Foundations Of Microeconomics 6th Edition Robin Bade, Michael Parkin - Solutions

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Consider the following graph, where the equilibrium world interest rate is 4% and the domestic economy is currently running a trade surplus. What would be the effect of a decrease in government expenditure in the domestic economy? Use the graph to determine changes in the domestic economy
The following graph represents the two large economies (domestic and rest of the world).For each level of the interest rate, calculate the value of the domestic economy’s net exports and foreign lending. What would be the equilibrium world interest rate?
What is the effect of a fall in domestic saving on the trade surplus, investment, and interest rates in both the domestic and foreign economies?
How will a fall in domestic investment affect the trade surplus and net capital outflows in the domestic economy, the trade deficit and capital inflows in the rest of the world, investment in both economies, and the world real interest rate?
Considering the world as two large open economies, a domestic economy and the rest of the world, what condition is required for goods market equilibrium? How is this condition achieved?
Comment on the effect of an increase in the government budget surplus (or a decrease in the government budget deficit) on the real interest rate, desired saving, and net exports for aa) large open economy.b) small open economy
Comment on the effect of a decrease in autonomous investment on wealth when the economy can be considered aa) closed economy.b) small open economy.Large versus Small Open Economies
Consider a small open economy that is currently running a trade surplus. Answer the following questions using a graphic representation of desired saving and investment in the small open economy:a) Is the world real interest rate higher or lower than the real interest rate that would prevail if this
Consider the following diagram of a small open economy:a) Calculate net exports and the capital outflow when the world real interest rate is 7%.b) Calculate net exports and the capital outflow when the world real interest rate is 5%.
Suppose Japan has a GDP of $5 trillion, and that its national savings rate is 25%. Assuming Japan is an open economy,a) calculate Japan’s investment if net exports are 1% of GDP.b) calculate Japan’s exports if imports are valued at $650 billion
On March 23, 2010, President Obama signed into law a major overhaul of the U.S. healthcare system. The Congressional Budget Office estimated that this legislation will reduce the U.S. government budget deficit by around$140 billion for the next ten years. Comment on the effect of this legislation
The financial crisis that hit the United States first and then the world economy starting in fall 2007 meant that the future prospects of many firms looked gloomy at best for some time. Comment on the effect of a recession on the investment curve (only) and on the level of savings, investment, and
Consider the (rather implausible) scenario in which the U.S. government phases out all Social Security transfers to retirees. Assuming the goods market is in equilibrium, graph the new saving curve and comment on the effects on the level of saving, investment, and the real interest rate.
Assume you have saved $20,000 and that you are considering a couple of options. One of them is to use these funds as a down payment to buy a newly built house. The other one is to buy a U.S. savings bond.a) Which option will add to the economy’s capital stock and which one will not?Explain why.b)
How are the effects of changes in domestic saving and investment for large open economies similar to those for small open economies and closed economies?
What is the effect of an increase in domestic saving or domestic investment on the trade balance and net capital outflows?Large Versus Small Open Economies
What determines the world real interest rate?Why must the domestic real interest rate be the same as the world rate?Saving, Investment, and the Trade Balance in a Small Open Economy
Distinguish between a closed and an open economy. How do the conditions required for goods market equilibrium differ in the two types of economies?
What is crowding out?Saving, Investment, and Goods Market Equilibrium in an Open Economy
What determines the desired amounts of national saving and investment? What relation between desired saving and desired investment is required for goods market equilibrium and how is this condition reached?Response to Changes in Saving and Investment in a Closed Economy
Suppose that the following Cobb-Douglas production function represents the economy of Chile: . Assuming Chile’s national income equals $170 billion, calculate real labor income and real capital income.
Suppose that you work at the statistical office of a given country. The following graph plots estimates of the labor and capital income shares for that country over time.Your boss suggests that a Cobb-Douglas production function could be a good representation of that country’s income. Is your
Suppose an economy has total income of$8 trillion, where total labor income equals$6 trillion and capital income equals $2 trillion. Which are the values of the exponents on labor and capital using a Cobb-Douglas production function?
Assume that the marginal product of capital is given by the following expression:(K is measured is trillions).a) Graph the demand curve for capital and find the equilibrium real rental rate of capital if capital supply is ten trillion.b) Suppose a positive supply shock hits the economy, and is now
Assume that the marginal product of labor is given by the following expression:(L is measured in millions).a) What is the marginal product of labor when L = 80 million?MPL = 52 L0.3b) Determine the equilibrium real wage if the labor supply equals 100 million workers.
A manufacturer of toys is employing fifty workers and using fifteen pieces of equipment to assemble toys. Currently, the marginal product of labor is $5 and the marginal product of capital is $25. Assuming the market prices for labor and capital are $12 and $20 respectively, answer the following:a)
The figure below represents the production function relating output to capital in the United States. Suppose unusual weather conditions result in a higher than expected crop yield in the midwestern states.a) Draw the new production function in the same graph.b) What is the effect on the marginal
Suppose Equation 2 represents the production function of both Mexico and Spain.Use the following information to answer the next questions.Y = F(K, L) = AK0.4L1.0 F(2K, 2L) = 2F(K, L)Y = F(K, L) = A(2K + 3L)a) Calculate total factor productivity for both countries using Equation 3.PROBLEMS All
Consider the following production function:a) Calculate the marginal product of labor.b) Does this production function exhibit diminishing marginal product of labor?
Consider the following production function. Does this production function exhibit constant returns to scale?(Hint: Replace K and L by 2K and 2L respectively and check if .)
What determines the distribution of national income between payments to labor and capital?
Explain how an equilibrium factor price is established in a factor market if there is either an excess demand for the factor or an excess supply of the factor.
Suppose you take out a loan at your local bank and the nominal interest rate is 12%. The bank expects the inflation rate to be 4% during the life of your loan.a) What is the bank’s ex ante real interest rate?b) What is the bank’s ex post real interest rate if the inflation rate happens to be
Refer to the previous exercise for data and assume that three million unemployed individuals become “discouraged” and decide not to look for a job anymore. Calculate the new unemployment rate for Brazil.Measuring Interest Rates
Suppose that Apple Inc. manufactures a new generation of iPhones that include the ability to know if your interlocutor is lying.Assuming that the price of this good will be higher than the currently marketed iPhone, comment on the CPI’s capability to correctly measure the corresponding change in
Based on surveys conducted by the BLS, the CPI basket assigns a weight of approximately 15% to transportation spending. Suppose you walk to your workplace every day and you do not use any other means of transportation.a) With everything else the same, if the price of transportation services
Mario and Lucia are discussing current economic data printed in the morning newspaper.Mario is quite happy about the fact that nominal GDP has increased at a steady rate for the last two years and asserts that this is very good news, since it means that they are better off than a few years ago.
Use the following table based on BEA data from the fourth quarter of 2009 (billions of dollars) to calculate itemsa) and b):a) Other incomeb) Net factor income Compensation of employees 7,773 Corporate profits 1,468 National income 12,466 Gross domestic product 14,453 Gross national product 14,560
Consider the expenditure approach to the measurement of GDP. For each of the following situations, decide if that transaction will affect GDP and if so, in which expenditure category will it be included.a) A household purchase of a home built in 1985.b) A household purchase of a newly built
The inhabitants of Pandora value their environment (e.g., forests, springs, breathable air, etc.) twice as much as the inhabitants of Utopia. Suppose that the value added for all goods and services increases by the same amount in both countries, but has a negative effect on the environment (e.g.,
What does the unemployment rate measure, who calculates it, and how is it calculated?Measuring Interest Rates
What is the consumer price index, who calculates it, and how is it calculated and used to measure the inflation rate?Measuring Unemployment
Describe the GDP deflator and the personal consumption expenditure deflator.Measuring Inflation
What are the main types of income included in national income? Why doesn’t national income equal GDP?Real Versus Nominal GDP
Identify the four major expenditure components in the national income identity and discuss the major subcategories of each component.Measuring GDP: The Income Approach
Why are capital goods and inventories treated differently from intermediate goods in the production approach to measuring GDP?Measuring GDP: The Expenditure Approach
How is GDP defined in the production approach to measuring economic activity?Explain how economists at the U.S.Department of Commerce’s Bureau of Economic Analysis account for the production of goods and services that are not sold in markets, the production of intermediate goods and services, and
Consider the difficult task of raising children. One of the most widely recognized challenges of such activity is to properly balance rules and ad-hoc decisions. Constantly breaking rules might send the wrong message to a kid, while strictly enforcing rules every time might result in excessive
The Federal Reserve took swift action to help restore the United States financial system after the subprime financial crisis started in fall 2007. The various instruments used by the Federal Reserve were highly criticized for fueling expectations of higher inflation rates.What is the effect of
A Council of Economic Advisers post on January 15, 2010, stated that “The American Recovery and Reinvestment Act [...] was the boldest countercyclical fiscal action in American history. [...] the Administration is committed to taking every responsible measure to spur job creation.” Comment on
The United States has been experiencing very low or even negative savings rate during the recent past. If this situation persists, what does it means for future generations?
The recent subprime financial crisis is a good example of how important the financial system is for the performance of any economy.Usually the immediate effects of a financial crisis include a decrease in asset prices, business failures, and more difficult access to credit for both firms and
Assume that a civil war erupts in a given country, creating chaos and destroying most of the economy’s infrastructure (e.g., roads, businesses, and telecommunications).a) What would be the effect on economic growth?b) How do you think a civil war affects incentives to invest in that country?
During the 1970s most Latin American countries ran huge budget deficits. As their governments resorted to printing money (increasing the money supply) to pay for these deficits, very high inflation rates resulted. As a consequence, real GDP declined or remained constant during the 1980s. Comment on
Unemployment is a very important topic in macroeconomics. A high unemployment rate means that a lot of individuals willing to work cannot find a job. This is bad for the economy, as some resources (i.e., labor) remain idle.Comment on the effect that being unemployed has on an individual.
The following table shows Spain’s (annualized) quarterly real GDP growth rates for the 2007–2009 period. (Roman numbers refer to quarters.)a) Plot real GDP growth rate in a graph. Can you identify a trend in the data?b) Based on the data shown, can you identify the beginning (i.e., the year and
Suppose your model predicts that overweight children have an 80% higher risk of suffering from diabetes in their adult life. If data shows that overweight children do not suffer from diabetes as predicted by your model (i.e., data shows a lower than 80% probability), which would your next step be?
Sciences other than economics also design models to explain the behavior of endogenous variables based on assumptions about the environment and changes in exogenous variables. Suppose you have to design a model that links child obesity and diabetes.a) Which one would be the exogenous variable?
What happens to the overall level of prices during periods of inflation and deflation?Macroeconomic Policy
How much is $50 to be received 50 years from now worth if the interest rate is 9 percent? (Use Table A28-1.)
How much is $50 to be received 50 years from now worth if the interest rate is 6 percent? (Use Table A28-1.)
Use the following information to work Problems 5 and 6.A new swing for female golfers Callaway and Nike, two of the leading golf-equipment manufacturers, recently released new clubs designed for women. They are the hottest innovation in golf.Source: Time, April 21, 2008 Explain why the economic
Use the following information to work Problems 5 and 6. A new swing for female golfers Callaway and Nike, two of the leading golf-equipment manufacturers, recently released new clubs designed for women. They are the hottest innovation in golf. Time, April 21, 2008, How are Callaway and Nike
If the FTC raises the minimum wage by $8 a week, what wage per week will low-skilled workers be paid? Will the outcome be efficient? Use the following information to work Problems 6 and 7.Australian unions lobbying for $21 wage rise for lowest paid Australia’s Fair Trade Commission (FTC) sets the
In the 10th century B.C., King Solomon brought the Israelites into great economic wealth through specialization and trade. It was difficult when faced with the practices and beliefs of their trading partners, however, for Israel to maintain its identity as a people of one God. King Solomon, for
Your income is $40,000 per year; your expenditures are $45,000. You spend $10,000 of that $45,000 for tuition. Is your budget in deficit or surplus? Why?
Spend one day living like someone in a developing country. Eat almost nothing and work lifting stones for 10 hours. Then, that same evening, study this chapter and contemplate the bootstrap strategy of development.
Interview a foreign student in your class or school. Ask about each of the seven obstacles to economic development and how his or her country is trying to overcome them.
Choose any developing country and answer the following questions about it:a. What is its level of per capita income?b. What is its growth potential?c. What is the exchange rate of its currency in relation to the U.S. dollar?d. What policy suggestions might you make to the country?
Economists Edward Lazear and Robert Michael calculated that the average family spends two and a half times as much on each adult as they do on each child.a. Does this mean that children are deprived and that the distribution is unfair?b. Do you think these percentages change with family income? If
List one recent choice you made and explain why you made the choice in terms of marginal benefits and marginal costs.
A deal between United Continental and Air Canada looks like an “effective merger” of all of their Canadian and U.S. operations. The deal would create a monopoly on 10 major high-demand, transborder routes and substantially reduce competition on nine others. Prices would be higher and choice
Comcast offers faster home broadband in some U.S. cities Comcast, the largest U.S. internet-service provider, introduced a new home broadband package called Extreme 105, which can download files many times faster than most connections.CNN, April 14, 2011 How does Comcast determine the price of its
Condé Nast Publications launched its monthly business magazine Portfolio less than two years ago. In late 2008, Condé Nast cut its payroll and advertising budgets by an average of 5 percent. Portfolio was hit with the biggest cuts.Recently, Condé Nast shut down Portfolio.The Wall Street Journal,
Americans like to pour their own laundry detergent, but Dial plans to launch Purex Complete, a “3-in-1” laundry sheet embedded with detergent, fabric softener, and antistatic agents and in an easy to use container. Only about 50 percent of consumers currently use softener and antistatic agents
Apple developing new iPad Apple Inc. reported blowout earnings for the quarter ended June 25, due in part to the popularity of its iPad. The company sold 9. 3 million units in the quarter, nearly triple what it sold a year earlier. Still, its next generation iPad is expected later in 2011.The Wall
Thailand, the world’s largest rice exporter, proposed that the Asian rice exporters (Thailand, Cambodia, Laos, and Myanmar) form a cartel. The Philippines said it was a bad idea.CNN, May 6, 2008 Explain how an Asian profit-maximizing rice cartel would influence the global market for rice and the
Promotions of the new Internet Explorer IE8 say it is faster, more reliable, and more secure than rival browsers. One reviewer noted that IE8 is slower than Firefox, but if you’re a light-duty user and attracted to the new IE’s strong suite of fresh features, you might prefer it to Firefox.
Volkswagen opened the $1 billion plant in Chattanooga in May and hired its 2,000th employee there in July. Our hourly wage starts at $14.50 per hour, which is very competitive and we have great benefits.The Wall Street Journal, August 1, 2011 If this plant’s workers join the union, explain how
Wealth gap widens between whites and minorities The median wealth of white U.S. households in 2009 was $113,149, compared with $6,325 for Hispanics and $5,677 for blacks. Those ratios, roughly 20 to 1 for blacks and 18 to 1 for Hispanics, far exceed the low mark of 7 to 1 for both groups reached in
Tupperware’s CFO says rising oil prices would cause the company to pay $15 million more for resin, which is based on oil, than it did a year ago. Resin prices are closely tied to the price of oil, which peaked at $114 a barrel in April. The Wall Street Journal, June 27, 2011, If the government
Farmers want the dairy industry to guarantee a minimum (powdered) milk price of 300 euros a ton—against 210 euros a ton this month. Max Bottier, a dairy farmer in Normandy, said that he needs 300 euros a ton to break even.The Times, May 26, 2009, If a support price for milk is set at 300 euros a
Faced with a huge budget deficit, Illinois Governor Patrick Quinn has proposed a 50 percent increase in the personal income tax rate. The Wall Street Journal, March 20, 2009 Explain the effects of the tax hike on labor income. Will workers or employers pay most of the tax increase? How will the
GM’s restructuring plan will close 11 plants and reduce output at 3 others. boston.com, May 31, 2009 Explain the effects of the restructuring plan on GM’s total fixed cost, total variable cost, short-run ATC curve, and LRAC curve.
Gap will focus on smaller scale stores Gap has too many 12,500 square feet stores. The target store size is 6,000 to 10,000 square feet, so Gap plans to combine previously separate stores. Some Gap Body, Gap Adult, and Gap Kids stores will be combined in one store. CNN, June 10, 2008, Thinking of a
Corn prices have surged 80 percent in the past year, driven up by a global rush for grains to feed people and livestock and to make biofuel. USA Today, June 26, 2008 Explain why the price of corn surged. Explain how marginal revenue, the marginal cost of producing corn, and the farm’s economic
Is the number of copies printing the efficient quantity? Explain your answer. Township is a small, isolated community served by one newspaper that can meet the market demand at a lower cost than two or more newspapers could. The Township Gazette is the only source of news. Figure 1 shows the
In the long run, how will the number of pizza producers change? What are the excess capacity and the deadweight loss created? Explain your answer.Use the following information to work Problems 5 and 6.Use Figure 1, which shows the demand curve, marginal revenue curve, and cost curves of La Bella
What are the distinguishing features of oligopoly?
Business Week reported that Energizer is gaining market share against competitor Duracell and its profit is rising despite the sharp rise in the price of zinc, a key battery ingredient. In what type of market are batteries sold?Explain your answer.
What is the equilibrium of the game if Bud and Wise play it repeatedly?Bud and Wise are the only two producers of a New Age beer, which is designed to displace root beer. Bud and Wise are trying to work out the quantity to produce.They know that if:• Both limit production to 10,000 gallons a day,
A labor union organizes fast-food workers and gets a law passed that raises the minimum age and lowers the maximum age at which a person can work in the fast-food industry.In Greenville, where fast-food outlets hire teenagers and seniors, the following events occur one at a time and other things
Draw a graph to show the change in the land market from 1969 to 2007.Explain how the moratorium will influence the land market in 2008.Use the following information to work Problems 8 and 9.Unwinding in the capital of the Woodstock nation In August 1969, in Bethel, N.Y., some 400,000 people swarmed
Draw a graph to show the Bethel labor market in 2007. Explain how the moratorium will influence the Bethel labor market in 2008.Use the following information to work Problems 8 and 9.Unwinding in the capital of the Woodstock nation In August 1969, in Bethel, N.Y., some 400,000 people swarmed to Max
Explain why, despite the higher weekly wage, more people are employed as managers and professionals than as salespeople.In the United States in 2010, 30 million people had full-time managerial and professional jobs that paid an average of $1,200 a week and 10 million people had full-time sales
Calculate the income shares of each quintile after tax and redistribution.Table 1 shows the distribution of market income in an economy and Table 2 shows how the government taxes and redistributes income.Table 1 TABLE 1 MARKET INCOME Households Lowest 20 percent Second 20 percent Third 20 percent
Education, household size, household type (marital status), age of householder, race, and region of residence all influence the degree of income inequality. Rank these influences in order of importance from most to least important.
Draw the demand and supply curves for these two types of labor. What feature of your graph accounts for the differences in the two wage rates and what feature accounts for the differences in the quantities employed of these two types of labor?Use the following information to work Problems 5 and
Suppose that a government law required both groups of workers to be paid$22.50 an hour. Draw a graph to illustrate what would happen to the quantities employed of the two types of labor.Use the following information to work Problems 5 and 6.In the United States in 2002, 130,000 aircraft mechanics
How many copies of the Township Gazette are printed each day and what is the price of the Township Gazette? Township is a small, isolated community served by one newspaper that can meet the market demand at a lower cost than two or more newspapers could.The Township Gazette is the only source of

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Foundations Of Microeconomics 6th Edition Robin Bade, Michael Parkin - Solutions

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