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business
foundations macroeconomics

Macroeconomics 1st Edition Tracy Lowd - Solutions

1. In one to three paragraphs, explain how the AD-AS model is used as a tool to reflect economic fluctuations and production decisions that affect prices and GDP.
1. Use the graph below to answer all parts of the questions that follow(a) Explain what the long-run aggregate supply curve represents in an economy. (b) Identify one factor that would create growth, shifting the LRAS curve and explain how that would occur. (c) Explain the difference between point
3. In what ways are the production possibilities curve and long-run aggregate supply related? (A) Both show two different products. (B) Both show the different time periods in an economy. (C) Both show demand of one product over another. (D) Both show supply of one product over another. (E) Both
2. Which of the following is a reason the LRAS will shift to the right over time? (A) rising commodity costs (B) potential output is revised downward (C) nominal wage increases (D) advances in production technology (E) actual GDP matches potential output
1. Which best describes a primary reason the LRAS curve is a vertical line in a graph? (A) Because it represents where aggregate prices and real GDP intersect (B) Because LRAS is tied to production costs, which remain static over time (C) Because variations in aggregate price levels have no effect
1. In one to three paragraphs, explain how the flexibility of the long run affects pricing and production costs for businesses.
1. Use the graph below, which depicts the SRAS during the Depression, to answer all parts of the questions that follow.(a) Describe what happened to the aggregate price level between 1929 and 1933 and how it impacted consumers.(b) How did real GDP respond to the change in aggregate price level and
3. Which of the following would NOT shift aggregate supply to the right? (A) A decrease in the price of oil (B) Government reducing regulations on manufacturing (C) Government easing requirements for citizenship (D) Government increasing tax on manufacturers (E) Farmers receiving a subsidy to raise
2. Which of the following would shift the short-run aggregate supply curve to the right? (A) An increase in business taxes (B) A requirement for car manufacturers to retrofit their plants to be able to include air-bags in new cars (C) New legislation that requires all food and medicines to have
1. If a major disruption of worldwide oil supplies occurred, resulting in 25- to 40-percent higher oil prices, how would it impact the SRAS curve? (A) The oil crisis would be offset by decreased wages and the SRAS curve would remain stable. (B) Prices on the SRAS curve would drop due to lack of
1. Use the graph below to answer all parts of the questions that follow.(a) Describe what causes the shift in aggregate demand between AD1 and AD2 . (b) How is the multiplier between AD2 and AD3 determined? (c) Aggregate demand (AD) shifts to the right in this graph. Explain how the change in
3. If the marginal propensity to consume is 0.75, the government decreases personal income taxes by $100, real gross domestic product will (A) increase by $300 (B) decrease by $400 (C) increase by $250 (D) decrease by $160 (E) increase by $1,000
2. Assume that Jacob spent $20,000 of his disposable income of $30,000 in 2019. If his disposable income increased to $40,000 and his marginal propensity to consume equals 0.8, what did his consumption increase by? (A) $4,000 (B) $8,000 (C) $9,000 (D) $10,000 (E) $12,000
1. If a city of 100,000 people invests $1 billion in a major electrical grid upgrade, what direct outcome will businesses in the city during the upgrade? (A) Inflation will rise due to increased aggregate demand. (B) People will likely save more money as a result of increased local business. (C)
1. In one to three paragraphs, explain how changes in income and taxes affect spending, savings, and the GDP.
• The inflation rate rises from 1.3 percent to 4.0 percent.
• International sales of American-made cars increase.
• Congress passes a law raising income tax rates across the board.
• Unemployment jumps as businesses lay off workers.
• Banks cut interest rates for consumer loans.
1. Use the graph below to answer all parts of the questions that follow.(a) Describe the relationship between price level and real GDP reflected in the graph. (b) If the U.S. experiences a recessionary period, how will the AD curve shift? Explain your answer. (c) Suppose that a war between the U.S.
3. Which would be the most effective way for government action to reduce falling aggregate demand between 1929 and 1933? (A) Offer businesses low interest loans for investment. (B) Promote certain goods and services to the buying public. (C) Create federal jobs to provide work and income for the
2. How does the leftward shift on the curve reflect the shock to employment during the Depression? (A) GDP fell because of fear of inflationary price levels. (B) Rising price levels made it difficult for workers to afford goods. (C) More people were able to contribute to production of goods. (D)
1. Which of the following best describes why aggregate demand shifted left between 1929 and 1933? (A) Interest rates for loans dropped quickly. (B) Exchange rates for the U.S. dollar depreciated. (C) Consumer income dropped severely. (D) Inflationary pressures reduced government spending. (E)
1. In one to three paragraphs, explain what aggregate demand is and how it is determined.
1. Country Y, a country that makes cars and computers, is in a recession. (a) Draw a correctly labeled production possibilities curve for Country Y. Place cars on the vertical axis and computers on the horizontal axis. Label the recession point A. (b) The figures below (shown in millions) outlines
3. Why is the concept of the output gap important in the field of economics?
2. How does full employment relate to the output gap?
1. What is the definition of the output gap?
1. For items (a) through (d), draw a point where each scenario would fall on the business cycle graph shown above. (a) The Great Depression (Indicate with a letter a.) (b) The Internet Boom (Indicate with letter b.) (c) The Great Recession (Indicate with letter c.) (d) A negative output gap
3. What factor or factors determine when a recession becomes a depression? (A) the depth of the trough experienced (B) the length and severity of the contraction (C) what phase of the business cycle it appears in (D) the amount of time since the previous recession (E) the size of the difference
2. An output gap is the difference between (A) actual and potential output (B) full-employment output and potential output (C) recessionary output and output during a depression (D) a peak and the next trough (E) a peak and the next peak
1. What is the long-term directional trend of the economy? (A) cyclical (B) upward (C) downward (D) fluctuating (E) flat
1. In one to three paragraphs, explain what the business cycle is, identify its phases and discuss the concepts of actual output, potential output, and the output gap.
1. Country Z has the following output and prices for 2018 and 2019. Goods 2018 Quantity 2018 Price 2019 Quantity 2019 Price Hats 5,000 $8 5,000 $10 Scarves 2,000 $4 2,000 $5 Gloves 2,000 $4 3,000 $6 (a) Calculate Country Z’s nominal GDP in 2018, based only on consumer spending. (b) Calculate
3. A base year is (A) determined by the Federal Reserve Board (B) calculated by subtracting real GDP from nominal GDP (C) used for comparing changes in economic activity (D) always five years before the current year (E) given a value of 1,000
2. Which statement best describes per capita GDP? (A) It is always higher in countries with large populations. (B) Its increase indicates a stable population. (C) It is considered a universally accepted measure of prosperity. (D) It grows when productivity slows. (E) It is difficult to compare
1. Calculate the nominal GDP for Country X given the data in the table below (in billions of dollars). Consumption 850 Gross Private Domestic Investment 684 Government Spending 572 Depreciation 254 Exports 156 Imports 70 (A) $2,192 billion (B) $2,446 billion (C) $2,332 billion (D) $2,586 billion
1. In one to three paragraphs, explain the difference between real and nominal GDP and demonstrate how real GDP is calculated using the GDP deflator.
1. The chart below compares inflation (left axis) and the price of crude oil (right axis) between the years 1969 and 1988. The shaded areas indicate a U.S. recession. Use the chart to answer the following questions.(a) Identify one trend based on the data in this chart and draw a conclusion based
3. The Federal Reserve Bank increases interest rates in order to (A) keep the rate of inflation below 2 percent (B) increase wages (C) increase the amount of money in circulation (D) counteract an inflationary trend (E) implement wealth redistribution
2. Other things remaining constant, if a drought occurs or the price of oil increases, these events could cause (A) An inflationary spiral (B) An increase in real wages (C) Demand-pull inflation (D) Cost-push inflation (E) Banks to make a higher profit.
Harry benefits, if he pays the loan off early.
1. If Harry borrows $10,000 at a rate of 4 percent for a period of five years and inflation occurs at a rate of 6 percent during that time, who benefits from the high rate of inflation? (A) The bank benefits. (B) Harry benefits. (C) Neither benefits, unless Harry pays the loan off early. (D) Both
1. In one to three paragraphs, explain the cost of inflation to individuals, businesses, and the economy.
economy of Country X between year 1 and year 4? (d) What are some actions the government of Country X might decide to take in years 4 and 5? (e) What does the CPI tell us about real wages during that time period?
1. Country X has a CPI of 195 in year 1; 209 in year 2; 211 in year 3; 203 in year 4; 201 in year 5; and 208 in year 6. (a) Calculate the inflation rate for Country X between year 1 and year 2. (b) Calculate the inflation rate between year 3 and year 4. (c) What do the different rates tell you
3. Why is the CPI not an accurate measure of the economy? (A) It does not include the value of improved quality. (B) It is based only on goods from 1982 to 1983. (C) It overestimates real wages. (D) It has too many goods in its “market basket.” (E) It doesn’t incorporate imported goods.
2. In the country of Bornesia, CPI for 2008 was 100 and in 2009 the CPI was 120. Calculate Bornesia’s inflation rate for 2009. (A) 5 percent (B) 10 percent (C) 15 percent (D) 20 percent (E) 25 percent
1. The Consumer Price Index (CPI) is used to measure (A) changes in the prices of all goods and services in an economy over time (B) change in the price of a select group of consumer goods and services over time (C) changes in wages over a period of time (D) the improved quality of a select group
1. In one to three paragraphs, explain what the CPI is and how it helps to calculate inflation, deflation, disinflation, and real variables, such as wages.
1. Between 2000 and 2007, the U.S. unemployment rate varied from approximately 4 percent (2000) to 6 percent (2003) to 4.5 percent (2007), while the unemployment rate in the Eurozone varied from approximately 9 percent to 8.5 percent to 7.5 percent for the same time periods. (a) What do these
3. Which of the following are included in the labor force? (A) students (B) part-timers (C) retirees (D) volunteers (E) stay-at-home parents
2. Calculate the labor force participation rate. (A) 10 percent (B) 20 percent (C) 60 percent (D) 93.5 percent (E) 99.5 percent
1. Calculate the unemployment rate. (A) 4.2 percent (B) 6.03 percent (C) 6.4 percent (D) 12.01 percent (E) 24 percent
1. In one to three paragraphs, describe the different types of unemployment and why the rate of unemployment is difficult to assess.
1. (a) Explain the difference between an intermediate good and final good. (b) Provide an example of an intermediate good. (c) Provide an example of a non-market transaction. (d) In your own words, explain why the underground economy is not counted as part of a country's gross domestic product. (e)
3. Genuine Progress Indicator (GPI) and Human Development Index (HDI) are considered measurements that (A) track income inequality (B) fill in gaps in GDP (C) reveal gaps in government spending (D) track non-market transactions (E) work best for less-developed countries
2. Identify which transaction is included in the expenditures approach to GDP. (A) the purchase of a new car (B) the services of a barber cutting his child’s hair (C) mowing your neighbor’s lawn (D) income received from selling shares of purchased stock (E) glass purchased by a car manufacturer
1. Which of the following items are used to calculate GDP? (A) The purchase of glass by a car manufacturer to make cars (B) The purchase of paint by a house painter. (C) The purchase of sweet corn by a consumer. (D) The payment for babysitting services done by a teen on a Friday evening (E) The
1. In one to three paragraphs, explain the limitations of GDP.
1. Use the passage below to answer all parts of the questions that follow. Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world. It is compelled to be this, because, unlike the typical natural science, the material
3. Which of the following is NOT included in the income approach to calculating GDP? (A) Money earned by a boat dealer (B) Money the government spends on military equipment (C) Money received by a landlord (D) Income of a farmer (E) Money received from a barber for cutting a client’s hair
2. The circular flow of economic activity between consumers and producers includes which of the following? (A) Households buy factors of production from firms and firms sell factors of production to households. (B) Households buy goods and services from firms and sell factors of production to
1. Why is the GDP considered to be an essential economic measurement? (A) It is the sum of final goods and services the economy produces in a given time period. (B) It identifies the different factors of production. (C) It is the result of adding the value of goods produced minus the value of
1. In one to three paragraphs, explain the circular flow model and how GDP is measured.
1. Many factors can affect the equilibrium price and quantity of a product. Lightnings and Stealthys are two brands of running shoes, and each has a price of $80. How would the supply or demand and the price and quantity for Stealthys change given each scenario? (a) The price of rubber used in the
3. A surplus of goods in a market sends a signal to (A) producers to increase supply of the good in order to increase their sales (B) producers to raise prices to cover the expense of making goods that are unsold (C) producers and consumers that the equilibrium price is too low (D) consumers that
2. Which of the following correctly describes how price adjustments eliminate a shortage? (A) As the price rises, the quantity demanded increases while the quantity supplied decreases. (B) As the price rises, the quantity demanded decreases while the quantity supplied increases. (C) As the price
1. When the demand curve shifts left and the supply curve does not change, what happens to the equilibrium price? (A) It decreases. (B) It stays the same. (C) It shifts right. (D) It increases. (E) It is no longer on the supply curve.
1. In one to three paragraphs, explain how demand for and supply of a good or service determine the equilibrium price in a competitive market.
1. Many factors besides price can affect the supply of a product. Explain how each of the following situations would most likely affect the supply of a given product or service. (a) Congress votes to provide a subsidy to encourage the construction of affordable housing. (b) Oil-exporting countries
3. Which best explains why supply curves slope upward? (A) Supply and price have an inverse relationship. (B) Prices have a positive relationship with supply. (C) Elasticity of supply varies depending on the good or service. (D) Determinants of supply vary depending on the good or service. (E)
2. Which of the following would most likely cause the supply curve to shift to the right in the supply of doctors in the United States who practice general medicine rather than a specialty? (A) An increase in the salaries of doctors who specialize in a particular field (B) An increase in the cost
1. A decrease in the number of televisions produced in a country in response to a fall in price demonstrates (A) the law of supply (B) the difference between elasticity and inelasticity (C) the influence of supply determinants (D) a shift in the supply curve (E) a change in demand for televisions
1. In one to three paragraphs, explain what influences the supply of goods and services in a competitive market.
1. With electric cars in mind, use the following mock headlines to determine whether demand increases, decreases, or remains the same and explain what prompted the change in demand (change in buyer’s tastes, change in expectations, change in income, change in the price of related goods, or change
3. Unlike a change in price, a change in a determinant of demand results in (A) a decrease in quantity demanded overall (B) an increase in prices overall (C) an increase in the price demand of elasticity (D) a new demand schedule but not a new demand curve (E) a new demand schedule and a new demand
2. If consumers buy more of Good B when the price of Good A rises, what is the relationship between the two goods? (A) Good A is more of a luxury than Good B. (B) Good B is more expensive than Good A. (C) Both goods are necessities. (D) The goods are substitutes for each other. (E) The goods are
1. The law of demand states that the quantity of a good or service demanded varies (A) directly with its price (B) inversely with its price (C) in the same direction as total supply of the good (D) according to geography and season (E) based on tradition and government regulation
1. In one to three paragraphs, explain the effect the price of a good or service has on consumer demand
1. Suppose that countries A and B produce only two goods: cheese and fish. The table below summarizes the average hourly worker productivity for each country and commodity. NUMBER OF KILOGRAMS PRODUCED PER HOUR Country Fish Cheese A 80 40 B 100 20(a) Which country has an absolute advantage in the
3. Which of the following is a basic economic concept that makes mutually beneficial trade possible? (A) Absolute advantage (B) Specialization (C) Trade-offs (D) Scarcity (E) Opportunity cost
2. If a country possesses a skilled workforce and cutting-edge technology, this means that it would (A) have an absolute advantage over many other countries in the production of a variety of goods (B) have a comparative advantage over many other countries in the production of a variety of goods (C)
1. In what term is the opportunity cost of a commodity expressed? (A) Resources (B) Hours of labor (C) Another commodity (D) Gains from trade (E) Money
1. In one to three paragraphs, explain how engaging in trade increases production and consumption.
1. A country produces both servers (capital goods) and smartphones (consumer goods). The PPC below shows how many of each can be produced per week in various combinations, ranging from all servers and no smartphones to no servers and all smartphones.
3. Production at point F on the graph might occur if (A) engineers improved the efficiency of auto production (B) manufacturers decreased production of autos (C) farmers in other countries increased rice production (D) people became willing to pay higher prices for autos (E) families in the country
2. What is the opportunity cost of raising automobile production from 3 million vehicles to 4 million vehicles? (A) 1 million vehicles (B) 2 million vehicles (C) 3 million tons of rice (D) 2 million tons of rice (E) It is impossible to determine the opportunity cost based on the information
1. Which of the following best explains this graph? (A) The graph provides a visual representation of how Hurdlandia shifted production from rice to automobiles over time. (B) The graph illustrates how agriculture and industry compete for resources in Hurdlandia. (C) The graph shows the growth of
1. Explain the purpose of a production possibilities curve and how economists use it.
4. Why is the concept of scarcity important in the field of economics?
3. What is an example of scarcity?
2. How does this concept relate to macroeconomics?
1. What is the definition of scarcity?
1. Use the passage below to answer all parts of the questions that follow. “Some commodities [products] are rising in value, from the effects of taxation, from the scarcity of the raw material of which they are made, or from any other cause which increases the difficulty of production. Others
3. The fundamental economic problem that exists in any society is the (A) number of different mineral resources it has (B) the ratio of goods to services that it produces (C) amount and condition of its capital (D) ratio of scarce resources to unlimited wants (E) ratio of entrepreneurs to consumers
2. Macroeconomists are more likely than microeconomists to study (A) why an individual chooses to buy one computer rather than another (B) why a worker decides to leave one job to take another one (C) how an increase in oil prices affects the number of jobs in a country (D) how a bank evaluates an
1. The term used to describe when a person organizes a business, creating a new product and hoping to make a profit is (A) microeconomics (B) human resources (C) capital resources (D) consumption (E) entrepreneurship
1. In one to three paragraphs, explain the concepts of scarcity and economic resources.

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