Principles Of Economics 2nd Edition Steven A. Greenlaw: University Of Mary Washington, David Shapiro: Pennsylvania State University - Solutions

What three factors will determine whether a nation has a higher or lower share of trade relative to its GDP?
Does a trade surplus help to guarantee strong economic growth?
When is a trade deficit likely to work out well for an economy? When is it likely to work out poorly?
What are the main components of the national savings and investment identity?
What are the two main sides of the national savings and investment identity?
Does a trade surplus mean an overall inflow of financial capital to an economy, or an overall outflow of financial capital? What about a trade deficit?
In recent decades, has the U.S. trade balance usually been in deficit, surplus, or balanced?
What is included in the current account balance?
If imports exceed exports, is it a trade deficit or a trade surplus? What about if exports exceed imports?
Explain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy.a. Living in an especially large countryb. Having a domestic investment rate much higher than the domestic savings ratec. Having many
The United States exports 14% of GDP while Germany exports about 50% of its GDP. Explain what that means.
Describe a scenario in which a trade surplus benefits an economy and one in which a trade surplus is occurring in an economy that performs poorly. What key factor or factors are making the difference in the outcome that results from a trade surplus?
How did large trade deficits hurt the East Asian countries in the mid 1980’s? (Recall that trade deficits are equivalent to inflows of financial capital from abroad.)
For each of the following, indicate which type of government spending would justify a budget deficit and which would not.a. Increased federal spending on Medicareb. Increased spending on educationc. Increased spending on the space programd. Increased spending on airports and air traffic control
Both the United States and global economies are booming. Will U.S. imports and/or exports increase?
Why does a recession cause a trade deficit to increase?
If domestic investment increases, and there is no change in the amount of private and public saving, what must happen to the size of the trade deficit?
What determines the size of a country’s trade deficit?
If a country is running a government budget surplus, why is (T – G) on the left side of the saving-investment identity?
Using the national savings and investment identity, explain how each of the following changes (ceteris paribus)will increase or decrease the trade balance:a. A lower domestic savings rateb. The government changes from running a budget surplus to running a budget deficitc. The rate of domestic
Explain the relationship between a current account deficit or surplus and the flow of funds.
How does the bottom portion of Figure 23.3, showing the international flow of investments and capital, differ from the upper portion?
State whether each of the following events involves a financial flow to the U.S. economy or away from the U.S.economy:a. Export sales to Germanyb. Returns being paid on past U.S. financial investments in Brazilc. Foreign aid from the U.S. government to Egyptd. Imported oil from the Russian
Why does the trade balance and the current account balance track so closely together over time?
The GDP for the United States is $16,800 billion and its current account balance is –$400 billion. What percent of GDP is the current account balance?
Canada’s GDP is $1,800 billion and its exports are $542 billion. What is Canada’s export ratio?
In what way does comparing a country’s exports to GDP reflect how globalized it is?
State whether each of the following events involves a financial flow to the Mexican economy or a financial flow out of the Mexican economy:a. Mexico imports services from Japanb. Mexico exports goods to Canadac. U.S. investors receive a return from past financial investments in Mexico
If the trade deficit of the United States increases, how is the current account balance affected?
If foreign investors buy more U.S. stocks and bonds, how would that show up in the current account balance?
Rosalie the Retiree knows that when she retires in 16 years, her company will give her a one-time payment of $20,000. However, if the inflation rate is 6% per year, how much buying power will that $20,000 have when measured in today’s dollars? Hint: Start by calculating the rise in the price
If inflation rises unexpectedly by 5%, indicate for each of the following whether the economic actor is helped, hurt, or unaffected:a. A union member with a COLA wage contractb. Someone with a large stash of cash in a safe deposit boxc. A bank lending money at a fixed rate of interestd. A person
Within 1 or 2 percentage points, what has the U.S.inflation rate been during the last 20 years? Draw a graph to show the data.
The total price of purchasing a basket of goods in the United Kingdom over four years is: year 1=£940, year 2=£970, year 3=£1000, and year 4=£1070.Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100).
The index number representing the price level changes from 110 to 115 in one year, and then from 115 to 120 the next year. Since the index number increases by five each year, is five the inflation rate each year?Is the inflation rate the same each year? Explain your answer.
Do you think perfect indexing is possible? Why or why not?
If a government gains from unexpected inflation when it borrows, why would it choose to offer indexed bonds?
Who in an economy is the big winner from inflation?
If, over time, wages and salaries on average rise at least as fast as inflation, why do people worry about how inflation affects incomes?
Why do you think the U.S. experience with inflation over the last 50 years has been so much milder than in many other countries?
Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the GDP deflator to convert from nominal to real would be more appropriate than using the CPI.
Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the CPI to convert from nominal to real would be more appropriate than using the GDP deflator.
Imagine that the government statisticians who calculate the inflation rate have been updating the basic basket of goods once every 10 years, but now they decide to update it every five years. How will this change affect the amount of substitution bias and quality/new goods bias?
Why is the GDP deflator not an accurate measure of inflation as it impacts a household?
Given the federal budget deficit in recent years, some economists have argued that by adjusting Social Security payments for inflation using the CPI, Social Security is overpaying recipients. What is the argument being made, and do you agree or disagree with it?
Inflation rates, like most statistics, are imperfect measures. Can you identify some ways that the inflation rate for fruit does not perfectly capture the rising price of fruit?
Name several forms of indexing in the private and public sector.
What is indexing?
Identify several parties likely to be helped and hurt by inflation.
What is deflation?
Over the last century, during what periods was the U.S. inflation rate highest and lowest?
What has been a typical range of inflation in the U.S. economy in the last decade or so?
Why does the “quality/new goods bias” arise if the inflation rate is calculated based on a fixed basket of goods?
Why does “substitution bias” arise if the inflation rate is calculated based on a fixed basket of goods?
What is the difference between the price level and the rate of inflation?
Why are index numbers used to measure the price level rather than dollar value of goods?
How is a basket of goods and services used to measure the price level?
A fixed-rate mortgage has the same interest rate over the life of the loan, whether the mortgage is for 15 or 30 years. By contrast, an adjustable-rate mortgage changes with market interest rates over the life of the mortgage. If inflation falls unexpectedly by 3%, what would likely happen to a
How should an increase in inflation affect the interest rate on an adjustable-rate mortgage?
If inflation rises unexpectedly by 5%, would a state government that had recently borrowed money to pay for a new highway benefit or lose?
Go to this website (http://www.measuringworth.com/ppowerus/) for the Purchasing Power Calculator at MeasuringWorth.com. How much money would it take today to purchase what one dollar would have bought in the year of your birth?
The Consumer Price Index is subject to the substitution bias and the quality/new goods bias. Are the Producer Price Index and the GDP Deflator also subject to these biases? Why or why not?
How Changes in the Cost of Living are Measured introduced a number of different price indices. Which price index would be best to use to adjust your paycheck for inflation?
Edna is living in a retirement home where most of her needs are taken care of, but she has some discretionary spending. Based on the basket of goods in Table 22.5, by what percentage does Edna’s cost of living increase between time 1 and time 2?
Compute the inflation rate for fruit prices from 2001 to 2004.
Construct the price index for a “fruit basket” in each year using 2003 as the base year.
Table 22.4 shows the prices of fruit purchased by the typical college student from 2001 to 2004. What is the amount spent each year on the “basket” of fruit with the quantities shown in column 2?
As the baby boomer generation retires, what should happen to wages and employment? Can you show this graphically?
A government passes a family-friendly law that no companies can have evening, nighttime, or weekend hours, so that everyone can be home with their families during these times. Analyze the effect of this law using a demand and supply diagram for the labor market: first assuming that wages are
A country with a population of eight million adults has five million employed, 500,000 unemployed, and the rest of the adult population is out of the labor force.What’s the unemployment rate? What share of population is in the labor force? Sketch a pie chart that divides the adult population into
The U.S. unemployment rate increased from 4.6%in July 2001 to 5.9% by June 2002. Without studying the subject in any detail, would you expect that a change of this kind is more likely to be due to cyclical unemployment or a change in the natural rate of unemployment? Why?
Is it desirable to eliminate natural unemployment?Why or why not? Hint: Think about what our economy would look like today and what assumptions would have to be met to have a zero rate of natural unemployment.
Is it desirable to pursue a goal of zero unemployment? Why or why not?
Unemployment rates have been higher in many European countries in recent decades than in the United States. Is the main reason for this long-term difference in unemployment rates more likely to be cyclical unemployment or the natural rate of unemployment?Explain briefly.
As the baby boom generation retires, the ratio of retirees to workers will increase noticeably. How will this affect the Social Security program? How will this affect the standard of living of the average American?
Under what condition would an increase in the unemployment rate be a positive sign?
Under what condition would a decrease in unemployment be bad for the economy?
Do you think it is rational for workers to prefer sticky wages to wage cuts, when the consequence of sticky wages is unemployment for some workers? Why or why not? How do the reasons for sticky wages explained in this section apply to your argument?
Why do you think that unemployment rates are lower for individuals with more education?
While unemployment is highly negatively correlated with the level of economic activity, in the real world it responds with a lag. In other words, firms do not immediately lay off workers in response to a sales decline. They wait a while before responding. Similarly, firms do not immediately hire
Is the higher unemployment rates for minority workers necessarily an indication of discrimination?What could be some other reasons for the higher unemployment rate?
Would you expect hidden unemployment to be higher, lower, or about the same when the unemployment rate is high, say 10%, versus low, say 4%? Explain.
If many workers become discouraged from looking for jobs, explain how the number of jobs could decline but the unemployment rate could fall at the same time.
Is a decrease in the unemployment rate necessarily a good thing for a nation? Explain.
Using the definition of the unemployment rate, is an increase in the unemployment rate necessarily a bad thing for a nation?
What type of unemployment (cyclical, frictional, or structural) applies to each of the following:a. landscapers laid off in response to drop in new housing construction during a recession.b. coal miners laid off due to EPA regulations that shut down coal fired powerc. a financial analyst who quits
After several years of economic growth, would you expect the unemployment in an economy to be mainly cyclical or mainly due to the natural rate of unemployment? Why?
What is structural unemployment? Give examples of structural unemployment.
What is frictional unemployment? Give examples of frictional unemployment.
Would you expect the natural rate of unemployment to remain the same within one country over the long run of several decades?
Would you expect the natural rate of unemployment to be roughly the same in different countries?
What forces create the natural rate of unemployment for an economy?
What term describes the remaining level of unemployment that occurs even when the economy is healthy?
Name and explain some of the reasons why wages are likely to be sticky, especially in downward adjustments.
Why is there unemployment in a labor market with flexible wages?
When would you expect cyclical unemployment to be rising? Falling?
Are U.S. unemployment rates distributed evenly across the population?
Are U.S. unemployment rates typically higher, lower, or about the same as unemployment rates in other high-income countries?
Assess whether the following would be counted as “unemployed” in the Current Employment Statistics survey.a. A husband willingly stays home with children while his wife works.b. A manufacturing worker whose factory just closed down.c. A college student doing an unpaid summer internship.d. A
What criteria are used by the BLS to count someone as employed? As unemployed?

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Principles Of Economics 2nd Edition Steven A. Greenlaw: University Of Mary Washington, David Shapiro: Pennsylvania State University - Solutions

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