Questions and Answers of Foundations Macroeconomics

Thorstein Veblen wrote that vested interests are those seeking "something for nothing." In this chapter, you learned how technology shapes the economy's production possibilities over time so that a
In two hours Just Born Candies can produce 30,000 Peeps or 90,000 Mike and Ikes or any combination in between.a. What is the trade-off between Peeps and Mike and Ikes?b. Draw a production possibility
It has been said that “capitalism robs us of our sexuality and sells it back to us.”a. Does sex sell?b. Is sex used to sell goods from Land Rovers to tissue paper?c. Who, if anyone, is exploited
Design a grade production possibility table and curve that demonstrates a rising trade-off as the grade in each subject rises.
Research shows that after-school jobs are highly correlated with decreases in grade point averages. Those who work 1 to 10 hours get a 3.0 GPA and those who work 21 hours or more have a 2.7 GPA.
The text makes it look as if maximizing output is the goal of society.a. Is maximizing output the goal of society?b. If the country is a Christian country, should it be?c. If not, what should it be?
Is it possible to use objective economic analysis as a basis for government planning? (Austrian)
Why might government be less capable than the market to do good? (Austrian)
State whether the following statements belong in positive economics, normative economics, or the art of economics.a. In a market, when quantity supplied exceeds quantity demanded, price tends to
Tyler Cowen, an economist at George Mason University, presents an interesting case that pits the market against legal and social forces. The case involves payola-the payment of money to disk jockeys
About 100,000 individuals in the United States are waiting for organ transplants, and at an appropriate price many individuals would be willing to supply organs. Given those facts, should human
Say that divorce is made illegal unless both parties agree to remarry at the time of the divorce. If such a law were enacted, would you expect a divorced-person market for remarriage to develop? On
Radical economists believe that all of economics, like all theorizing or storytelling, is value-laden. Theories and stories reflect the values of those who compose them and tell them. For instance,
Economics is about strategic thinking, and the strategies can get very complicated. Suppose Marge kisses Mike and asks whether he liked it. She'd like Mike to answer "yes" and she'd like that answer
In October of 2004, the supply of flu vaccine fell by over 50 percent when a major producer of the vaccine was shut down. The result was that the vaccine had to be rationed, with a priority schedule
Economic institutions are “habits of thought” that organize society.a. In what way might patriarchy be an institution and how might it influence the labor market?b. Does the free market or
In “Rational Choice with Passion: Virtue in a Model of Rational Addiction,” Andrew M. Yuengert of Pepperdine University argues that there is a conflict between reason and passion.a. What might
To fight unemployment and close a recessionary gap, the Fed ______. A. Stimulates aggregate demand by lowering the federal funds rate, which increases the quantity of money B. Stimulates
The Fed fights inflation by _______. A. Lowering the federal funds rate, which lowers interest rates and decreases aggregate demand B. Raising the federal funds rate, which raises interest
The Fed’s monetary policy instrument is the ________. A. Inflation rate B. Federal funds rate C. Long-term interest rate D. Monetary base
The Fed’s operational goals include ________. A. A core inflation rate between 1 and 2 percent a year and an output gap as small as possible B. An economic growth rate of 3 percent a year
The Fed’s “dual mandate” is to achieve ________. A. A government budget surplus and low interest rates B. Low inflation and maximum employment C. A stable quantity of money and
What is the problem that might arise if the Fed keeps the interest rate too low for too long?Despite U.S. job creation exceeding forecasts in July, experts believe that with weak output growth, the
Explain why the Fed might be cautious about raising interest rates despite strong jobs growth. Despite U.S. job creation exceeding forecasts in July, experts believe that with weak output
Suppose that inflation is rising toward 5 percent a year, and the Fed, Congress, and the White House are discussing ways of containing inflation without damaging employment and output. The President
What happens in Freezone if the central bank lowers the federal funds rate? Do you recommend that the central bank lower the interest rate? Why? Figure 17.3 shows the aggregate demand curve, AD,
What happens in Free zone if the central bank lowers the federal funds rate? Do you recommend that the central bank lower the interest rate? Why? Figure 17.3 shows the aggregate demand curve,
What do you predict will happen in Freezone if the central bank takes no monetary policy actions? What monetary policy action would you advise the central bank to take and what do you predict will be
What are the price level and real GDP? Does Free zone have an unemployment problem or an inflation problem? Why?Figure 17.3 shows the aggregate demand curve, AD, and the short-run aggregate supply
Compare and contrast the Fed’s monetary policy response to the surge in desired reserves and currency holdings in the Great Depression and the 2008–2009 recession.
In which episode, the Great Depression or the 2008–2009 recession, did the banks’ desired reserve ratio and the currency drain ratio increase by the larger amount and the money multiplier fall by
Read Eye on the Fed in a Crisis on p. 434. What are the key differences in monetary policy between the Great Depression and the slow recovery from the 2008–2009 recession?
Premature to rule out an interest rate increase this year Federal Reserve Bank of New York President William Dudley says that in the current state of the economy, it would be worse for the Fed to
Suppose that a drought decreases potential GDP in Artica to $250 billion. Explain what happens if the central bank lowers the federal funds rate. Do you recommend that the central bank lower the
What do you predict will happen if the central bank takes no monetary policy actions? What monetary policy action would you advise the central bank to take and what do you predict will be the effect
What are the price level and real GDP? Does Artica have an unemployment problem or an inflation problem? Why?Figure 17.2 shows the aggregate demand curve, AD, and the short-run aggregate supply
What is financial stability? What actions has the Fed taken since 2007 in pursuit of financial stability? Use a graph to illustrate the effects of the Fed’s actions.
What is the Fed’s “dual mandate” for the conduct of monetary policy? What are the means to achieving the goals of the dual mandate?
Central bankers warn of QE threat to budget discipline, the German and Dutch central bank presidents warn that quantitative easing and low interest rates make discipline in government budgeting more
A tax cut increases _______.A. Aggregate demand but has no effect on aggregate supplyB. Aggregate demand because it increases disposable income and increases aggregate supply because it is an
What are the levels of employment and potential GDP in LowTaxLand, what is the real wage rate paid by employers, and what is the after-tax real wage rate received by workers? The first table to
Suppose that the U.S. government increases its expenditure on highways and bridges by $100 billion. Explain the effect that this expenditure would have on needs-tested spending and the government’s
The global economy is in bad shape and getting worse, the world economy is growing slowly and productive public investment that boosts both the demand and supply sides of the economy is not being
What are the levels of employment and potential GDP in Oil Patch, what is the real wage rate paid by employers, and what is the after-tax real wage rate received by workers? OilPatch is a
The U.S. economy is in recession and has a large recessionary gap. Describe what automatic fiscal policy might occur. Describe a fiscal stimulus that could be used that would not increase the budget
Classify the following items as automatic fiscal policy actions, discretionary fiscal policy actions, or neither.An increase in expenditure on homeland securityAn increase in unemployment benefits
Suppose that in an economy, investment is $400 billion, saving is $400 billion, tax revenues are $500 billion, exports are $300 billion, and imports are $200 billion. Calculate government expenditure
Draw two short-run Phillips curves and a long-run Phillips curve for Brazil. On your graph, place two points, one for Brazil in 2014 and one for the central bank’s expectations about the outcome in
According to Okun’s Law, how would you expect Brazil’s fall in real GDP (negative growth rate) to change the unemployment rate?Use the following information to work Brazilian inflation and growth
The inflation rate is 6 percent a year, the unemployment rate is 4 percent, and the economy is at full employment. The Fed announces that it intends to slow the money growth rate to keep the
The inflation rate is 3 percent a year, and the quantity of money is growing at a pace that will maintain the inflation rate at 3 percent a year. The natural unemployment rate is 4 percent, and the
Explain the relationship between the long-run Phillips curve and potential GDP and the short-run Phillips curve and the aggregate supply curve.
In 2017, the outcome turned out to be row D of the left side table. Plot the short-run Phillips curve for 2018 and mark the points A, B, C, and D that correspond to the data in the right part of the
Plot the short-run Phillips curve and aggregate supply curve for 2017 and mark the points A, B, C, and D on each that correspond to the data in the left part of the table.The left part of the table
In an economy, the natural unemployment rate is 4 percent and the expected inflation rate is 3 percent a year. Draw a graph of the short-run and long-run Phillips curves that display this
Suppose that the U.S. economy fully recovers from the 2008-2009 recession but the natural unemployment rate has risen to 8 percent and the expected inflation rate is zero. How would the short-run and
Read Eye on the Tradeoff on p. 391. How can the Phillips curve account for the combination of inflation and unemployment in 2015? Do the data for that year mean that there is no tradeoff?
If the government replaces the central bank governor and pursues faster growth by increasing aggregate demand, how will inflation and unemployment change? How will India’s Phillips curves
Sketch India’s short-run and long-run Phillips curves if the expected inflation rate rises from 5 percent per year to 7 percent per year and the natural unemployment rate is constant at 8
From 1991 until 2013, the average inflation rate in Russia was 151.48 percent. Explain how a history of rapid inflation might influence the short-run and long-run Phillips curves in Russia.
The inflation rate is 2 percent a year, and the quantity of money is growing at a pace that will maintain that inflation rate. The natural unemployment rate is 7 percent, and the current unemployment
Suppose that the natural unemployment rate is 7 percent and the expected inflation rate in 2017 is 3 percent a year. If the inflation rate is expected to rise to 5 percent a year in 2018, explain how
Suppose that the natural unemployment rate is 7 percent in 2016 and it de-creases to 6 percent in 2017 with no change in expected inflation. Explain how the short-run and long-run tradeoffs change.
What is Okun€™s Law? If the natural unemployment rate is 6 percent, does this economy behave in accordance with Okun€™s Law? Data 2018 Price level (2017 100) Data 2019 Real GDP
Suppose that the U.S. government puts an import quota on roses. Show on your graph the effect on the quantity bought by U.S. consumers, the quantity produced by U.S. rose growers, and the quantity
Which country has a comparative advantage in producing shoes? With international trade, explain which country would export shoes and how the price of shoes in the importing country and the quantity
What actions might the Fed take in the foreign exchange market? Could these actions persist in the long run? Would the Fed’s actions prevent interest rate parity from being achieved? Why or why
The U.S. dollar depreciates. Explain which of the following events could have caused the depreciation and why. The Fed intervened in the foreign exchange market. Did the Fed buy or sell U.S.
U.S. trade gap widened in June due to import surge, the U.S. trade deficit soared in June to $44.5 billion. Higher oil prices and increased purchases of pharmaceuticals and smart phones swelled
Is Antarctica a debtor nation or a creditor nation? Are its international assets increasing or decreasing? Is Antarctica borrowing to finance investment or consumption? Explain. The table gives
Calculate Antarctica€™s current account balance, capital and financial account balance, and the increase in Antarctica€™s official reserves. The table gives some data that
A monetary policy rule is ______ to discretionary monetary policy because______. A. Superior; discretion limits what the Fed can do in a financial crisis B. Inferior; a rule makes it harder
The Fed’s choice of monetary policy strategy is ______. A. Discretionary monetary policy B. The k-percent rule for money growth C. Adjusting the federal funds rate to best fulfill
The people who support restricted international trade say that ______.A. Protection saves jobs, in both the U.S. and foreign economiesB. U.S. firms won’t be able to compete with low-wage foreign
If Korea imposes an import quota on U.S. oranges, losers include Korean _______ of oranges and U.S. ______ of oranges.A. Consumers; consumersB. Consumers; producersC. Producers; consumersD.
The U.S. tariff on paper ____ the U.S. price of paper, _____ U.S. production of paper and _______the U.S. gains from tradeA. Raises; increases; increasesB. Doesn’t change; increases; increasesC.
With free trade between China and the United States, the winners are ___________ and the losers are _______.A. U.S. consumers of U.S. imports; U.S. producers of the U.S. import goodB. China’s
With free trade between the United States and Canada, the United States exports tomatoes and Canada exports maple syrup. U.S. consumers ______A. Of tomatoes gain and Canadian consumers of maple syrup
A country will export wheat if, with no international trade, ______.A. It produces a surplus of wheatB. Its opportunity cost of producing wheat is below the world priceC. Its domestic price of wheat
The fundamental force driving international trade is comparative _______.A. Advantage: a country exports those goods that have high pricesB. Abundance: the country that produces more than it needs
What argument might be used to encourage the government of Mexico to introduce a $2,000 tariff on car imports from the United States? Who will gain and who will lose as a result of
If the government of Mexico introduces an import quota of 4 million cars a year, what will be the price of a car in Mexico, the quantity of cars produced in Mexico, and the quantity
If the government of Mexico introduces a $2,000 tariff on car imports, what will be the price of a car in Mexico, the quantity of cars produced in Mexico, the quantity imported into Mexico, and the
The United States exports services and imports coffee. Why does the United States gain from exporting services and importing coffee? How do economists measure the net gain from this international
Suppose that the world price of sugar is 20 cents a pound, Brazil does not trade internationally, and the equilibrium price of sugar in Brazil is 10 cents a pound. Brazil then begins to trade
The United States exports wheat. Draw a graph to illustrate the U.S. wheat market if there is free international trade in wheat. On your graph, mark the price of wheat and the quantities bought,
Draw a graph of the U.S. market for textiles and show how removing a tariff would change the quantities produced, bought, and imported. Explain why the gains exceed the losses.The future of
Explain who in the United States would gain and who might lose from dismantling trade barriers between the United States and India.The future of U.S.–India relations, in May 2009, Secretary of
Read Eye on Globalization on p. 461 and draw two graphs to show how U.S. consumers gain from iPads manufactured in China and why Chinese workers also gain.
Explain and illustrate with a graph the effects of the central bank of Brazil trying to lower the inflation rate by unexpectedly slowing the money growth rate. Explain how the unemployment rate will
The short-run Phillips curve shows that, other things remaining the same, ________. A. An increase in expected inflation will lower the unemployment rate B. A fall in unemployment will
The long-run Phillips curve _______A. Is a horizontal curve at the expected inflation rate B. Is a vertical curve at the natural unemployment rate C. Slopes downward as the inflation rate
The short-run Phillips curve intersects the long-run Phillips curve at _______. A. The expected inflation rate and the current unemployment rate B. The current inflation rate and the
An increase in the expected inflation rate, other things remaining the same, ________. A. Shifts the short-run Phillips curve upward B. Creates a movement up along the short-run Phillips
A decrease in the natural unemployment rate _______A. Shifts both the short-run and the long-run Phillips curves leftward B. Shifts the short-run Phillips curve leftward but the long-run
Suppose that the unemployment rate exceeds the natural unemployment rate and the Fed increases the money growth rate. If the Fed’s action is _______A. Unexpected, the unemployment rate falls but
If OilPatch eliminates its income tax, what then are the levels of employment and potential GDP and what is the real wage rate in OilPatch?
If Oil Patch doubles its income tax to $4 an hour, what then are the levels of employment and potential GDP? What is the real wage rate paid by employers and the after-tax real wage rate received by
The income tax rate on all forms of income is 40 percent and there is a tax of 10 percent on all consumption expenditure. The nominal interest rate is 7 percent a year and the inflation rate is 5
The Canadian Prime Minister Stephen Harper warned on November 6, 2008, that if policy makers adopt too strong a fiscal stimulus then long-term growth might be jeopardized. Explain what he meant.

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