Questions and Answers of Foundations Macroeconomics

Suppose a two-person household. Person 1 has h1 units of time available and takes l1 units of leisure time, while person 2 has h2 units of time available and takes l2 units of leisure time.
Suppose that a consumer cannot vary hours of work as he or she chooses. In particular, he or she must choose between working q hours and not working at all, where q > 0. Suppose that dividend
Typically, older workers reduce their hours of work for a period until they retire. How could we capture such an effect in the consumer model in this chapter? Draw a diagram and illustrate how this
Suppose, as in the federal income tax code for Canada, that the representative consumer faces a wage income tax with a standard deduction. That is, the representative consumer pays no tax on wage
In Figure 3.15 we observe that seasonally unadjusted employment is actually quite variable. It is an accepted idea that one of the roles of economic policy is to smooth out fluctuations in seasonally
Consumption of durables is more variable relative to trend than consumption of semi-durables, and consumption of semi-durables is more variable relative to trend than con-sumption of nondurables and
We have measured average labour productivity in this chapter as Y/N, where Y is real GDP and N is employment. The business cycle facts concerning employment relate to how the denominator N comoves
In Canada, transactions among banks and other financial institutions takes place through the Large Value Transfer System (LVTS) operated by the Bank of Canada. During 2015, 8.1 million payments were
Part of gross domestic product consists of production in the so-called FIRE sector (finance, insurance, real estate, and rental and leasing). Value-added is notoriously difficult to measure in this
Consider an economy with a corn producer, some consumers, and a government. In a given year, the corn producer grows 3 million tonnes of corn, and the market price for corn is $50 per tonne. Of the 3
In this chapter, we learned that the quantity of Canadian currency outstanding per Canadian resident was $2026 in 2015. Suppose we were to try to use this number to estimate the amount of output
In some countries, price controls exist on some goods, which set maximum prices at which these goods can be sold. Indeed, Canada experienced a period of wage and price controls in the 1970s, under
Assume an economy with two firms. Firm A produces wheat and firm B produces bread. In a given year, firm A produces 5000 tonnes of wheat, sells 2000 tonnes of wheat to firm B at $30 per tonne,
Assume an economy in which there are two producers: a wheat producer and a bread producer. In a given year, the wheat producer grows 3 million tonnes of wheat, of which 2.5 million tonnes are sold to
Between 2000 and mid-2008, Canada ran a current account surplus. Relate this increase to what happened to exports and imports at the time.
Why do you think the real interest rate was low during the recession in the mid-1970s and during the 2008–2009 recession?
Is there anything you observe in Figure 1.9 that would make you think that increases (decreases) in inflation cause increases (decreases) in the nominal interest rate, as opposed to increases
In Figure 1.7, the unemployment rate in Canada did not change much from 2014 to 2016, but the U.S. unemployment rate continued to fall. Why do you think this happened?Figure 1.7: 10 9. United States
Why do you think the government surplus fell during the recession of 2008-2009? (See Figure 1.6.)Figure 1.6: 4 -2 -6 -8 -10 -12 1960 1980 1990 2000 2010 2020 1970 Year Government Surplus, % of GDP 2.
Consider the following data on real GDP per capita in Canada:a. Calculate the percentage growth rates in real GDP per capita in each of the years 2011 through 2014, from the previous year.b. Now,
Joan, your study partner, has just made the following statement: “A loan is a loan and therefore cannot be an asset.” Is she correct? Why or why not?
You find that real GDP per capita in Burundi is $800 while real GDP per capita in the United States is $50,000. What is misleading about these figures when comparing standards of living?
Is the currency in your pocketbook or wallet a real or a financial asset? Why?
Why was character George Bailey in the film It’s a Wonderful Life right when he stated on the day of a bank run that depositors could not withdraw all their money from the bank?
What are two roles of the financial sector?
As radical economists see it, when it comes to making monetary policy, the Fed consistently puts the interests of bondholders ahead of people seeking work. It regularly moves to protect the value of
Why are large financial institutions considered to be too big to fail? What problem does it create?
Why do some economists believe the Fed needs to unwind monetary policies instituted during the recession? What is the risk in doing so?
Say the marginal tax rate is 30 percent and that government expenditures do not change with output. Say also that the economy is at potential output and that the deficit is $200 billion.a. What is
In Figure 35-2, a foreign government chooses to maintain an equilibrium market exchange rate of U.S. $1.00 per unit of its own currency. Discuss the implications of the government trying to maintain
If a country’s actual exchange rate is 20 units per dollar and its purchasing power parity exchange rate is 25, is its currency under- or overvalued? Explain your answer.
Domestic policy as it relates to a country’s currency is related to the state of the economy.a. Why didn’t the United States have to implement contractionary policy following World War II even
Why are economic statistics incomplete measures of quality of life?
What impact does measuring income per capita using the purchasing power parity approach have on the comparison of incomes between developed and developing countries as opposed to measuring them based
Christians are called to be Christ-like, a "light to lighten the nations" (Luke 2:32).a. In light of the basic biblical norms of justice, righteousness, and stewardship, how should a nation decide
When thinking about development, it is often presented as an analytic exercise, but development policies have very real consequences.a. Who is responsible for economies that fail to develop?b. Who
What is wrong with saying that people in developing countries are worse off than people in the United States?
The Grameen bank is an example of a successful micro credit reform. It focuses its loans on women.a. Why do many of the micro credit policies focus on women rather than men?b. Does your answer in a
Islam considers the interest on loans to be an instrument of oppression of the poor by the wealthy. That is why interest is banned by the Qur'an. Islamic-owned companies do, however, provide
The brief argument for globalization goes something like this. Countries that trade a lot grow quickly and poverty rates decline in rapidly growing countries. Therefore, globalization promotes rapid
What is meant by “the dual economy”?
Why might credentialism be an obstacle to growth?
What are the risks to a developing country of sending an individual to a U.S. college?
Why are politicians so uneasy about discussing the structural problems caused by globalization?
Demonstrate graphically how the following are represented in the globalized AS/AD model for the United States. What happens to the trade deficit in each?a. Foreign wages rise.b. U.S. productivity
What policies are needed to deal with the structural problems caused by globalization?
True or false? Globalization is a one-time event, and thus does not present a problem for the future of the United States. Explain your answer.
True or false? Since globalization causes structural problems, it should be restricted. Explain your answer.
Why does globalization tend to make the distribution of income less equal?
True or false? If you have a job in the nontradable sector, you don’t have to worry about the structural effects of globalization. Explain your answer.
How do structural problems from the aftermath of a financial crisis make policy more difficult?
Why does globalization mask inflation? Demonstrate your answer graphically.
If a country does not run a trade deficit, where does the world supply curve intersect the domestic equilibrium in the AS/AD model?
Beginning with a country that has a trade deficit, demonstrate graphically what will happen to a country’s potential output with globalization if that country’s costs of production fall. Explain
Beginning with a country that has a trade deficit, demonstrate graphically what will happen to a country’s potential output with globalization if that country’s exchange rate falls. Explain your
Structural stagnation was caused by government’s control of the money supply. If policy makers had used gold as its money supply, there would be no structural stagnation. (Austrian)
How does the structural stagnation hypothesis differ from secular stagnation theory?
If the $3 trillion the United States had spent in the stimulus package after the 2008 recession had gone into a safety net for the least well off, how much of a safety net could be provided? See the
Policy has focused too much on GDP and output. The most important aspects of life are not economic but spiritual, and the current slowdown provides our country with a chance to reorder its
Using the accompanying graph demonstrate an economy whose output declines by 4 percent in year 2 and returns to its trend the following year.a. By what dollar amount did output decline during the
If any realistic solution to the structural stagnation problem involves both tax increases and entitlement cuts, why do both sides have such a difficult time coming to a compromise that will deal
If we had followed reasonable trade policies and required countries that trade with us to have fair labor practices and pay a living wage, we would not have the problems caused by globalization.
Why is the underlying growth trend important for policy?
Since the growth rate is of central importance to policy, how can one decide who is right about what the trend growth rate for policy should be?
A country that can print money can never have a budget deficit that is too high. Discuss. (Post-Keynesian)
How is structural stagnation different from a normal downturn?
Globalization has pulled hundreds of millions of people out of poverty in China and India. How should that gain be weighed against structural changes that globalization requires in the United States?
Structural stagnation is simply a way to foist more of the burden of supporting our society on the poor by the rich. Discuss. (Radical)
When more and more women entered the labor force in the 1970s and 1980s, the economy’s potential output rose.a. To the extent that real output rose because of their entry into the labor market,
Fill in the missing values in the table below: Nominal Interest Real Interest Rate Inflation Řate 4 3 12 |
Below are nominal GDP and GDP deflators for four years.a. Calculate real GDP in each year.b. Did the percentage change in nominal GDP exceed the percentage change in real GDP in any of the last three
If an economy has a trade surplus, is domestic production higher or lower than domestic expenditures? Explain your answer.
What is the largest component of aggregate income for most countries?
If the government increases transfer payments, what happens to aggregate output?
Unlike GDP, the Genuine Progress Indicator measures the costs as well as the benefits of economic growth by accounting for how production and consumption create social ills such as inequality and
If you add up all the transactions in an economy, do you arrive at GDP, GNP, or something else?
In the early 2000s, some people, part of a renewed “Simplicity Movement,” felt that accumulating material things reduced their happiness. Assuming they are truly happier with fewer material
The government spends far too much money collecting and organizing statistics. If those statistics were necessary, the private market would collect them.a. Explain the sense in which the above
In the expenditure approach of GDP, should G (government purchases) be taken into account within the calculation the same way C (consumption) and I (investment) are measured? If not, is there
Explain the sense in which GDP accounting is an institution (see the Oxford Dictionary of the English Language for a precise definition of an institution).a. How does GDP as an institution shape our
How do wealth accounts differ from national income accounts?
What’s the relationship between a stock concept and a flow concept?
People’s perception of inflation often differs from actual inflation.a. List five goods that you buy relatively frequently.b. Looking in old newspapers (found in the library on microfiche), locate
What expenditure category of production is largest for most countries?
Find consumption expenditures (as a percentage of GDP) for the following countries and explain what accounts for the differences. (Requires research.)a. Mexicob. Thailandc. Polandd. Nigeriae. Kuwait
What type of unemployment is best studied within the long-run framework?
What type of unemployment is best studied under the short-run framework?
Suppose the total labor force is 155 million of a possible 244 million working-age adults. The total number of unemployed is 13 million. What is the standard unemployment rate?
Does the standard unemployment rate underestimate or overestimate the unemployment problem? Explain.
What has happened to growth rates in Western Europe and the United States in recent years?
How does the U.S. per capita growth rate since 1940 compare to growth rates in other areas around the world?
Which has the more pessimistic view of the problems facing the United States economy: structural stagnation theory or conventional business-cycle theory?
How does a structural stagnation differ from a recession?
What are two ways in which long-term economic growth is measured?
In what way is potential output not purely a physical measure based on the number of workers and existing factories?
In natural science, when theories fail, as conventional macroeconomics failed in the financial crisis and its aftermath, they are overthrown and replaced by new theories. Why has it been so difficult
Is structural stagnation a Keynesian or a Classical theory?
As the problem of inflation grew in the 1970s, did Keynesian or Classical economics grow in importance?
The text presents the target rate of unemployment as being about 5 percent. William Vickrey, a Nobel Prize–winning economist, argued that the target unemployment rate should be seen as being
Since the Great Depression, the United States has been able to avoid severe economic downturns.a. What macroeconomic policies do you think have allowed us to avoid another Great Depression?b. Would

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