Questions and Answers of Foundations Macroeconomics

Crowding out occurs when ______.A. households’ budgets are in deficit and saving decreasesB. the government budget is in surplus, so people have paid too much taxC. the government budget is in
A government budget surplus _______.A. increases the supply of loanable fundsB. raises the real interest rateC. decreases the demand for loanable funds and lowers the real interest rateD. decreases
An increase in expected profit _______ the real interest rate and ________ the quantity of loanable funds.A. decreases; decreasesB. increases; decreasesC. decreases; increasesD. increases; increases
The supply of loanable funds increases ________.A. when the demand for loanable funds increasesB. when people increase saving as the real interest rate risesC. when disposable income increases or
In the loanable funds market, an increase in ________.A. the real interest rate increases the demand for loanable fundsB. expected profit increases the demand for loanable fundsC. expected profit
If the price of a U.S. government bond is $50 and the owner of the bond is entitled to $2.50 income each year, then the interest rate on the bond is ____.A. 0.2 percentB. 5 percentC. 10 percentD. 20
Financial capital is the ___________.A. money used to buy stocks and bondsB. money used to buy physical capitalC. funds that savers supply and buyers of physical capital borrowD. money in the bank
Cindy takes a summer job and earns an after-tax income of $8,000. Her living expenses during the summer were $2,000. What was Cindy’s saving during the summer and the change, if any, in her wealth?
The Fed buys $2 million of securities from AIG. If AIG’s bank has a desired reserve ratio of 0.1 and there is no currency drain, calculate the bank’s excess reserves as soon as the open market
The monetary base and the change in its components.If the desired reserve ratio is 5 percent, the currency drain ratio is 20 percent of deposits, and the central bank makes an open market purchase of
The quantity of money, and how much of the new money is currency and how much is bank deposits. If the desired reserve ratio is 5 percent, the currency drain ratio is 20 percent of deposits, and
Why do you think the IMF required countries with large deficits, like those in Eastern Europe, to cut spending rather than increase it?The International Monetary Fund (IMF) reported that it acted
Explain how an increase in government expenditure will change the government’s budget balance and the loanable funds market.The International Monetary Fund (IMF) reported that it acted effectively
The Center for Economic and Policy Research in Washington, D.C. claims that the IMF didn’t allow developing countries that were looking for loans to expand their deficits sufficiently. Would these
Explain why the U.S. saving rate might have increased and its effect on the supply of loanable funds.The U.S. saving rate increased from –0.1 percent in 2011 to 2.0 percent in 2012 to 2.4 percent
How can the saving rate be negative? Why might a negative saving rate be something to worry about? How might U.S. saving be increased?The U.S. saving rate increased from –0.1 percent in 2011 to 2.0
The stock market boom of 2002–2007 increased wealth by trillions of dollars. Explain the effect of this increase in wealth on the equilibrium real interest rate, investment, and saving.The U.S.
On January 1, 2016, Terry’s Towing Service owned 4 tow trucks valued at $300,000. During 2016, Terry’s bought 2 new trucks for a total of $180,000. At the end of 2016, the market value of all of
Calculate U. S. net investment and gross investment during 2013.The Bureau of Economic Analysis reported that the U.S. capital stock was $49.6 trillion at the end of 2012, $51.2 trillion at the end
Calculate U.S. depreciation and net investment during 2014.The Bureau of Economic Analysis reported that the U.S. capital stock was $49.6 trillion at the end of 2012, $51.2 trillion at the end of
China invests almost 50 percent of its annual production in new capital compared to 15 percent in the United States. Capital per hour of labor in China is about 25 percent of that in the United
How would you explain the disconnect between the advances in technology described in the news clip and the pace of real GDP growth?Dear Silicon Valley: Forget flying cars, give us economic growth We
Thinking about the perpetual motion machine of economic growth, what are the missing ingredients that make some of today’s amazing technologies fail to deliver faster economic growth?Dear Silicon
If these growth rates continue, in what year would real GDP be twice what it was in 2006?Use the following information to work Problem. China’s growth rate of real GDP in 2005 and 2006 was 10.5
If these growth rates continue, in what year would real GDP per person be twice what it was in 2006?Use the following information to work Problem. China’s growth rate of real GDP in 2005 and 2006
Two island economies, Cocoa Island and Plantation Island, are identical in every respect except one. A survey tells us that at full employment, people on Cocoa Island spend 1,000 hours a day on job
Where are all the workers?The baby boomers—people born between 1946 and 1964—are retiring and the percentage of adult Americans working or actively looking for a job is at its lowest level in
Read Eye on U.S. Potential GDP on p. 202 and then explain why U.S. potential GDP per worker per week is greater than that in Europe. What could induce Europeans to work the same hours as Americans
Draw a graph of the demand for and supply of labor in Korea and the United States. Mark a point at the equilibrium quantity of labor per person per week and the real wage rate in each economy.
Draw a graph of the production functions in Korea and the United States. Mark a point on each production function that shows potential GDP per hour of work in each economy. Explain the difference in
Blizzard of 2016 ranks 4th among worst winter storms of past 100 yearsMillions of Americans were digging out after the Blizzard of 2016 blanketed 434,000 square miles of the mid-Atlantic and parts of
U.S. potential GDP is the value of the goods and services produced in the United States ________.A. In the reference base yearB. When the U.S. unemployment rate is zeroC. When the U.S. economy is at
The demand for labor curve shows the relationship between _________.A. The quantity of labor employed and firms’ profitsB. All households’ willingness to work and the real wage rateC. The
The supply of labor is the relationship between __________.A. The quantity of labor supplied and leisure time forgoneB. the real wage rate and the quantity of labor suppliedC. Firms’ willingness to
Households’ labor supply decisions are influenced by all of the following except _______.A. the opportunity cost of taking leisure and not workingB. the after-tax wage rateC. unemployment
The full-employment quantity of labor _______.A. increases if labor becomes more productiveB. cannot increase because everyone who wants a job has oneC. increases as the economy moves along its
The natural unemployment rate _______.A. increases if unemployment benefits become more generousB. increases in a recessionC. increases as the average age of the labor force risesD. decreases as
Job rationing ________.A. increases the natural unemployment rateB. has no effect on the natural unemployment rateC. increases labor turnover as firms compete for high quality laborD. decreases the
An efficiency wage results in all of the following except _________.A. a decrease in the rate of labor turnoverB. an increase in the full-employment quantity of laborC. greater work effortD. an
Explain why sustained growth of real GDP per person can transform a poor country into a wealthy one.
In 2015, India’s real GDP grew by 7.3 percent a year and its population grew by 1.3 percent a year. If these growth rates are sustained, in what years woulda. Real GDP be twice what it was in
Describe how potential GDP per person has grown since 1960.
Explain how saving and investment in capital change labor productivity. Why do diminishing returns arise? Provide an example of diminishing returns. Use a graph of the productivity curve to
Explain the link between labor hours, labor productivity, and real GDP.
Which of the events increase potential GDP and which decrease it?
Which of the events raise the real wage rate and which lower it?Use the following list of events, which occur in the United States one at a time, to work this Problem.Dell introduces a new
Which of the events increase the equilibrium quantity of labor and which decrease it?Use the following list of events, which occur in the United States one at a time, to work this Problem.Dell
Sort the items into four groups: those that change the production function, those that change the demand for labor, those that change the supply of labor, and those that do not change the production
When the price level is rising at ______ and the real interest rate is 1 percent a year, the nominal interest rate is 3 percent a year.A. 4 percent a yearB. 3 percent a yearC. 2 percent a yearD. 1
When the CPI increases from 200 in 2016 to 210 in 2017 and the nominal wage rate is constant at $10 an hour, the real wage rate ______.A. increases by 10 percentB. increases to $15 an hourC.
If nominal GDP increases by 5 percent a year and the GDP price index rises by 2 percent a year, then real GDP increases by ________.A. 7 percent a yearB. 3 percent a yearC. 2.5 percent a yearD. 10
Of the alternative measures of the price level, _________ overcomes the bias of the CPI and is a better measure of the cost of living because it _________.A. GDP price index; uses a current basketB.
The CPI bias arises from all of the following items except ________.A. the introduction of new goods and servicesB. the improved quality of goodsC. the goods and services bought by poor peopleD.
When the price level_______, the inflation rate ______.A. rises rapidly; increasesB. rises rapidly; is highC. falls; is zeroD. rises slowly; falls
The BLS reported that the CPI in July 2010 was 226. This news tells you that _______.A. consumer prices during July were 226 percent higher than they were during the base yearB. the CPI inflation
The CPI measures the average prices paid by __________ for _________.A. urban consumers; a fixed basket of consumption goods and servicesB. urban consumers; the average basket of goods and services
To maintain this real interest rate, how must the nominal interest rate change if the inflation rate falls to 4.5 percent a year?Brazil keeps interest rates on hold Brazil’s inflation rate climbed
Calculate the real interest rate in Brazil?Brazil keeps interest rates on hold Brazil’s inflation rate climbed to 10.7 percent at the end of 2015 and the country’s Monetary Policy Committee kept
Imagine that you are given $1,000 to spend and told that you must spend it all buying items from a Sears catalog. But you do have a choice of catalog. You may select from the 1903 catalog or from
In 1988, the average wage rate was $9.45 an hour and in 2008 the average wage rate was $18.00 an hour. The CPI in 1988 was 118.3 and in 2008 it was 215.3. Which real wage rate is higher?
The table shows the quantities of the goods that Harry bought and the prices he paid during two consecutive weeks. Harry€™s CPI market basket contains the goods he bought in Week 1.
The people on Coral Island buy only juice and cloth. The CPI market basket contains the quantities bought in 2016. The average household spent $60 on juice and $30 on cloth in 2016 when the price of
Pete is a student who spends 10 percent of his expenditure on books and supplies, 30 percent on tuition, 30 percent on rent, 10 percent on food and drink, 10 percent on transportation, and the rest
Compare the method used by Box-Office Mojo to calculate real box-office receipts with the method to calculate the real price of a postage stamp. Compare and contrast the real variables that each
Read Eye on Box Office Hits on p. 184 and using BLS data for the CPI in 1982 and 1997, determine which movie had the greater real box office revenues, E.T.: The Extra-Terrestrial, which earned $435
By what percentage did the prices of other items in the CPI basket change?Falling oil prices pushed the CPI down 0.1 percent in December 2015. Energy prices fell 2.4 percent and the price of gasoline
Given the further information that the weight on energy prices in the CPI is 8 percent, by how much would the CPI have changed in December 2015 if energy prices had not changed?Falling oil prices
In 2015, Annie, an 80-year-old, is telling her granddaughter Mary about the good old days. Annie says that in 1935, you could buy a nice house for $15,000 and a jacket for $5. Mary says that in 2015
Calculate the unemployment rate and the labor force participation rate, and compare these rates with those in the United States in 2016.Use the following information gathered by a BLS labor market
Real GDP per person is not an accurate measure of the standard of living because it ______.A. Includes the goods and services that governments buyB. Omits the goods and services that people produce
The following statements about the business cycle are correct except ______.A. It is a regular predictable cycle in real GDP around potential GDPB. From the peak to the trough, the economy is in a
When using the income approach to measure GDP at market prices, in addition to summing all factor incomes it is necessary to ________.A. Subtract depreciation because profit is not reported as net
The expenditure approach to measuring U.S. GDP equals _________.A. The sum of U.S. consumption expenditure and U.S. investmentB. U.S. government expenditure minus taxes paid by AmericansC. All
Saving equals ________.A. Income minus consumption expenditure minus net taxesB. Income minus net taxesC. Total income minus total expenditureD. Net taxes minus government expenditure
Calculate nominal GDP in 2016 and 2017.Use the table, which shows an economy€™s total production and the prices of the final goods it produced in 2016 and 2017. GDP data for 2016 Quantity
In the market for cell phones, which of the following events increases the supply of cell phones?A. New technology lowers the cost of making a cell phoneB. Rise in the price of an e-book reader (a
In the countries to which the immigrants return, explain how employment, the real wage rate, and potential GDP would change.Suppose that the United States cracks down on illegal immigrants and
Explain how the U.S. real wage rate, U.S. employment, and U.S. potential GDP would change.Suppose that the United States cracks down on illegal immigrants and returns millions of workers to their
When floods wiped out the banana crop in Central America, the equilibrium price of bananas ________ and the equilibrium quantity of bananas ________.A. Rose; increasedB. Rose; decreasedC. Fell;
A decrease in the demand for chocolate with no change in supply will create a ________ of chocolate at today’s price, but gradually the price will ________.A. Surplus; fallB. Shortage; fallC.
A minimum wage set above the market equilibrium wage rate ________.A. Increases both employment and the quantity of labor suppliedB. Decreases unemployment and raises the wage rate of those
A rent ceiling creates a ________ of housing if it ________ the equilibrium rent.A. Surplus; is less thanB. Shortage; is less thanC. Surplus; exceedsD. Shortage; exceeds
Figure 5.1 shows the flows of income and expenditure in an economy. In 2013, U was $2 trillion, V was $1.5 trillion, W was $7 trillion, J was $1.5 trillion, and Z was zero. Calculate total income,
Calculate nominal GDP in 2016 and 2017.An economy produces only funand food. The table shows the prices and the quantities of fun and food producedin 2016 and 2017. The base year is 2016. GDP data
Calculate the percentage increase in real GDP in 2017.An economy produces only fun and food. The table shows the prices and the quantities of fun and food produced in 2016 and 2017. The base year is
If potential GDP was $270 in 2016 and it grew by 1 percent in 2017, in which phase of the business cycle is the economy? Explain.An economy produces only fun and food. The table shows the prices and
Which component of GDP changed because retail sales increased? Which component of GDP changed because business inventories increased?The Commerce Department reported that in December 2015, retail
Explain the effect of the fall in net exports on GDP.The Commerce Department reported that in December 2015, retail sales rose by 0.2, net exports decreased, inventories held by businesses rose by
Does the statement that total sales by businesses fell by 0.6 percent mean that GDP decreased by 0.6 percent? Explain your answer.
Read Eye on the Booms and Busts and explain why the NBER reported that the 2008 recession began before real GDP had fallen for two successive quarters.
In France, real GDP was the same in 2012 as it had been in 2011, but in the last quarter of 2012 and the first quarter of 2013, France’s real GDP decreased. In the United States, real GDP increased
Classify each of the following items as a final good or service or an intermediate good or service and identify it as a component of consumption expenditure, investment, or government expenditure on
Calculate Iberia’s GDP.Use the following data on the economy of Iberia.Net taxes $18 billionGovernment expenditure $20 billionSaving $15 billionConsumption expenditure $67
Calculate Iberia’s imports of goods and services.Use the following data on the economy of Iberia.Net taxes $18 billionGovernment expenditure $20 billionSaving $15
A ________ is a final good and ________ is an intermediate good.A. New car bought by a student; a used SUV bought by a dealerB. New textbook; a used textbookC. New iPhone bought by a student; a new
The base year is 2016. Calculate real GDP in 2016 and 2017. Use the table, which shows an economy€™s total production and the prices of the final goods it produced in 2016 and 2017,
Calculate the percentage increase in real GDP in 2017.Use the table, which shows an economy€™s total production and the prices of the final goods it produced in 2016 and 2017, GDP data for
China reported that its real GDP grew by 6.9 percent in 2015, down from 7.3 percent in 2014. Experts think that China has overstated its true growth rate and many fear that its growth will slow
Gross domestic product is the market value of all the _______ in a given time period.A. Goods and services bought by AmericansB. Goods and services produced by American companies in all countriesC.
Other things remaining the same, a fall in the price of peanuts will ________.A. Increase the supply of peanutsB. Decrease the supply of peanut butterC. Decrease the quantity supplied of peanutsD.

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