Questions and Answers of International Economics Theory

If you had the power to reset the rules for financial institutions, would you change them?What would you change?
Assuming that the supply of money in the economy is $3.2 trillion and velocity is 5, answer questions a through d.a. What is the dollar value of output produced in the economy?b. What would happen to
What is the difference among a bank's actual reserves, required reserves, and excess reserves? How is each determined?
If a bank has $30,000,000 in demand deposits, a 15 percent reserve requirement, and$5,200,000 in actual reserves, what are its required and excess reserves, and how much in new loans could it make?
What is the money multiplier, and how is it related to the reserve requirement? If the Federal Reserve increases excess reserves in the system by $180 million with a reserve requirement of 12
Assume that the reserve requirement is 12.5 percent and that $500,000 is added to Hometown Bank’s excess reserves as a result of the change in Federal Reserve policy.a. How much in new loans can
Suppose the Federal Reserve is concerned about demand-pull inflationary pressure that is building in the economy.a. What would be the appropriate change in excess reserves to counteract this
Use the accompanying supply and demand graphs to explain how each of the following affects the supply and/or demand for loans, the interest rate, and the actual amount of loans made.a. The Federal
It is assumed in the equation of exchange that the velocity of money is fixed or constant.Is this a safe assumption when applied to your own spending habits over the course of a month or a year? What
In a discussion with a friend, you are told that it makes no difference whether the Federal Reserve uses open market operations, the reserve requirement, or the discount rate to change the supply of
Control by the Federal Reserve over the money supply and over total spending is weakened by the fact that borrowing by businesses and households is voluntary. How might the power of the Federal
Assume that the economy is at full employment and that the federal government needs to borrow $100 billion to finance a budget deficit. Should the Federal Reserve monetize the debt by putting an
If you were trying to control inflation, would you depend on fiscal or monetary policy?Why? If you were trying to reduce unemployment, would you depend on fiscal or monetary policy? Why?
Suppose the economy is experiencing inflationary pressure because of rising food and energy costs at the same time that it is slipping into a recession because of cutbacks in defense spending. As the
The tools of monetary policy are used to deal with the problems of unemployment, inflation, and slow economic growth. Could you make an argument that the Federal Reserve should concern itself only
What are the main sources of household income and the different uses to which household income can be put? How is household income affected by the head of household’s age, gender, education, and
Students who rent apartments close to college campuses often complain that they have to pay a lot for what they get. Explain, in terms of what you have learned in this chapter, why students, despite
When marginal cost is less than average total cost, average total cost decreases. When marginal cost is greater than average total cost, average total cost increases. Why is this so?
c and how is it related to economies of scale? What sort of dilemma does the combination of efficiency and monopoly power create for the consumer and policymaker?
Given the following table for a hypothetical company, fill in the columns for Total Revenue and Marginal Revenue Product. Based on this information, complete the company’s demand schedule for labor
What are the eligibility requirements in your state for a family to receive TANF(Temporary Assistance for Needy Families)? What are the requirements to receive food stamps? What is the monthly TANF
Explain how wage rigidities, the minimum wage law, and unequal bargaining power modify the basic labor supply and demand model.
Sometimes a business makes investments in machinery and equipment, and those investments do not pay off—the business does not recover its costs plus something more. Is it possible for an individual
What is the difference between a craft union and an industrial union? How can a craft union keep its members’ wages high?
You have a friend who argues that poverty is really not a problem in this country because the poor are better off than millions of people in other parts of the world. Evaluate this position.
What was the intent of the National Labor Relations Act and the Taft–Hartley Act?Generally, what is the impact of each act on collective bargaining and organized labor in the United States?
There is much criticism that the poverty levels are not an accurate method for determining who is poor in the United States. Do you think these levels are too high or too low? How would you redefine
What is meant by the expression income distribution? What are some of the explanations as to why incomes are unequally distributed
Two laws that affect the operations of labor markets are the minimum wage law and the right to work law. Who benefits and who loses from each of these laws?
Assume that the leaders of a local union seek your advice on actions that could be taken to stem the decline of unionism in the United States. What would you suggest to reverse this trend? Do you
What groups in society are most likely to be included among the poor, and why is there controversy over the official definition of the poverty levels?
Based on your general knowledge of U.S. history and current events, how active a role do you think government will be playing in the economy 20 years from now compared to the role it plays today?
Indicate whether, and explain why, each of the following moved the U.S. economy closer to, or further from, laissez-faire capitalism.a. The Sherman Antitrust Act of 1890 and the Meat Inspection Act
Environmental concerns are increasingly global as we realize that the careless use of the world’s resources influences the entire globe. The impact of global warming, excessive energy use, and
Chapter 1 introduced the importance of efficiency and equity as they affect economic decisions. Discuss how each of the three basic decisions are related to efficiency and equity.
Define the Law of Demand and Law of Supply. Draw a demand curve and a supply curve and explain how each curve illustrates the related law. Identify the factors underlying these laws.
People pay attention to political upheavals in foreign countries, local and national elections in the United States, and environmental and other developments around the world because such events can
Surpluses and shortages are temporary conditions in freely operating markets. Explain what causes each and how these temporary conditions resolve themselves in free markets.
We placed great emphasis on the distinction between changes in quantity demanded and quantity supplied and changes in demand and supply. Why would an automobile dealership treat buyers’ reactions
Distinguish between a change in quantity demanded or quantity supplied, and a change in demand or supply. How would you represent each change graphically?
Both real and perceived differences arise among the kinds of entertainment, food, and clothing that are popular among buyers in different age groups. Pick one product from each of these three
Explain how each of the following would cause demand or supply to shift and how the equilibrium price and quantity for the good or service in question would change.a. A decrease in the number of
Plot the following demand and supply schedules on the accompanying graph, and answer questions a through e.a. What is the equilibrium price and equilibrium quantity?b. How much of a shortage or
Minimum wage laws keep many workers’ hourly wages above what they would be in the absence of such laws. Do minimum wage laws help or hurt college students looking for summer work?
If a government-imposed price ceiling or floor helps some people but hurts others, what factors do you think the government should consider before deciding on such a policy?
What does price elasticity of demand and supply measure? Identify factors that affect these price elasticities and give examples of each.
Give some examples of goods and services where a consumer’s response to a price change might typically be elastic and where it might typically be inelastic. Explain why the response would be
Calculate the price elasticity coefficient of demand or supply for each of the following. Identify whether the response is elastic, inelastic, or unitary elastic.a. The number of cans demanded of a
How does price elasticity of demand determine whether a seller’s revenue will increase or decrease following an increase in the price of its product? What impact might the cost of production have
Suppose that you are a candidate for the U.S. Congress. National Public Radio, which attracts an educated and sophisticated audience, interviews you about the economy. How will you answer each of the
Identify which of the following individuals would be classified as unemployed and, if they are, the type of unemployment that each is experiencing.a. A student who decides at midsemester to devote
Can you identify someone you know who is working part-time but would like to be working full-time, or is working in a job that is not fully using the person’s skills? In your opinion, is listing
Define labor force, unemployment rate, participation rate, full employment, and the natural rate of unemployment. Explain what each measure tells us about the economy.
Each of the following allows you to integrate this chapter into your everyday life. Choose one from this list to complete.a. Interview someone who has been out of work for over a month. Is this
What is the difference between demand-pull inflation and cost-push inflation? Must the economy experience only one type of inflation at a time, or can these types occur simultaneously? How might
Calculate the price index numbers for the following table assuming that year 3 is the base year, and put your results in the last column. Year 1 2 3 4 5 6 7 Market Basket Dollar Outlay $170 180 200
What are some economic, social, and political reasons that make economic growth important to a nation? How could a population increase contribute to economic growth, and how could it hinder growth?
An argument can be made that the aggressive pursuit of economic growth may impose costs on people today and in future generations. Is growth important enough that these costs should be ignored, or
What is the difference between deflation and disinflation? Although the United States has not experienced deflation since the 1930s, what problems could result if deflation occurred over the next
In recent years the annual rate of growth in productivity in the United States has increased. What do you think is most responsible for this increase?
In each of the following examples, identify whether the person or institution will be penalized by inflation and, if so, why.a. Mosie borrows $5,000 for her college expenses at an interest rate of 4
Create three separate lists showing the groups that you think are hurt most by unemployment, inflation, and declining production.
What are the primary factors responsible for economic growth? How are they related?
If resources are scarce and if people are always wanting more than the economy can provide, how is it possible that we would have unemployment?
What are the definition of and the root of the study of economics? How does a combination of scarce resources and unlimited wants force people to make economic decisions? How are value judgments and
Suppose that you are an advisor to a health team working in a poor country. In that country, 20 percent of the children below the age of five die of a particular disease each year. If the health team
Classify each of the following factors of production into one of the four resource categories used in economics, and identify the income return to the owners of each factor.a. The scanner used to
How do the popular expressions “you can’t have your cake and eat it, too” and “there is no such thing as a free lunch” relate to the basic economic problems of scarcity, choice, and
Is there a trade-off between efficiency and equity, or are these two goals mutually compatible for an economy? Why?
Distinguish between economic theory and economic policy. What are some reasons for economic theory controversies and economic policy controversies? Give a recent example of economic policy.
In your opinion, what would be an equitable, or fair, distribution of goods and services in a society? Why would this be an equitable distribution and what value judgments underlie your opinion? Do
Identify and briefly explain the four elements of a model used to explore an economic theory. How can the choice of assumptions and data used affect the conclusions?
Should national defense–related goods, such as submarines and nuclear weapons, be classified as capital goods or consumer goods? Why?
Draw a production possibilities curve and explain how it illustrates the trade-offs, or choices, that must be made when an economy is operating at full employment. How can unemployment and economic
What is a capital good and what is a consumer good? How does an economy’s choice about how many of its resources to devote to capital goods production as compared to consumer goods production
The following production possibilities table gives the various combinations of hours that can be worked and GPAs that can be earned by a particular college student who holds a job and takes 12 credit
Think about the relationship between driving at higher speeds and the likelihood of injury in an automobile accident. How can this relationship be illustrated in one graph to make it appear that the
Distinguish between macroeconomics and microeconomics and identify some topics relevant to each.
What are the three basic decisions every economy must make? Why must these decisions be made?
Suppose that you have been chosen to be on a blue-ribbon panel of experts to determine how well or poorly the economies of the world are operating. Your task is to come up with a checklist of five
How do market, planned, and mixed economies make the three basic economic decisions?
What considerations might cause one nation to choose to operate as a market economy and another as a planned economy?
Draw a simple circular flow diagram to illustrate the structure of a market economy.Include businesses and households, input and output markets, and real and money flows.
Many people today are asking what the U.S. government should do when people who need health care cannot afford it. Is less-than-universal access to health care an example of a market system
Below are seven activities. Indicate whether each one is: a real flow through a product market, a money flow through a product market, a real flow through a resource market, or a money flow through a
This chapter illustrates how economic systems change over time. What forces might lead to the evolution of an economic system, and how would these forces cause an economy to change?
Identify three strengths of a market economy. Define and give a current example of a market failure.
Do you think that China will someday have an economic system that leans more toward laissez-faire capitalism than the U.S. economy?
Identify the strengths and weaknesses of a planned economy. Explain what we mean byplanning failure.
Would mercantilism, the economic system that was important in Europe in the seventeenth and eighteenth centuries, be most consistent with a market economy, a planned economy, or a mixed economy? Do
What is the invisible hand doctrine and why is it important for laissez-faire capitalism?How are the British Industrial Revolution and the U.S. industrial boom similar?
As the Up for Debate on page 105 indicates, many people oppose regulations that address environmental concerns because they believe that they harm businesses and the economy. Others join this
Complete the following table for a hypothetical economy assuming that year 1 is the base year for the price index. How does the completed table illustrate that real GDP is a better measure of the
Identify the four phases of a business cycle and describe the changes in economic activity that occur during each phase.
What is the basic cause of a recession?
Suppose the economy is in a recession and a member of Congress sponsors a bill to limit imports of vehicles, clothing, and other manufactured goods. The bill, if passed into law, would allegedly
Identify the various leakages from and injections into the spending stream in a circular flow model of the economy. What is the relationship between leakages and injections when the level of economic
Expectations play an important role in determining the level of economic activity and how the level of activity will change. What events might cause people to expect a recession?What events might
What is the multiplier effect and how is it related to nonincome-determined spending and the circular flow model of economic activity? What happens to the multiplier effect when the percentage of
Do you think there will be a positive or negative impact on economic activity as the United States pursues more “green” efforts? Consider a move toward more fuel-efficient vehicles and buildings

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