Questions and Answers of Foundations Macroeconomics

How big was the fiscal stimulus package of 2008–2009, how many jobs was it expected to create, and how large was the multiplier implied by that expectation? Did the stimulus work?
From the peak in 1929 to the Great Depression trough in 1933, government tax revenues fell by 1.9 percent of GDP and government expenditures increased by 0.3 percent. Real GDP fell by 25 percent.
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 aggregate demand and real GDP.
If Low Tax Land eliminates its income tax, what then are the levels of employment and potential GDP and what is the real wage rate in Low Tax Land? Production function Labor market Real wage rate
If Low Tax Land doubles its income tax to $2 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
Describe the supply-side effects of a fiscal stimulus and explain how a tax cut will influence potential GDP.
Use an aggregate supply–aggregate demand graph to illustrate the effects on real GDP and the price level of a fiscal stimulus when the economy is in recession.
The federal government’s major outlay in its budget is_______ and its major source of revenue is _______.A. Debt interest; sales of government bondsB. Expenditure on goods and services; taxes on
U.S. national debt _______ when the federal government’s _______.A. Increases; outlays exceed tax revenueB. Decreases; outlays exceed tax revenueC. Increases; tax revenue rises faster than
Discretionary fiscal policy to stimulate the economy includes ________.A. Lowering the tax rate paid by households with middle incomesB. Raising the tax on gasolineC. The fall in tax revenue as the
Automatic fiscal policy ________A. Requires an action of the government B. Is weak unless the government cuts its outlays to reduce the deficitC. Operates as the economy moves along its business
Needs-tested spending is _______ fiscal policy because it _______.A. Automatic; increases in recession and decreases in expansionB. Discretionary; increases when tax revenue increasesC. Automatic;
A government expenditure multiplier _______A. Equals 1B. Is less than the tax multiplierC. Exceeds 1D. Equals the tax multiplier
When the government lowers the income tax rate, ______A. Employment increases and potential GDP increasesB. Employment does not change but labor productivity fallsC. Labor productivity rises and
Will the U.S. dollar appreciate or depreciate against the yen and will purchasing power parity be violated? Why or why not?Suppose that the inflation rate is lower in Japan than it is in the United
Will U.S. interest rates be higher or lower than Japanese interest rates and will interest rate parity hold? Why or why not?Suppose that the inflation rate is lower in Japan than it is in the United
Explain how the expected future exchange rate will change.Suppose that the inflation rate is lower in Japan than it is in the United States, and that the difference in the inflation rates persists
Suppose that the U.K. pound is trading at 1.82 U.S. dollars per U.K. pound and at this exchange rate purchasing power parity holds. The U.S. interest rate is 2 percent a year and the U.K. interest
Pound plunges on U.K. vote to leave the European UnionBritain’s vote to leave the European Union lowered the pound from $1.50 to $1.32 in tumultuous hours of foreign exchange trading.Did the vote
Read Eye on the Dollar on p. 495. When and why did the dollar rise against the euro and when and why did it fall?
If the European Central Bank starts to raise its policy interest rate before the Fed starts to raise the federal funds rate target, what do you predict will happen to the dollar/euro exchange rate?
The table gives some data that describe the economy of Atlantis in 2020:Calculate the current account balance, the capital and financial account balance, the government sector balance, and the
The U.S. dollar appreciates, and U.S. official reserves increase. Explain which of the following events might have caused these changes to occur and why.The Fed intervened in the foreign exchange
Which of the following events might have caused the euro to appreciate and why? The European Central Bank sold euros in the foreign exchange market.The Fed intervened in the foreign exchange
Are there any other actions that the Fed could take to raise the foreign ex-change value of the dollar? Explain your answer.Suppose that the euro keeps appreciating against the U.S. dollar. The Fed
Does purchasing power parity (PPP) hold between Brazil and the United States? If not, does PPP predict that the real will appreciate or depreciate against the U.S. dollar?In August 2013, the exchange
Does interest rate parity hold between Brazil and the United States? If in-terest rate parity does hold, what is the expected rate of appreciation or depreciation of the Brazilian real against the
The current account balance equals ______. A. Exports minus imports plus net interest and net transfers B. Net exports plus net foreign investment in the United States C. Capital and
China’s official reserves have ballooned, fueled by strong foreign in-vestment and large trade surpluses. China is a net ______ and a ______ na-tion. A. Lender; debtor B. Borrower;
Net exports equal the ______. A. Private sector balance plus the government sector balance B. Private sector balance minus the government sector balance C. Government sector balance
A net exports deficit will become a surplus if ______. A. The government budget deficit is turned into a surplus and the private sector has a surplus B. The private sector surplus adjusts
The quantity of U.S. dollars demanded in the foreign exchange market increases if ______. A. The value of U.S. imports increases B. Traders expect the future exchange rate to
The supply of U.S. dollars in the foreign exchange market increases if ______. A. The value of U.S. imports increases B. The U.S. interest rate differential decreases C. The U.S.
Purchasing power parity ______A. Holds if the price of a good is the same number of euros, pounds, or dollars B. Means that the value of the euro, the pound, and the dollar are equal C.
To keep the yuan-U.S. dollar exchange rate constant, ______. A. The Fed agrees not to sell U.S. dollars in the foreign exchange market B. The People’s Bank of China buys U.S.
Who in the United States loses from this trade in roses and would lobby for a restriction on the quantity of imported roses? Suppose that the U.S. government put a tariff on rose imports. Show on
Who in the United States loses from free trade in shoes with Brazil? Explain why.
The world price of a pair of shoes is $20. Explain how consumers and producers in the United States gain or lose as a result of international trade. On the graph, show the change in U.S. purchases,
The world price of a pair of shoes is $20. Explain how consumers and producers in Brazil gain or lose as a result of international trade. Show the change in Brazil’s purchases, production, and
Explain who in the United States gains and who loses from restrictions on steel imports. How do you expect the prices of automobiles and office towers to be affected?U.S. steelmakers seek antidumping
What is dumping? Who in the United States loses from China’s dumping of steel?U.S. steelmakers seek anti dumping action, steelmakers want the United States to put restrictions on imports from five
Explain what an anti dumping tariff is. What argument might U.S. steelmakers use to get the government to raise the tariff on steel imports?U.S. steelmakers seek antidumping action, steelmakers want
The supply of roses in the United States is made up of U.S. grown roses and imported roses. Draw a graph to illustrate the U.S. rose market with free international trade. On your graph, mark the
Does the Fed face a tradeoff in the short run? Explain why or why not.The U.S. economy is at full employment when the world price of oil begins to rise sharply. Short-run aggregate supply decreases.
Explain how the U.S. price level and real GDP will change in the long run if the Fed takes monetary policy actions that are consistent with its objectives as set out in the Federal Reserve Act of
Explain how the U.S. price level and real GDP will change in the short run.The U.S. economy is at full employment when the world price of oil begins to rise sharply. Short-run aggregate supply
Explain whether the Fed faces a tradeoff in the short run.Suppose that the U.S. economy is at full employment when strong economic growth in Asia increases the demand for U.S.-produced goods and
Explain how the U.S. price level and real GDP will change in the short run.Suppose that the U.S. economy is at full employment when strong economic growth in Asia increases the demand for
Explain how the U.S. price level and real GDP will change in the long run if the Fed takes monetary policy actions that are consistent with its objectives as set out in the Federal Reserve Act of
How do healthcare programs and Social Security benefits drive spending and the deficit and how do they create fiscal imbalance and generational imbalance?CBO expects higher long-term deficits, the
If the government decided to slow the growth of debt by cutting transfer payments and raising taxes by the same amount, how would this fiscal policy influence the budget deficit and real GDP?CBO
Explain why the national debt does not measure the federal government’s true indebtedness. How does the nation’s fiscal imbalance provide a more accurate account of government’s debt?CBO
Aggregate supply increases when ________.A. The price level risesB. The money wage rate fallsC. Consumption increasesD. The money price of oil increases
When potential GDP increases, _______A. Aggregate demand increasesB. Aggregate supply increasesC. Both aggregate demand and aggregate supply increaseD. The price level rises
The quantity of real GDP demanded increases if _______.A. The buying power of money increasesB. The money wage rate risesC. The price level fallsD. The nominal interest rate falls
An increase in expected future income increases ________.A. Consumption expenditure, which increases current aggregate demandB. Investment, which increases current aggregate supplyC. The demand for
Macroeconomic equilibrium occurs when the quantity of real GDP _______ equals the quantity of _______.A. Demanded; real GDP suppliedB. Demanded; potential GDPC. Supplied; potential GDPD. Demanded;
If the economy is at full employment and the Fed increases the quantity of money, _______.A. Aggregate demand increases, a recessionary gap appears, and the money wage rate starts to riseB. Aggregate
Over the past decade, the demand for goods produced in China has brought a sustained increase in demand for China’s exports that has outstripped the growth of supply. As a result, China has
Figure 14.1 shows aggregate planned expenditure when the price level is 100. When the price level increases to 110, aggregate planned expenditure changes by $0.5 trillion. What is the quantity of
Why do multiplier estimates differ? What conditions would be consistent with a large multiplier?
The output gap in the second quarter of 2009 was $0.8 trillion. How much fiscal stimulus would be required to close the output gap if the multiplier was as large as the Obama team believes? How much
The consumption function shows how an increase in _______ influences _________.A. Income; households’ aggregate planned expenditureB. Nominal GDP; consumption expenditureC. Disposable income;
The marginal propensity to consume tells us by how much _______ changes when _______ changes.A. Consumption expenditure; wealthB. The real interest rate; planned consumptionC. Expected future income;
Induced expenditure includes ________ .A. Consumption expenditure, government expenditure, and exportsB. Investment, exports, and importsC. Consumption expenditure and importsD. Consumption
The aggregate planned expenditure curve ________ increases.A. Slopes upward because induced expenditure increases as incomeB. Is horizontal because autonomous expenditure is constant when incomeC.
If real GDP _______ planned expenditure, the economy converges to equilibrium expenditure because inventories _________ and firms increase production.A. Exceeds; pile upB. Exceeds; are run downC. Is
The multiplier equals ____________ divided by _________.A. The marginal propensity to consume; autonomous expenditureB. 1; (1 – Slope of the AE curve)C. 1; Slope of the AE curveD. Slope of the AE
The multiplier will increase if the marginal propensity to consume ______ or the marginal tax rate ______.A. Increases; decreasesB. Increases; increasesC. Decreases; increasesD. Decreases; decreases
A rise in the price level shifts the AE curve ______.A. Upward and creates a movement up along the AD curveB. Downward and creates a movement up along the AD curveC. Upward and shifts the AD curve
In 2019, the outcome turned out to be row C of the left side of the table. Plot the short-run Phillips curve for 2019 and mark the points A, B, C, and D that correspond to the data in the right side
Compare the short-run Phillips curve of 2019 with that of 2018. Data 2018 Price level (2017 100) Data 2019 Real GDP Unemployment (trillions of Real GDP Unemploymen Price level (trillions of rate t
Explain the effects of a global recession on the U.S. macroeconomic equilibrium in the short run. Explain the adjustment process that restores the economy to full employment.
Suppose that the world price of oil rises. On an AS–AD graph, show the effect of the world oil price rise on U.S. macroeconomic equilibrium in the short run. Explain the adjustment process that
The table sets out the aggregate demand and aggregate supply schedules in Japan. Potential GDP is 600 trillion yen. What is the short-run macroeconomic equilibrium? Does Japan have an inflationary
How would such an action influence aggregate supply?
How would such an action influence aggregate demand?
Suppose that the United States is at full employment. Then the federal government cuts taxes, and all other influences on aggregate demand remain the same. Explain the effect of the tax cut on
Suppose that the United States is at full employment. Explain the effect of each of the following events on aggregate supply: Union wage settlements push the money wage rate up by 10 percent.The
What, according to the mainstream theory of the business cycle, is the most common source of recession: a decrease in aggregate demand, a decrease in aggregate supply, or both? Which is the most
Read Eye on the Business Cycle on p. 347. What caused the 2008–2009 recession and how do we know that a decrease in aggregate supply played a role?
€œBrexit€ expected to rattle U.S. economy, the United Kingdom vote to leave the European Union (known as Brexit) is expected to affect the U.S. economy by driving up the value of
Some events change aggregate demand from AD0 to AD1and aggregate supply from AS0to AS1. What is the new macroeconomic equilibrium?Use Figure 13.2 to work Problem. Initially, the economy is at point
Some events change aggregate supply from AS0to AS1. Describe two possible events. What is the new equilibrium point? If potential GDP is $1 trillion, does the economy have an inflationary gap, a
Some events change aggregate demand from AD0to AD1. Describe two possible events. What is the new equilibrium point? If potential GDP is $1 trillion, describe the type of macroeconomic
Explain the effect of the Fed€™s action that increases the quantity of money on the macroeconomic equilibrium in the short run. Explain the adjustment process that returns the economy to
Suppose that the U.S. economy has a recessionary gap and the world economy goes into an expansion. Explain the effect of the expansion on U.S. real GDP and unemployment in the short run.
The table sets out an economy€™s aggregate demand and aggregate supply schedules. What is the macroeconomic equilibrium? If potential GDP is $600 billion, what is the type of macroeconomic
The United States is at full employment when the Fed cuts the quantity of money, other things remaining the same. Explain the effect of the cut in the quantity of money on aggregate demand in the
Explain the effect of each of the following events on the quantity of U.S. real GDP demanded and the demand for U.S. real GDP:The world economy goes into a strong expansion. The U.S. price level
As more people in India have access to higher education, explain how potential GDP and aggregate supply will change in the long run.
The costs of inflation do not include _______. A. The cost of running around to compare prices at different outlets B. The increased opportunity cost of holding money C. The tax on
In the long run with a constant velocity of circulation, the inflation rate ______. A. Is constant and equals the money growth rate B. Equals the money growth rate minus the growth rate of
If the quantity theory of money is correct and other things remain the same, an increase in the quantity of money increases _______. A. Nominal GDP and the velocity of circulation B. The
In the long run, money market equilibrium determines the _______. A. real interest rate B. price level C. nominal interest rate D. economic growth rate
If the Fed increases the quantity of money, people will be holding ________. A. Too much money, so they buy bonds and the interest rate rises B. Too much money, so they buy bonds and the
The quantity of money demanded increases if _______. A. The supply of money increases B. The nominal interest rate falls C. Banks increase the interest rate on deposits D. The
The opportunity cost of holding money _______. A. Is determined by the inflation rate B. Is zero because money earns no interest C. Equals the nominal interest rate on bonds D.
Holding money provides a benefit ________. A. Because it is a means of payment B. Because its opportunity cost is low C. Which is constant no matter how much money is held D.
If the money growth rate and real GDP growth rate of the 2010s are maintained and if the velocity growth rate is zero, will the inflation rate rise to 3 percent as predicted by Martin Feldstein?

Showing 700 - 800 of 1140