Macroeconomics 1st Edition Tracy Lowd - Solutions

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2. Explain how economists study the economic behavior of a society empirically. By using hypotheses, confirmed by empirical evidence, how do the economists and the empirical evidence contribute to the welfare of the society?
1. Why do economists use the scientific method? Explain your answer by arguing for and against the use of this method.
9. It is the night before your trip to Spain and you must decide how many hours to spend on expanding your vocabulary. The total benefits column shows how many more Spanish words you expect to learn. The cost column shows how many Spanish words you will mispronounce because of the increased fast
8. Use the concepts discussed in this chapter to answer the following problems:a. Oskar is about to join a new factory where he has the option of joining a trade union. Being a part of the trade union means that he will have to pay 5 percent of his wages to the union. Why do you think some workers
7. In 2014, California was in its third year of a major drought. With water supplies dwindling, Governor Brown issued a plea for a voluntary 20 percent reduction in water use. This target was not reached. In early 2015, Governor Brown issued an executive order requiring local water agencies to
6. Consider the following three statements:a. Your friends are coming over for lunch and you realize you have forgotten to get groceries. You go to the local market, where there are about 50 stalls. You are in a hurry, so you decide to do all of your shopping at the first two stalls.b. You find a
5. Consider the following three statements:a. You are planning a conference in St. Petersburg, Russia, and your closing gala will be on a cruise boat in November. Do you think hosting the event on a boat is a rational choice?b. You have to reach the airport during rush hour to catch your flight to
4. You are watching your weight, and you have decided that you are going to consume 800 calories of pizza and cheeseburgers at a party Saturday night. A slice of pizza has 200 calories, and a cheeseburger has 400 calories.a. Create a table that shows the various combinations of pizza slices and
3. Your local coffee shop used to be the best in the neighborhood;however, due to a recent change in ownership, the quality of the service and products offered has been steadily decreasing. Nevertheless, you have some fond memories of the place and it is also quite conveniently located—on the way
2. You are thinking about buying a house in London. You find one you like that costs £1,000,000. You learn that, based on the value of the house and your wages, your bank will give you a mortgage for 20 years in the region of £600,000. This means that you must make a down payment of £400,000.
1. You have purchased a non-refundable ticket to the Maldives with an early morning departure scheduled for Saturday. You receive a call notifying you about an interview for a job that may be scheduled around the same time. While you really wanted this job, you think that going on the trip is more
3. Estimate how many hours you spend on social media each year. Now estimate the opportunity cost of this time in dollars.
2. Estimate the opportunity cost for a hypothetical student to spend one year in college. Express this opportunity cost in dollars. Assume that the student spends $T in tuition and $R in room and board. Estimate the value of the student’s time spent studying during a typical academic year, which
1. Estimate the opportunity cost of going to see a movie in a movie theater. Express this opportunity cost in dollars.Hint: Think about both the out-of-pocket cost (i.e., the price of the ticket) and the indirect cost (the value of your time).
11. Identify the cause and the effect of the following phenomena in a hypothetical country:a. A surge in the price of goods and an increase in the workers’ income.b. A rise in GDP and an increase in the number of university graduates.
10. “Scarcity exists because people have unlimited wants in a world of limited resources.” Explain this statement using a real-life example.
9. Suppose you are living in a housing project that has 100 apartments. The housing project has its own garden, swimming pool, library, and community center. To be able to utilize the available amenities, residents must contribute €50 a month towards the upkeep while also taking turns keep it
8. Suppose the market price of the latest model of iPhone is €759 in Germany. What are the three conditions that will need to be satisfied for the iPhone market to be in equilibrium at this price?
7. Suppose you wish to take out a mortgage to buy a new house for your family. However, the houses you like exceed your budget. You are considering three options: choose a neighborhood that is less fashionable and, therefore, the prices are lower; take out a mortgage with a longer maturity period;
6. This chapter introduced the idea of opportunity cost.a. What is meant by opportunity cost?b. What is the opportunity cost of taking a year after graduating from high school and backpacking across Europe? Are people who do this being irrational?
4. How does microeconomics differ from macroeconomics?Would the sales of iPhones in China be studied under microeconomics or macroeconomics? What about the growth rate of total economic output in China?
3. Examine the following statements and determine if they are examples of normative economics or positive economics.Explain your answer.a. According to the World Economic Outlook Update released by the International Monetary Fund in January 2021, the global economy is projected to grow 5.5 percent
2. Economists think of almost all human behavior as the outcome of choices. Do you agree with this statement?Based on your reading of the chapter, how would you define economics?
1. Give examples to explain how economic analysis can be positive and normative.
2. Assume the economy of Brazil, a longtime trading partner with the United States, is in long-run equilibrium with a zero current account balance. Brazil can produce 40 units of coffee or 10 units of cars with its given resources. (a) Assuming a constant opportunity cost, draw a correctly labeled
1. Assume the United States economy is currently operating at above full employment with a real interest rate of 4 percent, an unemployment rate of 3 percent, and an inflation rate of 8 percent. (a) Draw a correctly labeled aggregate supply and aggregate demand graph and include each of the
60. Which of the following will cause a decrease in output in the short run? (A) An increase in government expenditures (B) An increase in consumption (C) An increase in wages (D) An increase in productivity (E) An increase in net exports
59. Assume that income levels in the United States increase. What effect would this have on money demand and bond prices? Money Demand Bond Prices (A) Increase Increase (B) Increase Decrease (C) Increase No change (D) Decrease Decrease (E) Decrease Increase
58. The United States and Britain are trading partners. Assume the Federal Reserve purchases bonds on the open market. What is the effect of this purchase on the nominal interest rate and on the value of the United States dollar relative to the British pound? Nominal Interest Rate U.S. Dollar Value
57. Lee deposits $400 in his checking account at Southwestern Bank and there is a reserve requirement set by the Federal Reserve of 20 percent. As a result of his deposit, the money supply will increase by a maximum of (A) $1,200 (B) $1,600 (C) $2,000 (D) $4,000 (E) $8,000
56. Which of the following monetary policies would encourage investment and increase output? (A) An increase in the discount rate (B) A decrease in personal income taxes (C) A decrease in government spending (D) A purchase of bonds on the open market (E) An increase in the reserve requirement
55. Given the output gap indicated in the graph, assume that no fiscal nor monetary policy is changed. What would happen in the long run? (A) SRAS would shift to the right. (B) SRAS would shift to the left. (C) LRAS would shift to the right. (D) AD would shift to the right. (E) AD would shift to
54. Assume the economy above has a gap of $400 billion and the marginal propensity to consume is 0.75. What is the minimum amount that the government should spend in order to close the gap? (A) $100 billion (B) $120 billion (C) $150 billion (D) $200 billion (E) $400 billion
53. Which of the following solutions would likely close the ouput gap for the economy above? (A) Decreasing the federal funds rate (B) Increasing business taxes (C) Increasing the reserve requirement (D) Increasing sales of government bonds (E) Increasing the discount rate
52. Which of the following is considered a negative supply shock? (A) An increase in imports (B) A decrease in oil prices (C) An influx of immigrants to a country (D) A new hybrid car being introduced to the market (E) A drought
51. Which of the following fiscal and monetary policies combined would most likely help bring a country out of a recession while keeping prices stable? (A) Increase business taxes and the discount rate. (B) Decrease business taxes and buy bonds on the open market. (C) Increase business taxes and
50. Which of the following would increase the demand for money? (A) Lower inflation rate (B) Lower transfer costs (C) Higher incomes (D) Higher interest rate (E) Expectation of an increase in bond prices
49. Which of the following would cause the SRPC to shift to the right? (A) An increase in the price of oil (B) An increase in the discount rate (C) An increase in government spending (D) A decrease in personal taxes (E) An increase in the money supply
48. Which of the following would cause movement from point A to point B? (A) An increase in the price of oil (B) An increase in the discount rate (C) An increase in government spending (D) A decrease in personal taxes (E) An increase in the money supply
47. The GDP deflator differs from the consumer price index (CPI) in which of the following ways? (A) The GDP deflator measures a market basket of goods and services over a year, and the CPI measures inflation. (B) The CPI measures the price of goods purchased by consumers, and the GDP deflator
46. Which of the following would shift the aggregate demand curve to the right? (A) An increase in personal taxes (B) A decrease in government spending (C) An increase in exports (D) A decrease in consumption (E) A decrease in the money supply
45. What results would reducing the income tax paid on interest earned from savings accounts have on the loanable funds market? (A) It would increase the supply of loanable funds by raising the interest rate, which would discourage borrowers. (B) It would increase the supply of loanable funds,
44. The following table includes data for the country of Fredonia: Year Real Gross Domestic Product (in dollars) Nominal Gross Domestic Product (in dollars) 2016 150 billion 43 billion 2017 180 billion 120 billion 2018 190 billion 190 billion 2019 200 billion 220 billion Which of the following can
43. Assume the United States decides to increase government spending by borrowing. What is the budget deficit’s effect on the international value of U.S. dollar and on the U.S. balance of trade? Value of the Dollar Balance of Trade (A) Depreciate No change (B) Depreciate Toward deficit (C)
41. Contractionary monetary policy actions affect interest rates and business investment in which of the following ways? Interest Rates Business Investment (A) Stay the same Increase (B) Increase Increase (C) Increase Decrease (D) Decrease Stay the same (E) Decrease Increase 42. Country A and
40. Assume the exchange rate between the United States dollar (USD) and the Lebanese pound (LBP) began at 4 USD to 1 LBP. Later, it changed to 3 USD to 1 LBP. As a result of this change, if prices in both countries stayed the same, (A) imports from Lebanon it would be 4 times cheaper to purchase
39. Which of the following is an example of a contractionary fiscal policy? (A) Selling bonds on the open market (B) Increasing the reserve requirement (C) Increasing personal taxes (D) Increasing government spending (E) Increasing the discount rate
38. Assume the United States is experiencing a recessionary gap of $24 billion, and the marginal propensity to consume is 0.75. The government decides it is prudent to cut taxes. What is the minimum amount taxes should be cut to close the recessionary gap? (A) $24 billion (B) $20 billion (C) $15
37. Which of the following is an example of structural unemployment? (A) A candy worker is laid off due to new taffy-pulling machines. (B) A teacher retires. (C) A doctor sells his practice and moves to another state. (D) A college student is out looking for her first job. (E) A lifeguard’s pool
36. If nominal wages decrease, which of the following would occur to the price level and unemployment in the long run? Price Level Unemployment (A) Increase Increase (B) Increase Stay the same (C) Decrease Increase (D) Decrease Decrease (E) Stay the same Increase
35. Country A has a nominal GDP of $1,800 and the money supply is $600. Calculate the velocity of money. (A) 10.0 (B) 5.0 (C) 3.0 (D) 2.5 (E) 0.3
33. Inflationary expectations would most likely decrease if there was (A) an increase in the costs of raw materials (B) an increase in the money supply (C) an increase in consumption (D) a decrease in imports (E) a decrease in the money supply 34. The table below shows the nominal GDP and the price
32. Which of the following can cause cost-push inflation? (A) An increase in raw material costs (B) A decrease in wages and salaries (C) A sharp drop in natural resource prices (D) Federal incentive programs for eco-friendly goods (E) A relaxation in federal regulations
31. What effect will a decrease in government spending and an increase in taxes have on price level and employment? Price Level Employment (A) Increase Increase (B) Increase No change (C) Increase Decrease (D) Decrease Increase (E) Decrease Decrease
30. What monetary policy is most likely to discourage interest-sensitive spending? (A) Increasing the money supply (B) Decreasing the discount rate (C) Increasing the discount rate (D) Decreasing taxes (E) Decreasing government spending
29. Given the information in the table, what is the size of the labor force? (A) 5,000 (B) 9,000 (C) 81,000 (D) 90,000 (E) 95,000
28. Given the information above, what is this country’s unemployment rate? (A) 1.8 percent (B) 10.0 percent (C) 11.0 percent (D) 17.0 percent (E) 18.0 percent
27. What is meant by the velocity of money? (A) It is the speed with which the value of money changes. (B) It is the speed with which a person spends money. (C) It is the speed with which currency wears out and needs to be replaced. (D) It is the amount of money created by the money multiplier
26. Edgar deposits $4,000 into his bank account at Southwestern Bank. What is the maximum change in the money supply from his deposit? (A) $4,000 (B) $5,000 (C) $10,000 (D) $16,000 (E) $20,000
25. Assuming that Southwestern Bank has a reserve requirement of 20 percent, what is the maximum amount of new loans this bank can disperse? (A) $6,000 (B) $30,000 (C) $50,000 (D) $100,000 (E) $110,000
24. Angel accepts a new job where he will make $5,000 more per month than at his previous job. His marginal propensity to consume is 0.8. How much of his new income will Angel save? (A) $1,000 (B) $2,000 (C) $2,500 (D) $3,000 (E) $4,000 Use the balance sheet below of Southwestern Bank to answer
23. The town of Jasper Springs spent $6 million on new tennis courts for its park district sports teams. If the marginal propensity to consume is 0.9, what will be the maximum change in GDP? (A) $60 million (B) $54 million (C) $40 million (D) $33 million (E) $25 million
22. Which of the following monetary policy actions is designed to address an inflationary gap? (A) Buying securities (B) Lowering the discount rate (C) Lowering reserve requirements (D) Reducing the money multiplier (E) Increasing reserve requirements
21. Aggregate demand would increase given which of the following Federal Reserve actions? (A) An increase in the discount rate (B) An increase in government spending (C) A decrease in taxes (D) A decrease in the reserve requirement (E) An increase in the sale of bonds
20. Who of the following would be considered unemployed? (A) A glass blower who was laid off and has not applied for a job in three years (B) A computer consultant who left his job to begin a new business (C) A college student who just graduated from college and is looking for a position in their
19. Large numbers of foreign investors move their investment money from the United States to Britain because Britain is offering higher interest rates. Which of the following is most likely to result from this move? (A) Real interest rates in the United States will fall. (B) The value of the
18. What effect would a decrease in business taxes have on real income and employment? Real Income Employment (A) Decrease Decrease (B) Decrease Increase (C) No change Increase (D) Increase Decrease (E) Increase Increase
17. If a given loan has an interest rate of 10 percent and the inflation rate is 4 percent, what is the real interest rate? (A) 10 percent (B) 7 percent (C) 6 percent (D) 5 percent (E) 4 percent
16. When the government operates in a budget deficit, what might be the effect on gross private domestic investment and the supply of loanable funds? Investment Supply of Loanable Funds (A) Increase Increase (B) Increase Decrease (C) Decrease Remain the same (D) Decrease Increase (E) Decrease
15. Raising interest rates, an increasing the reserve requirement, and raising personal income taxes are all examples of (A) fiscal policy (B) monetary policy (C) policies to address a recessionary gap (D) policies to address an inflationary gap (E) price level stabilization policy
14. Which of the following changes would most likely shift the short-run Phillips curve to the left? (A) A purchase of bonds on the open market (B) An increase in government expenditures (C) An increase in personal income taxes (D) A decrease in government business regulation (E) A decrease in the
13. Which fiscal policy is most likely to encourage spending by consumers and businesses? (A) Increasing the money supply (B) Lowering the discount rate (C) Cutting taxes (D) Raising the discount rate (E) Cutting government spending
12. Assume the United States and Australia are trading partners. The Federal Reserve, in trying to combat a recession, increases the money supply by purchasing bonds on the open market. How will this affect the price level in the United States and the value of the Australian dollar relative to the
11. If the nominal GDP in 2018 was $400 billion and the price index was 50, calculate the real gross domestic product. (A) $200 billion (B) $320 billion (C) $450 billion (D) $500 billion (E) $800 billion
10. What is the opportunity cost of moving production from point C to point D? (A) 2 million units of capital goods (B) 3 million units of capital goods (C) 5 million units of consumer goods (D) 7 million units of consumer goods (E) 7 million units of capital goods
9. Assume the country’s production possibilities curve shifted outward so that point H lies on the curve. This would most likely cause (A) an increase in aggregate demand (B) a decrease in aggregate demand (C) a decline in net exports (D) the long-run aggregate supply curve to shift to the right
8. Which of the following points on the graph would be most likely to encourage long-term growth? (A) A (B) E (C) F (D) G (E) H
7. Which of the following points on the graph represents the efficient use of a viable resource to produce both capital goods and consumer goods? (A) A (B) E (C) F (D) G (E) H
6. Use the following table of economic figures below to calculate the gross domestic product of this country Category National Expenditures (in billions of dollars) Personal Consumption 5,000 Government Expenditures 3,020 Gross Private Domestic Investment 2,200 Business taxes 635 Depreciation 400
5. Assume the United States is experiencing an inflationary gap. If no action is taken by the Federal Reserve or the government, what effect will the lack of policy change have on nominal wages and real output in the long run? Nominal Wages Real Output (A) Increase Decrease (B) Increase Increase
4. Sportz and Plai make tennis balls and golf clubs. With their resources, Plai can make 500 tennis rackets or 250 golf clubs and Sportz can make 150 tennis rackets and 50 golf clubs. If the terms of trade were such that 1 tennis racket could be traded for 4 golf clubs, who would specialize in
3. Which of the following monetary policy tools would the Federal Reserve use to achieve a higher federal funds rate? (A) Increasing the excess reserves (B) Decreasing the required reserve ratio (C) Buying bonds on the open market (D) Selling bonds on the open market (E) Decreasing the discount rate
2. Which is true of a bank’s balance sheet? (A) Customers’ deposits are listed as liabilities. (B) The total assets should exceed the total liabilities. (C) The bank’s liabilities include loans and reserves. (D) A bank’s balance sheet is used to keep track of outstanding loans. (E) Loans
1. When the Federal Reserve buys bonds on the open market, which of the following combinations occurs? Money Supply Aggregate Demand Interest Rates (A) Increase Decrease Decrease (B) Increase Increase Decrease (C) Decrease Increase Increase (D) Decrease Decrease Remain the same (E) Remain the same
1. The United States and Mexico are trading partners. Assume that both have a zero current account balance. The United States has low inflation, relative to that of Mexico, and is in a recession. (a) If real incomes in Mexico increase, indicate how each of the following would be affected: (i) The
1. Use the following scenario to answer the free-response questions below. A U.S. firm sells military planes to the government of Canada. Both have a 4 percent real interest rate at the time of the sale. (a) In what way does the transaction affect Canada’s aggregate demand? Explain. (b) Assume
3. What is the trade-off that results from an increase in capital flow? (A) A decrease in net exports (B) A decrease in aggregate supply (C) A decrease in government expenditures (D) A decrease in real gross domestic product (E) A decrease in consumption
2. Based on your answer to question 1, what would be the impact on the United States? (A) Increasing the supply of loanable funds, increasing the real interest rate, and discouraging investment (B) Increasing the supply of loanable funds, decreasing the real interest rate, and encouraging
1. Assume that the real interest rate in the United States is 3 percent and the real interest rate in Mexico is 1 percent. In which direction would capital flow move? (A) Capital flow would move from the United States to Mexico because Mexican investors would receive a better return on their
1. In one to three paragraphs, explain how differences in the real interest rate affect capital flows, foreign exchange markets, and loanable funds markets.
3. Which best describes why a depreciating currency results in decreased imports? (A) Foreign countries take advantage of the depreciated currency to raise prices. (B) The weakened currency has less buying power in the foreign market. (C) It is too risky to buy the depreciated currency on the
2. When a nation’s currency depreciates, which is the most likely result? (A) Imports will increase. (B) Nominal wages will increase. (C) Fewer people will buy dollars. (D) Import tariffs will be lifted. (E) Exports will increase.
1. What is most likely to happen if the demand for U.S. exports rises and American consumers buy fewer imported goods? (A) The value of the dollar will appreciate. (B) The balance of payments will show a deficit. (C) The exchange rate for dollars will depreciate markedly. (D) The supply of goods
1. In one to three paragraphs, explain how changes in currency value affect net exports and aggregate demand.
1. Use the following scenario to answer the questions below. The United States and Brazil, where the currency is the real (pronounced rey-al), are trading partners. The United States is currently in a recession with high unemployment. (a) Due to the recession, the United States is not investing in
3. How does a tariff on imports benefit domestic producers of the same imported good? (A) It provides revenue that is given to the domestic producers. (B) It limits imports to a specified quantity for each license period. (C) It raises the price level domestic producers can sell their products. (D)
2. What is the important difference between the nominal exchange rate and the real exchange rate? (A) The nominal exchange rate accounts for a nation’s trade deficit. (B) The nominal exchange rate accounts for the difference in inflation. (C) The real exchange rate is used on the foreign exchange
1. What was the primary purpose of the Smoot-Hawley Act? (A) To restore U.S. trade after the crash of 1929 (B) To encourage other countries to reduce tariffs on goods from the United States (C) To protect domestic producers from foreign imports (D) To establish quotas for all imported foreign goods
1. In one to three paragraphs, explain how changes in policy and economic conditions impact the foreign exchange market.
1. Answer each of the following questions using the idea that the United States and Argentina are trading partners. (a) Argentinian tourists increase visits to the United States during winter. What effect will this have on the supply of Argentine pesos in the foreign exchange market? (b) The U.S.

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Macroeconomics 1st Edition Tracy Lowd - Solutions

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