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macroeconomic theory
Krugmans Macroeconomics For Ap 1st Edition Margaret Ray, David A Anderson - Solutions
A financial intermediary that provides liquid financial assets in the form of deposits to lenders and uses their funds to finance the illiquid investment spending needs of borrowers is called aa. mutual fund.b. bank.c. corporation.d. pension fund.e. life insurance company
A nonprofit institution collects the savings of its members and invests those funds in a wide variety of assets in order to provide its members with income after retirement. This describes aa. mutual fund.b. bank.c. savings and loan.d. pension fund.e. life insurance company.
The federal government is said to be “dissaving” whena. there is a budget deficit.b. there is a budget surplus.c. there is no budget surplus or deficit.d. savings does not equal investment spending.e. national savings equals private savings.
Which of the following is NOT a type of financial asset?a. bondsb. stocksc. bank depositsd. loanse. houses
Decreasing which of the following is a task of the financial system?I. transaction costs II. risk III. liquiditya. I onlyb. II onlyc. III onlyd. I and II onlye. I, II, and III
What relationship would you expect to find between the level of development of a country’s financial system and its level of economic development? Explain in terms of the country’s levels of savings and investment spending.
Rank the following assets from the lowest level to the highest level of (i) transaction costs, (ii) risk, (iii) liquidity. Ties are acceptable for items that have indistinguishable rankings.a. a bank deposit with a guaranteed interest rateb. a share of a highly diversified mutual fund, which can be
An economy is in long -run macroeconomic equilibrium when each of the following aggregate demand shocks occurs. What kind of gap—inflationary or recessionary—will the economy face after the shock, and what type of fiscal policies would help move the economy back to potential output? How would
The accompanying diagram shows the current macroeconomic situation for the economy of Brittania; real GDP is Y1, and the aggregate price level is P1. You have been hired as an economic consultant to help the economy move to potential output, a. Is Brittania facing a recessionary or inflationary
The accompanying diagram shows the current macroeconomic situation for the economy of Albernia. You have been hired as an economic consultant to help the economy move to potential output,
Explain how each of the following actions will affect the level of investment spending and unplanned inventory investment.a. The Federal Reserve raises the interest rate.b.There is a rise in the expected growth rate of real GDP.c. A sizable inflow of foreign funds into the country lowers the
How will investment spending change as the following events occur?a. The interest rate falls as a result of Federal Reserve policy.b.The U.S. Environmental Protection Agency decrees that corporations must upgrade or replace their machinery in order to reduce their emissions of sulfur dioxide.c.
From the end of 1995 to March 2000, the Standard and Poor’s 500 (S&P 500) stock index, a broad measure of stock market prices, rose almost 150%, from 615.93 to a high of 1,527.46.From that time to September 10, 2001, the index fell 28.5% to 1,092.54. How do you think the movements in the stock
From 2003 to 2008, Eastlandia experienced large fluctuations in both aggregate consumer spending and disposable income, but wealth, the interest rate, and expected future disposable income did not change. The accompanying table shows the level of aggregate consumer spending and disposable income in
The accompanying table shows how consumers’ marginal propensities to consume in a particular economy are related to their level of incomea. Suppose the government engages in increased purchases of goods and services. For each of the income groups in the accompanying table, what is the value of
Most macroeconomists believe it is a good thing that taxes act as automatic stabilizers and lower the size of the multiplier. However, a smaller multiplier means that the change in government purchases of goods and services, government transfers, or taxes necessary to close an inflationary or
In each of the following cases, either a recessionary or inflationary gap exists. Assume that the aggregate supply curve is horizontal, so that the change in real GDP arising from a shift of the aggregate demand curve equals the size of the shift of the curve. Calculate both the change in
The late 1990s in the United States were characterized by substantial economic growth with low inflation; that is, real GDP increased with little, if any, increase in the aggregate price level.Explain this experience using aggregate demand and aggregate supply curves. Illustrate with a diagram.
In the accompanying diagram, the economy is in long -run macroeconomic equilibrium at point E1 when an oil shock shifts the short -run aggregate supply curve to SRAS2. Based on the diagram, answer the following questions.a. How do the aggregate price level and aggregate output change in the short
The economy is in short -run macroeconomic equilibrium at point E1 in the accompanying diagram. Based on the diagram, answer the following questions.a. Is the economy facing an inflationary or a recessionary gap?b.What policies can the government implement that might bring the economy back to long
Using aggregate demand, short -run aggregate supply, and long -run aggregate supply curves, explain the process by which each of the following government policies will move the economy from one long -run macroeconomic equilibrium to another. Illustrate with diagrams. In each case, what are the
Using aggregate demand, short -run aggregate supply, and long -run aggregate supply curves, explain the process by which each of the following economic events will move the economy from one long -run macroeconomic equilibrium to another. Illustrate with diagrams. In each case, what are the short
There were two major shocks to the U.S. economy in 2007, leading to a severe economic slowdown. One shock was related to oil prices; the other was the slump in the housing market.This question analyzes the effect of these two shocks on GDP using the AD–AS framework.a. Draw typical aggregate
The Conference Board publishes the Consumer Confidence Index (CCI) every month based on a survey of 5,000 representative U.S. households. It is used by many economists to track the state of the economy. A press release by the Board on April 29, 2008 stated: “The Conference Board Consumer
In Wageland, all workers sign an annual wage contract each year on January 1 In late January, a new computer operating system is introduced that increases labor productivity dramatically. Explain how Wageland will move from one short -run macroeconomic equilibrium to another. Illustrate with a
Explain whether the following government policies affect the aggregate demand curve or the short -run aggregate supply curve and how.a. The government reduces the minimum nominal wage.b.The government increases Temporary Assistance to Needy Families (TANF) payments, government transfers to families
Suppose that the economy is currently at potential output.Also suppose that you are an economic policy maker and that a college economics student asks you to rank, if possible, your most preferred to least preferred type of shock: positive demand shock, negative demand shock, positive supply shock,
Suppose that all households hold all their wealth in assets that automatically rise in value when the aggregate price level rises(an example of this is what is called an “inflation -indexed bond”—a bond for which the interest rate, among other things, changes one -for- one with the inflation
Determine whether, in the short run, each of the following events causes a shift of a curve or a movement along a curve.Also determine which curve is involved and the direction of the change.a. As a result of new discoveries of iron ore used to make steel, producers now pay less for steel, a major
Suppose that in Wageland all workers sign annual wage contracts each year on January 1. No matter what happens to prices of final goods and services during the year, all workers earn the wage specified in their annual contract. This year, prices of final goods and services fall unexpectedly after
Your study partner is confused by the upward -sloping short-run aggregate supply curve and the vertical long -run aggregate supply curve. How would you explain the shapes of these two curves?
A fall in the value of the dollar against other currencies makes U.S. final goods and services cheaper to foreigners even though the U.S. aggregate price level stays the same. As a result, foreigners demand more American aggregate output. Your study partner says that this represents a movement down
A change in government purchases of goods and services results in a change in real GDP equal to $200 million. Assume the absence of taxes, international trade, and changes in the aggregate price level.a. Suppose that the MPC is equal to 0.75. What was the size of the change in government purchases
Assume the MPC in an economy is 0.8 and the government increases government purchases of goods and services by$50 million. Also assume the absence of taxes, international trade, and changes in the aggregate price level.a. What is the value of the multiplier?b. By how much will real GDP change as a
Which of the following is NOT an automatic stabilizer?a. income taxesb. unemployment insurancec. Medicaidd. food stampse. monetary policy
A lump-sum tax isa. higher as income increases.b. lower as income increases.c. independent of income.d. the most common form of tax.e. a type of business tax.
The presence of taxes has what effect on the multiplier? Theya. increase it.b. decrease it.c. destabilize it.d. negate it.e. have no effect on it.
Assume that taxes and interest rates remain unchanged when government spending increases, and that both savings and consumer spending increase when income increases. The ultimate effect on real GDP of a $100 million increase in government purchases of goods and services will bea. an increase of
The marginal propensity to consume I. has a negative relationship to the multiplier.II. is equal to 1.III. represents the proportion of consumers’ disposable income that is spent.a. I onlyb. II onlyc. III onlyd. I and III onlye. I, II, and III
The country of Boldovia has no unemployment insurance benefits and a tax system using only lump-sum taxes. The neighboring country of Moldovia has generous unemployment benefits and a tax system in which residents must pay a percentage of their income. Which country will experience greater
Explain why a $500 million reduction in government purchases of goods and services will generate a larger fall in real GDP than a $500 million tax increase.
Explain why a $500 million increase in government purchases of goods and services will generate a larger rise in real GDP than a $500 million increase in government transfers.
a. Draw a correctly labeled graph showing an economy experiencing a recessionary gap.b. What type of fiscal policy is appropriate in this situation?c. Give an example of what the government could do to implement the type of policy you listed in part b.
Refer to the graph above.a. What type of gap exists in this economy?b. What type of fiscal policy is appropriate in this situation?c. List the three variables the government can change to implement fiscal policy.d. How would the government change each of the three variables to implement the policy
An income tax rebate is an example ofa. an expansionary fiscal policy.b. a contractionary fiscal policy.c. an expansionary monetary policy.d. a contractionary monetary policy.e. none of the above.
Which of the following is a fiscal policy that is appropriate to combat inflation?a. decreasing taxesb. decreasing government spendingc. increasing government transfersd. increasing interest ratese. expansionary fiscal policy
Which of the following is an example of expansionary fiscal policy?a. increasing taxesb. increasing government spendingc. decreasing government transfersd. decreasing interest ratese. increasing the money supply
Which of the following is a government transfer program?a. Social Securityb. Medicare/Medicaidc. unemployment insuranced. food stampse. all of the above
Which of the following contributes to the lag in implementing fiscal policy?I. It takes time for Congress and the President to pass spending and tax changes.II. Current economic data take time to collect and analyze.III. It takes time to realize an output gap exists.a. I onlyb. II onlyc. III onlyd.
Suppose someone says, “Using monetary or fiscal policy to pump up the economy is counterproductive—you get a brief high, but then you have the pain of inflation.”a. Explain what this means in terms of the AD–AS model.b. Is this a valid argument against stabilization policy? Why or why not?
Explain why federal disaster relief, which quickly disburses funds to victims of natural disasters such as hurricanes, floods, and large -scale crop failures, will stabilize the economy more effectively after a disaster than relief that must be legislated.
In each of the following cases, determine whether the policy is an expansionary or contractionary fiscal policy.a. Several military bases around the country, which together employ tens of thousands of people, are closed.b. The number of weeks an unemployed person is eligible for unemployment
Draw a correctly labeled aggregate demand and aggregate supply graph illustrating an economy in long-run macroeconomic equilibrium.
Refer to the graph above.a. Is the economy in short-run macroeconomic equilibrium? Explain.b. Is the economy in long-run macroeconomic equilibrium? Explain.c. What type of gap exists in this economy?d. Calculate the size of the output gap.e. What will happen to the size of the output gap in the
The economy depicted in the graph is experiencing a(n)a. contractionary gap.b. recessionary gap.c. inflationary gap.d. demand gap.e. supply gap.
Which of the following statements is true if this economy is operating at P1 and Y1?I. The level of aggregate output equals potential output.II. It is in short-run macroeconomic equilibrium.III. It is in long-run macroeconomic equilibrium.a. I onlyb. II onlyc. III onlyd. II and IIIe. I and III
During stagflation, what happens to the aggregate price level and real GDP?Aggregate price level Real GDPa. decreases increasesb. decreases decreasesc. increases increasesd. increases decreasese. stays the same stays the same
Which of the following causes a positive demand shock?a. an increase in wealthb. pessimistic consumer expectationsc. a decrease in government spendingd. an increase in taxese. an increase in the existing stock of capital
Which of the following causes a negative supply shock?I. a technological advance II. increasing productivity III. an increase in oil pricesa. I onlyb. II onlyc. III onlyd. I and III onlye. I, II, and III
A rise in productivity increases potential output, but some worry that demand for the additional output will be insufficient even in the long run. How would you respond?
Describe the short -run effects of each of the following shocks on the aggregate price level and on aggregate output.a. The government sharply increases the minimum wage, raising the wages of many workers.b. Solar energy firms launch a major program of investment spending.c. Congress raises taxes
a. Draw a correctly labeled short-run aggregate supply curve.b. On your graph from parta, illustrate a decrease in short-run aggregate supply.c. List three types of changes, including the factor that changes and the direction of the change, that could lead to a decrease in aggregate supply?
a. Draw a correctly labeled graph illustrating a long-run aggregate supply curve.b On your graph from parta, label potential output.c. On your graph from parta, illustrate an increase in long-run aggregate supply.d. What could have caused the change you illustrated in part c?List three possible
That employers are reluctant to decrease nominal wages during economic downturns and raise nominal wages during economic expansions leads nominal wages to be described asa. long-run.b. unyielding.c. flexible.d. real.e. sticky.
A decrease in which of the following will cause the short-run aggregate supply curve to shift to the left?a. commodity pricesb. the cost of health care insurance premiums paid by employersc. nominal wagesd. productivitye. the use of cost-of-living allowances in labor contracts
The horizontal intercept of the long-run aggregate supply curve isa. at the origin.b. negative.c. at potential output.d. equal to the vertical intercept.e. always the same as the horizontal intercept of the short-run aggregate supply curve.
Because changes in the aggregate price level have no effect on aggregate output in the long run, the long-run aggregate supply curve isa. vertical.b. horizontal.c. fixed.d. negatively sloped.e. positively sloped.
Which of the following will shift the short-run aggregate supply curve? A change ina. profit per unit at any given price level.b. commodity prices.c. nominal wages.d. productivity.e. all of the above
Identify the two effects that cause the aggregate demand curve to have a downward slope. Explain each.
a. Draw a correctly labeled graph showing aggregate demand.b. On your graph from parta, illustrate an increase in aggregate demand.c. List the four factors that shift aggregate demand.d. Describe a change in each determinant of aggregate demand that would lead to the shift you illustrated in part b.
Which of the following government policies will shift the aggregate demand curve to the left?a. a decrease in the quantity of moneyb. an increase in government purchases of goods and servicesc. a decrease in taxesd. a decrease in interest ratese. an increase in government transfers
Decreases in the stock market decrease aggregate demand by decreasing which of the following?a. consumer wealthb. the price levelc. the stock of existing physical capitald. interest ratese. tax revenues
The Consumer Confidence Index is used to measure which of the following?a. the level of consumer spendingb. the rate of return on investmentsc. consumer expectationsd. planned investment spendinge. the level of current disposable income
Which of the following will shift the aggregate demand curve to the right?a. a decrease in wealthb. pessimistic consumer expectationsc. a decrease in the existing stock of capitald. contractionary fiscal policye. a decrease in the quantity of money
Which of the following explains the slope of the aggregate demand curve?I. the wealth effect of a change in the aggregate price level II. the interest rate effect of a change in the aggregate price level III. the product-substitution effect of a change in the aggregate price levela. I onlyb. II
Actual investment spending in any period is equal toa. planned investment spending + unplanned inventory investment.b. planned investment spending − unplanned inventory investment.c. planned investment spending + inventory decreases.d. unplanned inventory investment + inventory increases.e.
The level of planned investment spending is negatively related to thea. rate of return on investment.b. level of consumer spendingc. level of actual investment spending.d. interest rate.e. all of the above.
Given the consumption function c = $16,000 + 0.5 yd, if individual household current disposable income is $20,000, individual household consumer spending will equala. $36,000.b. $26,000.c. $20,000.d. $16,000.e. $6,000.
The slope of a family’s consumption function is equal toa. the real interest rate.b. the inflation rate.c. the marginal propensity to consumed. the rate of increase in household current disposable income.e. the tax rate.
Changes in which of the following leads to a shift of the aggregate consumption function?I. expected future disposable income II. aggregate wealth III. current disposable incomea. I onlyb. II onlyc. III onlyd. I and II onlye. I, II, and III
For each event, explain whether the initial effect is a change in planned investment spending or a change in unplanned inventory investment, and indicate the direction of the change.a. an unexpected increase in consumer spendingb. a sharp rise in the cost of business borrowingc. a sharp increase in
Suppose a crisis in the capital markets makes consumers unable to borrow and unable to save money. What implication does this have for the effects of expected future disposable income on consumer spending?
What is the multiplier if the marginal propensity to consume is 0.5? What is it if MPC is 0.8?
The accompanying table provides the inflation rate in the year 2000 and the average inflation rate over the period 2000–2007 for eight different countries.a. Given the expected relationship between average inflation and menu costs, rank the countries in descending order of menu costs using
The accompanying diagram shows mortgage interest rates and inflation during 1990–2005 in the economy of Albernia.When would home mortgages have been especially attractive and why?
With its tradition of a job for life for most citizens, Japan once had a much lower unemployment rate than that of the United States; from 1960 to 1995, the unemployment rate in Japan exceeded 3% only once. However, since the crash of its stock market in 1989 and slow economic growth in the 1990s,
How will the following changes affect the natural rate of unemployment?a. The government reduces the time during which an unemployed worker can receive benefits.b.More teenagers focus on their studies and do not look for jobs until after college.c. Greater access to the Internet leads both
In which of the following cases is it likely for efficiency wages to exist? Why?a. Jane and her boss work as a team selling ice cream.b.Jane sells ice cream without any direct supervision by her boss.c. Jane speaks Korean and sells ice cream in a neighborhood in which Korean is the primary
A country’s labor force is the sum of the number of employed and unemployed workers. The accompanying table provides data on the size of the labor force and the number of unemployed workers for different regions of the United Statesa. Calculate the number of workers employed in each of the
There is only one labor market in Profunctia. All workers have the same skills, and all firms hire workers with these skills.Use the accompanying diagram, which shows the supply o and demand for labor, to answer the following questions. Illustrate each answer with a diagram.a. What is the
In general, how do changes in the unemployment rate vary with changes in real GDP? After several quarters of a severe recession, explain why we might observe a decrease in the official unemployment rate. Could we see an increase in the official unemployment rate after several quarters of a strong
Each month, usually on the first Friday of the month, the Bureau of Labor Statistics releases the Employment Situation Summary for the previous month. Go to www.bls.gov and find the latest report. (On the Bureau of Labor Statistics home page, on the left side of the page, find “Unemployment”
The cost of a college education in the United States is rising at a rate faster than inflation. The table below shows the average cost of a college education in the United States in 2006 and 2007 for public and private colleges. Assume the costs listed in the table are the only costs experienced by
The accompanying table provides the annual real GDP (in billions of 2000 dollars) and nominal GDP (in billions of dollars)for the United States.
Each month the Bureau of Labor Statistics releases the Consumer Price Index Summary for the previous month. Go to www.bls.gov and find the latest report. (On the Bureau of Labor Statistics home page, click on “News Release”under “Latest Numbers—Consumer Price Index” and then choose
The consumer price index, or CPI, measures the cost of living for a typical urban household by multiplying the price for each category of expenditure (housing, food, and so on) times a measure of the importance of that expenditure in the average consumer’s market basket and summing over all
Eastland College is concerned about the rising price of textbooks that students must purchase. To better identify the increase in the price of textbooks, the dean asks you, the Economics Department’s star student, to create an index of textbook prices. The average student purchases three English,
The accompanying table shows data on nominal GDP (in billions of dollars), real GDP (in billions of year 2000 dollars), and population (in thousands) of the United States in 1960, 1970, 1980, 1990, 2000, and 2007, years in which the U.S. price level consistently rose.a. Why is real GDP greater than
The economy of Pizzanistan resembles Pizzania (from Problem 4) except that bread and cheese are sold both to a pizza company as inputs in the production of pizzas and to consumers as final goods. The accompanying table summarizes the activities of the three companies.
The small economy of Pizzania produces three goods (bread, cheese, and pizza), each produced by a separate company. The bread and cheese companies produce all the inputs they need to make bread and cheese, respectively. The pizza company uses the bread and cheese from the other companies to make
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