Macroeconomics For Life Smart Choices For All 2nd Edition Avi J. Cohen - Solutions

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3. Indicate how you think each of the following would shift demand in the indicated market: LO1a. Incomes of buyers in the market for Adirondack vacations increase.b. Buyers in the market for pizza read a study linking hamburger consumption to heart disease.c. Buyers in the market for CDs learn of
2. How would each of the following affect the U.S. market supply curve for corn? LO2a. A new and improved crop rotation technique is discovered.b. The price of fertilizer falls.c. The government offers new tax breaks to farmers.d. A tornado sweeps through Iowa.
1. State whether the following pairs of goods are complements or substitutes. (If you think a pair is ambiguous in this respect, explain why.) LO1a. Tennis courts and squash courts.b. Squash racquets and squash balls.c. Ice cream and chocolate.d. Cloth diapers and paper diapers.
5. Give an example of behavior you have observed that could be described as “smart for one but dumb for all.”
4. Explain the distinction between the horizontal and vertical interpretations of the demand curve. LO1
3. Last year a government official proposed that gasoline price controls be imposed to protect the poor from rising gasoline prices. What evidence could you consult to discover whether this proposal was enacted? LO3
2. Distinguish between the meaning of the expressions“change in demand” and “change in the quantity demanded.” LO4
1. Why isn’t knowing the cost of producing a good sufficient to predict its market price? LO3
10.*Refer to the two-person economy described in the preceding problem. LO1a. Is the point (30 pounds of coffee per day, 12 pounds of nuts per day) an attainable point? Is it an efficient point? What about the point (24 pounds of coffee per day, 24 pounds of nuts per day)?b. On a graph with pounds
9. Susan can pick 4 pounds of coffee in an hour or gather 2 pounds of nuts. Tom can pick 2 pounds of coffee in an hour or gather 4 pounds of nuts. Each works 6 hours per day. LO2a. What is the maximum number of pounds of coffee the two can pick in a day?b. What is the maximum number of pounds of
8. Refer to the preceding question to explain what is meant by the following statement:“An increase in productivity with respect to any one good increases our options for producing and consuming all other goods.” LO3
7. Suppose that in Problem 5 a sewing machine is introduced that enables Helen to sew 8 dresses per hour rather than only 4. Show how this development shifts her production possibilities curve. LO3
6. Refer to the preceding question. Which of the points listed below is efficient?Which is attainable? LO3a. 28 dresses per day, 16 loaves per day.b. 16 dresses per day, 32 loaves per day.c. 18 dresses per day, 24 loaves per day.
5. Consider a society consisting only of Helen, who allocates her time between sewing dresses and baking bread. Each hour she devotes to sewing dresses yields 4 dresses and each hour she devotes to baking bread yields 8 loaves of bread. If Helen works a total of 8 hours per day, graph her
4. Nancy and Bill are auto mechanics. Nancy takes 4 hours to replace a clutch and 2 hours to replace a set of brakes. Bill takes 6 hours to replace a clutch and 2 hours to replace a set of brakes. State whether anyone has an absolute advantage at either task and, for each task, identify who has a
3. Toby can produce 5 gallons of apple cider or 2.5 ounces of feta cheese per hour.Kyle can produce 3 gallons of apple cider or 1.5 ounces of feta cheese per hour.Can Toby and Kyle benefit from specialization and trade? Explain. LO1
2. Ted can wax a car in 20 minutes or wash a car in 60 minutes. Tom can wax a car in 15 minutes or wash a car in 30 minutes. What is each man’s opportunity cost of washing a car? Who has a comparative advantage in washing cars? LO1
1. Ted can wax 4 cars per day or wash 12 cars. Tom can wax 3 cars per day or wash 6. What is each man’s opportunity cost of washing a car? Who has a comparative advantage in washing cars? LO1
5. What factors have helped the United States to become the world’s leading exporter of movies, books, and popular music?
4. Why does saying that people are poor because they do not specialize make more sense than saying that people perform their own services because they are poor? LO1
3. How will technological innovations that boost labor productivity affect an economy’s production possibilities curve? LO3
2. How will a reduction in the number of hours worked each day affect an economy’s production possibilities curve? LO3
1. Explain what “having a comparative advantage” at producing a particular good or service means.What does “having an absolute advantage” at producing a good or service mean? LO1
10.*The meal plan at university A lets students eat as much as they like for a fixed fee of $500 per semester. The average student there eats 250 pounds of food per semester. University B charges $500 for a book of meal tickets that entitles the student to eat 250 pounds of food per semester. If
9.*For each long-distance call anywhere in the continental United States, a new phone service will charge users 30 cents per minute for the first 2 minutes and 2 cents per minute for additional minutes in each call. Tom’s current phone service charges 10 cents per minute for all calls, and his
8.*You and your friend Joe have identical tastes. At 2 p.m., you go to the local Ticketmaster outlet and buy a $30 ticket to a basketball game to be played that night in Syracuse, 50 miles north of your home in Ithaca. Joe plans to attend the same game, but because he cannot get to the Ticketmaster
7. Martha and Sarah have the same preferences and incomes. Just as Martha arrived at the theater to see a play, she discovered that she had lost the $10 ticket she had purchased earlier. Sarah also just arrived at the theater planning to buy a ticket to see the same play when she discovered that
6. Suppose that in the last few seconds you devoted to question 1 on your physics exam you earned 4 extra points, while in the last few seconds you devoted to question 2 you earned 10 extra points. You earned a total of 48 and 12 points, respectively, on the two questions and the total time you
5. Tom is a mushroom farmer. He invests all his spare cash in additional mushrooms, which grow on otherwise useless land behind his barn. The mushrooms double in weight during their first year, after which time they are harvested and sold at a constant price per pound. Tom’s friend Dick asks Tom
4. Once a week, Smith purchases a six-pack of cola and puts it in his refrigerator for his two children. He invariably discovers that all six cans are gone on the first day. Jones also purchases a six-pack of cola once a week for his two children, but unlike Smith, he tells them that each may drink
3. Residents of your city are charged a fixed weekly fee of $6 for garbage collection.They are allowed to put out as many cans as they wish. The average household disposes of three cans of garbage per week under this plan. Now suppose that your city changes to a “tag” system. Each can of refuse
2. To earn extra money in the summer, you grow tomatoes and sell them at the farmers’ market for 30 cents per pound. By adding compost to your garden, you can increase your yield as shown in the table below. If compost costs 50 cents per pound and your goal is to make as much money as possible,
1. The most you would be willing to pay for having a freshly washed car before going out on a date is $6. The smallest amount for which you would be willing to wash someone else’s car is $3.50. You are going out this evening and your car is dirty. How much economic surplus would you receive from
5. Is the nonrefundable tuition payment you made to your university this semester a sunk cost? How would your answer differ if your university were to offer a full tuition refund to any student who dropped out of school during the first two months of the semester?
4. Many people think of their air travel as being free when they use frequent-flyer coupons. Explain why these people are likely to make wasteful travel decisions.LO5
3. Why might someone who is trying to decide whether to see a movie be more likely to focus on the $10 ticket price than on the $20 she would fail to earn by not babysitting? LO5
2. True or false: Your willingness to drive downtown to save $30 on a new appliance should depend on what fraction of the total selling price $30 is. Explain.LO4
1. A friend of yours on the tennis team says, “Private tennis lessons are definitely better than group lessons.” Explain what you think he means by this statement. Then use the Cost-Benefit Principle to explain why private lessons are not necessarily the best choice for everyone. LO2
The forces that encourage creative destruction also causea) rising standards of living.b) some job loss.c) some job creation.d) all of the above.
In the debate surrounding globalization, the hands-on camp believesa) government should provide social safety nets.b) government failure is worse than market failure.c) businesses should provide social safety nets.d) sweatshops should all be shut down.
When economists evaluate sweatshops, they ask the question, “Are sweatshopa) workers’ wages too low?”b) workers exploited for corporate profits?”c) workers’ lives better than a situation without the sweatshop jobs?”d) workers’ lives better than the lives of workers in the developed
Economic globalization is the integration ofa) banks, businesses, and labour.b) economic activities in developed countries.c) markets in developing nations.d) economic activities through markets a cross borders.
When new international markets open up for Canadian businesses, usuallya) everybody wins.b) nobody wins.c) consumers win.d) consumers lose.
Creative destruction occurs whena) one country has an absolute advantage over its trading partners.b) the United States stops trading with Canada.c) businesses and workers agree on a new profit structure.d) new technologies or greater international competition arise.
Creative destructiona) ruins most economies.b) creates more jobs than it destroys.c) makes it harder to import products and services.d) eliminates gains from trade.
Jobs lost through competition and innovation are part ofa) creative trading.b) cyclical employment.c) frictional unemployment.d) structural unemployment.
For a voluntary trade to have mutual benefits, the terms of trade musta) be between each trader’s local opportunity costs.b) be greater than each trader’s local opportunity costs.c) be less than each trader’s local opportunity costs.d) divide the gains equally.
All of the following are forms of protectionism excepta) tariffs.b) terms of trade.c) import quotas.d) domestic subsidies.
Mutually beneficial gains from trade come froma) absolute advantage.b) comparative advantage.c) self-sufficiency.d) the United States.
A comparative advantage in the production of any product or service means you havea) greater absolute costs than your competitor.b) lower opportunity costs than your competitor.c) lower absolute costs than your competitor.d) greater opportunity costs than your competitor.
An absolute advantage in producing a product or service means you havea) higher absolute costs than your competitor.b) lower opportunity costs than your competitor.c) lower absolute costs than your competitor.d) higher opportunity costs than your competitor.
Voluntary trade improves standards of living by moving us from self-sufficiency toa) making our own breakfast.b) calculating the opportunity costs for any change.c) specializing and trading.d) transferring mutual benefits.
An easy way to calculate opportunity cost is to use the formulaa) Give Up Getb) Get Give Upc) Give Up – Getd) Get – Give Up
Which of the following statements is normative?a) Tax incentives stimulate savings, increase the quantity of capital, and promote economic growth.b) Tax cuts will increase government tax revenues.c) Governments should pay down the national debt.d) The national debt does not have to be repaid, only
Most economists agree that the government budget shoulda) always be in deficit.b) always be in surplus.c) always be in balance.d) balance over the business cycle.
The founding political principles ofa) Canada have hands-on origins;United States have hands-on origins.b) Canada have hands-off origins;United States have hands-off origins.c) Canada have hands-on origins;United States have hands-off origins.d) Canada have hands-off origins;United States have
Crowding out is the tendency for government debt-financed fiscal policy to decrease private investment spending bya) raising interest rates.b) lowering interest rates.c) improving expectations.d) reducing expectations.
Which of the following is a genuine problem with the national debt?a) Debt is always bad.b) The national debt is a burden for future generations.c) Interest payments on the national debt can create self-perpetuating debt.d) Canada will go bankrupt because of debt
During an expansion,a) both tax revenues and government spending decrease.b) tax revenues decrease and government spending increases.c) tax revenues increase and government spending decreases.d) both tax revenues and government spending increase.
The deficits or surpluses that most concern economists area) structural surpluses.b) structural deficits.c) cyclical surpluses.d) cyclical deficits.
If a country with $50 billion in debt then had revenues of $5 billion and spending of $4 billion, debt at the end of the year isa) $49 billion.b) $50 billion.c) $51 billion.d) $54 billion.
Fiscal policies that encourage savings and capital investment cana) decrease both aggregate supply and aggregate demand.b) decrease aggregate supply and increase aggregate demand.c) increase aggregate supply and decrease aggregate demand.d) increase both aggregate supply and aggregate demand.
Supply-siders believe people respond to a lower income tax rate bya) stopping work so they stop paying taxes.b) working fewer hours and paying less total taxes.c) working more hours and paying the same total taxes.d) working more hours and paying more total taxes.
If government reduces tuition fees for post-secondary students, thisa) increases the quality of labour inputs.b) decreases the quality of labour inputs.c) increases the quantity of labour inputs.d) decreases the quantity of labour inputs.
Which of the following fiscal policies is least likely to increase aggregate supply and potential GDP?a) Tax incentives for saving accountsb) Tax incentives for research and developmentc) Tax incentives for education and trainingd) Fiscal policies for aggregate demand
Leakages are spending that leaks out of the circular flow througha) taxes.b) savings.c) imports.d) all of the above.12.2 Supply Policies for Growth
Which of the following statements about multipliers is false?a) Changes in injections have a multiplied effect on aggregate demand.b) With more leakages, you get a bigger multiplier.c) The multiplier effect for tax changes is smaller than for government purchases.d) The multiplier effect for
Fiscal policy is changes ina) government purchases.b) taxes.c) transfers.d) all of the above.
Canada hasa) an inflation-control target jointly decided by government and the Bank of Canada.b) a central bank that independently achieves the target.c) no government discretion for achieving the target.d) all of the above.
The “No — Markets Fail Often” camp favoursa) a central bank run by politicians.b) fixed rules for monetary policy.c) a role for government in setting monetary policy.d) all of the above.
Which statement best describes the banking system’s choices before and during the Global Financial Crisis?a) “Profits over prudence” before and during the Global Financial Crisis.b) “Profits over prudence” before, “prudence over profits” during the Global Financial Crisis.c)
Which statement best describes the Bank of Canada’s policy dress code before and during the Global Financial Crisis?a) “Pink polka dot suits” before and during the Global Financial Crisis.b) “Conservative blue ties” before and during the Global Financial Crisis.c) “Pink polka dot
If real GDP is less than potential GDP, an increase in the quantity of money leads to a(n)a) increase in both real GDP and the price level.b) increase in real GDP and a decrease the price level.c) increase in real GDP and no change in the price level.d) decrease in both real GDP and the price level.
Monetary policy to speed up the economya) lowers interest rates and causes a depreciating exchange rate.b) lowers interest rates and causes an appreciating exchange rate.c) raises interest rates and causes a depreciating exchange rate.d) raises interest rates and causes an appreciating exchange
During a recessionary gap, the Bank of Canada shoulda) drink out of the punch bowl.b) take away the punch bowl.c) add punch to the punch bowl.d) catch demons swimming in the punch bowl.
The Bank of Canada will increase interest rates today ifa) the economy is currently in an inflationary gap.b) the economy is currently in a recessionary gap.c) it expects a recessionary gap 18–24 months into the future.d) it expects an inflationary gap 18–24 months into the future.
Which statement describes the effect of monetary policy to accelerate the economy?a) Selling bonds decreases the money supply, raising interest rates, decreasing aggregate demand.b) Selling bonds decreases the money supply, lowering interest rates, increasing aggregate demand.c) Buying bonds raises
When the Bank of Canada buys bonds, thea) increased demand for bonds raises bond prices and interest rates.b) increased demand for bonds raises bond prices and lowers interest rates.c) increased supply of bonds lowers bond prices and raises interest rates.d) decreased supply of bonds lowers bond
Vanessa has a bad credit rating. When she goes to the bank for a loan, the interest rate the bank will give her isa) the target rate.b) the prime rate.c) between the target rate and the prime rate.d) above the prime rate.
Many central bank governors failed to anticipate the Global Financial Crisis, and wish they had responded sooner. Ben Bernanke said, “I’m not one of those people who look at this as some kind of video game . . .This is all very real to me.” Suppose monetary policy was as simple as pushing a
The CPI inflation rate was 0.7 percent in November 2013 and 1.3 percent in July 2013. The CPI inflation rate wasa) in the target range in both November and July.b) below the target range in both November and July.c) in the target range in November but not July.d) in the target range in July but not
The Bank of Canada’s inflation-control target is thea) CPI.b) core CPI.c) CPI, with core CPI as an operational guide.d) core CPI, with CPI as an operational guide.
The price stability goal of the Bank of Canada is to keep thea) unemployment rate low at any cost.b) inflation rate low at any cost.c) inflation rate low enough to not significantly affect decisions.d) inflation rate at zero to not significantly affect decisions.
If the statistical discrepancy is zero, then anya) deficit on the current account equals the surplus on the financial account.b) surplus on the current account equals the surplus on the financial account.c) deficit on the current account means Canada invests more in R.O.W. than the R.O.W. invests
If Canada has a current account surplus on the balance of payments, then to pay for the extra Canadian exports,a) R.O.W. is loaning Canada extra C$.b) R.O.W. is loaning Canada extra foreign currency.c) Canada is loaning R.O.W. extra C$.d) Canada is loaning R.O.W. extra foreign currency.
When a Canadian invests in an Italian bicycle company, this is aa) positive entry on the current account.b) negative entry on the current account.c) positive entry on the financial account.d) negative entry on the financial account.
In 2009, the rate of return on bonds in Canada was 3 percent, while the rate of return on bonds of comparable risk in Japan was 7 percent. If the Japanese investor buys a Canadian bond, then she expects the Japanese yen toa) appreciate against the C$ by 4 percent.b) depreciate against the C$ by 4
Purchasing power paritya) is the best available standard for judging exchange rates.b) does not account for trading limitations.c) does not account for the role of speculators in influencing exchange rates.d) is all of the above.
Suppose C$1.00 5 US$1.00 and C$1.00 5 0.67 euro.Purchasing power parity holds when the same McDonald’s burger, fries, and drink combo sells fora) C$10, US$10, and 10 euros.b) C$10, US$10, and 6.70 euros.c) C$10, US$10, and 15 euros.d) C$10, US$20, and 10 euros.
A falling exchange rate for the Canadian dollara) decreases inflation in Canada.b) decreases exports.c) increases real GDP in Canada.d) all of the above.
Changes in exchange rates affect real GDP and inflation througha) the domestic monetary transmission mechanism.b) international transmission mechanisms.c) purchasing power parity.d) interest rate parity.
If the Bank of Canada informs speculators that it will not let the value of the Canadian dollar rise any more, thena) speculators will react by buying more Canadian dollars.b) the demand for Canadian dollars decreases.c) the demand for Canadian dollars increases.d) the Canadian exchange rate
The effect of increased Canadian real GDP on the Canadian dollar exchange rate is toa) increase imports, which causes a slight depreciation.b) increase investor confidence, which causes a strong appreciation.c) cause a net appreciation the Canadian dollar.d) all of the above
The Canadian dollar depreciates ifa) the Canadian interest rate differential increases.b) the Canadian inflation rate differential increases.c) world prices for Canadian resource exports rise.d) speculators expect a rise in the future price of the Canadian dollar.
The Canadian dollar appreciated relative to the U.S.dollar between May 2009 and October 2009. The value of the Canadian dollar remained constant relative to the euro over this period. This implies that the U.S. dollara) remained constant relative to the Canadian dollar.b) appreciated relative to
If more Americans visit Canada and demand Canadian dollars,a) the Canadian exchange rate rises.b) the Canadian dollar appreciates against the U.S. dollar.c) the U.S. dollar depreciates against the Canadian dollar.d) all of the above.
If the exchange rate for the Canadian dollar falls, the quantitya) demanded of Canadian dollars decreases.b) demanded of Canadian dollars increases.c) supplied of Canadian dollars increases.d) supplied of U.S. dollars decreases.
An exchange rate of C$1.00 5 US$0.90 meansa) 1 Canadian dollar is worth 90 cents U.S.b) 1 U.S. dollar is worth 1.11 cents Canadian.c) the price of one Canadian dollar is 90 cents U.S.d) all of the above.
Both “Yes — Markets Self-Adjust” and“No — Markets Fail Often” camps agree thata) money affects prices and inflation.b) money exchange is better than barter exchange.c) the domestic monetary transmission mechanism indirectly affects real GDP.d) all of the above.
Lower interest rates are aa) positive aggregate supply shock.b) positive aggregate demand shock.c) negative aggregate supply shock.d) negative aggregate demand shock.

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Macroeconomics For Life Smart Choices For All 2nd Edition Avi J. Cohen - Solutions

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