domestic investment fell in all quarters except the second quarter of 2007 at an average annual rate of 11.5
If the extent of federal regulation activities in U.S. product and labor markets can be measured by the sheer volume of published regulations, then the scope of regulation has increased by more than
In the fall of 2008, the financial markets suffered a major crisis that led to a large decrease in the willingness of banks and other financial institutions to lend either to each other or to
For decades, the conventional wisdom among corporate financial officers was that they could lower their companies’ costs by financing purchases of capital by borrowing—taking out loans from
The University of Michigan tracks consumer sentiment in the US based on surveys of a random sample of U.S. households and creates the US Index of Consumer Sentiment (ICS). This index is an attempt to
In August 2002, President George Bush signed the Trade Act, which, among other things, created a new set of transportation security rules aimed at reducing the likelihood that terrorists would
Mark Mils and Peter Klenow, in a 2004 paper, “Some Evidence on the Importance of Sticky Prices,” in the Journal of Political Economy, made a study of how often prices change in the U.S. economy.
In the mid-1990s, the Taliban seized power in Afghanistan after 18 years of war and proclaimed a fundamentalist Muslim state. This strict Muslim state existed until the Taliban government was
Let’s assume we live in a nation where the minimum wage is not applicable. The labor market is free to adjust to changes in the economy by modifying the wage rate. However, during recessionary
Let’s assume we live in a nation where the government has recently decided to increase the tax on consumption (sales taxes). How might this increase affect the nation’s equilibrium price level
How could the government change the nation’s money supply to offset the effects of the consumption tax increase?
Investment is measured in the national income accounts as the sum of spending on physical capital – plants and equipment, infrastructure, and housing – and changes in inventories of produced
In the fall of 2008, the global financial crisis set off fears of a recession. As the financial markets and stock prices collapsed, households, fearing a recession, began to save more. The Keynesian
Why would a stable multiplier be necessary to come up with the appropriate change in autonomous spending? Would these simple multipliers help if they were correct for the economy as a whole?
Recall that the investment function is downward sloping with respect to the interest rate. When interest rates are high, planned real investment is low (because with high rates, fewer investment
Private companies fund a considerable amount of scientific and engineering research. So does the government. Although some of this research is conducted by people directly employed by government
Most federal tax revenues come from income taxes. Therefore, to predict its tax collections accurately, the U.S. government must accurately forecast GDP. The government has never performed this task
In 2001, the Bush administration was faced with a recession and a budget surplus. Keynesian economic policy suggested that the use of an expansionary fiscal policy could counter the recession. The
Where was the economy actually located on the Laffer curve?
Most American history books point to World War II as a clear-cut example of beneficial expansionary fiscal policy in action. The U.S. economy was pulled out of the Great Depression by enormous
Supply-side economics has a long history, dating back to at least the fourteenth century. The greatest of medieval historians, Abu Zayd Abd-ar-Rahman Ibn Khaldun (1332–1406), included in his book,
In the last quarter of 2008, a major financial crisis spread from the United States to the global economy. The Federal Reserve created hundreds of billions of dollars and injected them into banks and
Suppose in the past several months a nation’s government has raised and lowered its expenditures a number of times. Using the concept of bounded rationality (the idea that people are nearly, but
The Bush administration began with a $300 billion budget surplus in 2001. In 2005, the budget deficit was $318 billion and rose to $454 billion deficit by the end of 2008. The budget surplus
Since 2002, state governments across the United States have faced shortfalls in their state budgets collectively averaging about $15 billion per year until 2008, when they ballooned during the
How must governments of states that have constitutions that permit deficit spending always finance their actual deficits?
How must governments of states that have constitutions that do not permit deficit spending always finance reductions in revenue that would cause a deficit?
In 2010, the Republicans regained control of the House of Representatives running on a platform of eliminating the deficit or at least drastically reducing it largely using spending cuts. Two
How does a recession complicate efforts to reduce federal government deficits?
Historically, Republicans were considered fiscal conservatives and Democrats the opposite. Republicans have historically been associated with balanced budgets or low deficits. In modern times, this
In 2010, the William D. Ford Act was enacted to allow students to make minimum payments to student loads based on annual income, family size, dependents, marital status and state poverty lines. After
During the 1990s, the Federal Reserve decided to transfer most of its check-clearing operations to the Federal Reserve Bank of Atlanta. Since then, the Fed’s fleet of Lear jets has been flying
Many immigrants to the United States from Kenya and Uganda get higher paying jobs to finance a higher standard of living for themselves and their families who remain in Africa. To send money back to
A growing trend is for larger companies to manage risks with less insurance by applying portfolio management techniques and utilizing sophisticated financial contracts. These companies have been
In the past several years, many banks have made it easier for customers to bank online by offering services through their websites and mobile apps (like transferring money and depositing checks). Why
Foreigners arriving in the United States are often overwhelmed by the number and kinds of financial institutions that exist. The structure of the banking industry in the United States is quite
Since the early 2000s, the Chinese central bank, the People’s Bank of China, has adjusted its reserve requirements several times. In late 2003, it raised the reserve ratio for most deposits from
In testimony before Congress in 2003, then Federal Reserve Chairman Alan Greenspan said that deposit insurance has prevented bank runs like those in the 1930s that could have undermined the banking
The financial crisis in 2008 involved two financial innovations. These were the securitization of mortgages and other debts such as credit card debts and credit default swaps. Fannie Mae and Freddie
Bank runs were not confined to the United States during the Great Depression. In ad 33, there was a massive bank panic in the Roman Empire. It started with the loss of three spice ships in a Red Sea
From 1999 through 2004, nominal interest rates in Japan were very close to zero. During the same period, the nation’s price level fell. According to officials at the Bank of Japan, the Japanese
In countries with high inflation rates, nominal interest rates are also high. Recall that the nominal interest rate equals the real interest rate plus the expected rate of inflation. Colombia is one
Why are nominal interest rates higher when a country experiences inflation?
In 2008, the financial markets and banking system of the United States nearly collapsed completely as a result of the issuance and securitization of subprime mortgages. When the housing market began
Every year since 1995, there has been a “Fed Challenge.” This is a contest sponsored by the Federal Reserve Board and Citibank. More than 200 high school students throughout the country
Just before the disintegration of the Soviet Union, it provided a type of experiment of the quantity theory of money. In early 1991, the Soviet government declared all 50- and 100-ruble currency
Some policymakers in the United States have argued in favor of eliminating $100 bills in order to make large cash transactions undertaken by drug dealers more difficult. Could the former Soviet
Three economists at the Federal Reserve Bank of St. Louis – Andrew Levin, Fabio Nattaluci, and Jeremy Piger – have attempted to measure the effects of a short-lived increase in actual inflation
In late November and early December 2006, there was speculation in the financial markets as to what the Federal Reserve planned to do with interest rates. After raising the federal funds interest
What did investors in Treasury bonds expect the Federal Reserve to do with interest rates?
One of the proposals coming from Republican congressmen and senators in 2010 was the idea that the Federal Reserve should dramatically increase the transparency of monetary policy. The idea was for
Economic events in other countries, such as the financial crises in Eastern Europe and Asia during the 1990s, have forced the Federal Reserve to take a more global view. This is particularly relevant
In the 1990s, Dana Mead, the chief executive officer of Tenneco, Inc., quipped, “NAIRU is to economics what a Nehru jacket is to fashion: outdated.” The relationship between the rate of inflation
How might low inflation expectations on the part of the public help to hold down actual inflation?
According to the quantity theory of money and prices, how else besides using interest-rate-based policies might central banks be able to generate higher inflation if they really wished to do so?
The average resident of Africa earns about 5 percent of the per capita real GDP of a U.S. resident. Furthermore, his or her situation has not been improving. In 1970, 10 percent of the world’s
How might the assignment of property rights help to promote growth on the African continent?
An experiment in eliminating dead capital provides some insights into the issues usually overlooked by economists in their discussions of giving titles to real property to persons, especially poor
Why might the amount that poor borrowers in Argentina could afford to pay have an impact on the reluctance of Argentine banks to lend them money even when the borrowers could offer their homes as
Failure to abide by the rule of law makes the return on capital more dependent on the whims of individuals than on laws. Property rights become less secure, which discourages businesses from
The World Bank was established in 1944. To date, it has lent nearly $390 billion, mostly to poor nations. However, its accomplishments have been questioned. For example, since 1951, India has
In 1998, Robert Rubin, then the U.S. Treasury Secretary, claimed that the billions of dollars the U.S. government regularly provides to the IMF to make loans to other nations cost U.S. taxpayers
In principle, how could a nation maintain a relatively high rate of economic growth even if it also has a relatively high rate of population growth?
In the summer of 2008, the price of gasoline increased to a little more than $4.00 per gallon. Americans did not drive appreciably less for the few months that this price increase held. They also did
A major consequence of the housing market crisis was a significant decline in home prices as foreclosures intensified between 2007 and 2008. One of the hardest states hit was California. The median
Did Californians spend more or less on homes in August 2007 or in August 2008?
Gasoline taxes are paid by sellers from the revenues they earn from total sales. Thus, to receive the same effective price for selling a given quantity of gasoline, a gasoline producer must charge an
During the week following Hurricane Katrina in September 2005, the nationwide price of gasoline rose from $2.61 to $3.07 per gallon. The total quantity of gasoline consumed in the United States
Until November 2002, citizens of developing nations who wanted to visit the United States on a nonimmigrant basis had to pay $65 to submit a visa application. Starting at the end of 2002, these same
In 1998, John Tauras of the University of Illinois at Chicago and Michael Grossman of the City University of New York conducted a study of teen use of cocaine. They found that compared to adults,
Several years after it opened, the $4 billion investment in Disneyland Paris was in trouble. In an attempt to reduce losses and hoping to make a profit, Disney management decided to lower prices.
What other factors may have affected attendance at Disneyland Paris?
Suppose that you were to receive a monetary reward for the amount of school work you complete each day. Do you think you will complete more school work as the monetary reward for doing so increases?
When you are offered 10 percent more as a monetary reward, you notice that you complete 8.7 percent more assignments. What is your price elasticity of supply for school work? Is your price elasticity
Online games played by large numbers of players, called Massively Multiplayer Online Games (MMOG), such as World of Warcraft and Second Life have become very popular. Like many games, these MMOG
When shopping at a mall, an individual can try on an item of clothing before purchasing it to make sure it fits. When shopping online, however, the individual cannot try on the item. If it does not
University cafeterias serving students on a full meal plan allow students to go through the serving line as many times as they wish. It is an all-you-can eat plan. Freshmen typically gain weight
What would be the marginal utility of just one more serving?
A British economist at Warwick University is interested in discovering whether it is possible to determine if the theory of the consumer optimum, using measurable utility instead of relative levels
In Saudi Arabia, a liter of water costs five times as much as a liter of gasoline. This is because much of the water in Saudi Arabia is seawater that is purified in desalinization plants. This
Superstars do very well financially. For example, actress Reese Witherspoon currently makes $200 million a year. How much of these earnings can be considered economic rent?
Even if Ms. Witherspoon would work for less, what forces would cause her to make so much income anyway?
In the early 2000s, the Hong Kong real estate market was suffering from overbuilding of office space at the same time as the Asian financial crisis was occurring, when there were huge outflows of
Getting a business off the ground requires more than a lot of hard work. It requires raising hard cash. Many small businesses have trouble raising seed money to get started, but those that succeed in
Dell and Microsoft are two of the world’s most successful companies in the area of computing and electronic commerce. Both companies generate annual inflows of funds in the billions of dollars.
U.S. taxpayers pay each member of the nation’s all-volunteer military a package of salary and benefits equal to about $99,000 per year. About $42,500 of this is direct pay. Approximately $38,000 of
If you look at the history of government grants and subsidies, a large portion go to corporations (over proprietorships and partnerships) even though corporations account for less than 20 percent of

Showing 100 - 200 of 427