Macroeconomics Global Edition 6th Edition Stephen D. Williamson - Solutions

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In a recession, expansionary monetary policy is designed to(A) decrease aggregate demand so that real prices will decrease, which is good for the economy.(B) increase aggregate demand, which will increase real output and increase employment.(C) increase unemployment, but low prices negate this
The “crowding-out” effect is the result of(A) decreasing interest rates from contractionary fiscal policy.(B) increasing interest rates from expansionary fiscal policy.(C) increasing interest rates from expansionary monetary policy.(D) increasing unemployment rates from expansionary monetary
Automatic stabilizers in the economy serve an important role in(A) increasing the length of the business cycle.(B) balancing the budget.(C) increasing a budget surplus in a recession.(D) decreasing net tax revenue during economic growth.(E) lessening the impact of a recession.
Of the following choices, the one most likely to be preferred by supply-side economists would be(A) increased government spending.(B) higher tariffs on imported goods.(C) lower taxes on household income.(D) higher welfare payments.(E) a tax credit on capital investment.
If the economy is experiencing a recession, how will a plan to decrease taxes for consumers and increase spending on government purchases affect real gross domestic product (GDP) and the price level?(A) real GDP rises and the price level falls.(B) real GDP falls and the price level rises.(C) real
The Phillips curve represents the relationship between(A) inflation and the money supply.(B) unemployment and the money supply.(C) the money supply and the real interest rate.(D) inflation and unemployment.(E) investment and the real interest rate.
The best example of a negative supply shock to the economy would be(A) a decrease in government spending.(B) a decrease in the real interest rate.(C) an increase in the money supply.(D) unexpectedly higher resource prices.(E) technological improvements.
When government uses expansionary fiscal policy, the spending multiplier is often smaller than predicted because of(A) lower taxes.(B) increasing net exports.(C) falling unemployment.(D) lower interest rates.(E) rising price levels.
Suppose the economy is operating beyond full employment. Which of the following is true at this point?(A) The short-run aggregate supply curve is horizontal.(B) Further increases in aggregate demand will result in a lower price level.(C) A decrease in aggregate demand will result in a lower price
If the economy is operating below full employment, which of the following will have the greatest positive impact on real gross domestic product?(A) The government decreases spending with no change in taxes.(B) The government increases spending with no change in taxes.(C) The government decreases
Suppose an economy is at full employment. An inflationary gap could be caused by(A) rising investor pessimism.(B) falling real interest rates.(C) higher income taxes.(D) rising trade deficits with other nations.(E) falling consumer wealth.
The unemployment rate and inflation rate in Maxland are both rising.What has happened to the economy of Maxland?(A) Short-run aggregate supply has increased.(B) Aggregate demand has increased.(C) Short-run aggregate supply has decreased.(D) Aggregate demand has decreased.(E) Long-run aggregate
A nation is experiencing growth in real GDP and rising rates of inflation. What has likely caused these changes to the economy?(A) Short-run aggregate supply has increased.(B) Aggregate demand has increased.(C) Short-run aggregate supply has decreased.(D) Aggregate demand has decreased.(E) Long-run
If a nation’s economy is at full employment, which of the following is likely to create a recessionary gap?(A) Investor optimism is improving.(B) Government spending rises and income taxes fall.(C) Household wealth is rising.(D) Energy prices are falling.(E) The trade deficit is rising.
If the marginal propensity to save in Foxlandia is equal to .10, and the government decreases taxes by $1 billion, national income in Foxlandia will(A) stay unchanged.(B) decrease by $10 billion(C) increase by $1 billion.(D) increase by $9 billion.(E) increase by $10 billion.
The marginal propensity to consume in Jamesburg is equal to .80. If government spending in Jamesburg decreases by $500, how will this ultimately affect national income?(A) Decreases by $500(B) Increases by $1,500(C) Decreases by $2,500(D) No change(E) Decreases by $5,000
An increase in corporate optimism will have which of the following effects in the market for loanable funds?(A) An increase in supply, lowering the interest rate.(B) A decrease in demand, increasing the interest rate.(C) An increase in both supply and demand, and an ambiguous change in interest
A stronger stock market is likely to cause which of the following changes in the consumption function and aggregate demand?
To deflate nominal gross domestic product (GDP), you must(A) divide nominal GDP by the price index (in hundreds).(B) multiply real GDP by the price index.(C) divide real GDP by the price index (in hundreds).(D) multiply nominal GDP by the price index (in hundreds).(E) divide nominal GDP by real GDP.
If the consumer price index (CPI) increases by 2 percent and your nominal income increases by 8 percent, your real income has approximately(A) increased by 4 percent.(B) decreased by 4 percent.(C) increased by 6 percent.(D) decreased by 6 percent.(E) increased by 10 percent.
When a new apartment complex is built, it counts toward _____ in GDP calculations.(A) Rent(B) Consumption(C) Exports(D) Investment(E) Profits
In a typical business cycle, what immediately follows the peak?(A) Recession(B) Trough(C) Growth(D) Expansion(E) Production
The inflation rate is calculated as(A) the percentage change in the gross domestic product.(B) the percentage change in the labor force.(C) the percentage change in the consumer price index.(D) the percentage change in the federal funds rate.(E) the percentage change in the producer price index.
Due to a lack of customers, Glene’s Bar and Grill goes out of business in Heatherton. Glene’s 50 employees are now without jobs, but they are all seeking employment in Heatherton. How does the closing of Glene’s business affect the labor force participation rate and the unemployment rate in
In the city of Heatherton, the labor force participation rate is _____, and the unemployment rate is _____.(A) 50%; 25%(B) 75%; 25%(C) 50%; 33%(D) 25%; 25%(E) 25%; 50%
Fernanda is 20 years old and has a part-time job at a bookstore. Last week she had a job interview for an open position at the bakery.Fernanda’s status in the labor market would be(A) unemployed.(B) out of the labor force.(C) a discouraged worker.(D) employed.(E) marginally attached.
For years you work as a grocery checker at a supermarket, and one day you are replaced by self-serve checkout stations. What type of unemployment is this?(A) Cyclical(B) Structural(C) Seasonal(D) Frictional(E) Discouraged
An American firm moves a manufacturing plant from the United States to Brazil. How will this affect gross domestic product (GDP) in the United States and in Brazil?(A) U.S. GDP falls and Brazil’s GDP falls.(B) U.S. GDP rises and Brazil’s GDP falls.(C) U.S. GDP falls and Brazil’s GDP remains
Economic scarcity is the imbalance between _____ and _____.(A) unlimited wants; unlimited resources(B) unlimited wants; limited profits(C) unlimited wants; limited resources(D) unlimited consumption; limited production(E) limited wants; limited resources
You observe that the price of tomato sauce has fallen, and more tomato sauce is being exchanged in the market. What could explain this?(A) Income has risen, and tomato sauce is an inferior good.(B) The price of pizza crusts, a complementary good with tomato sauce, has fallen.(C) There are fewer
Suppose smartphones are a normal good and are exchanged in a competitive market. All else equal, an increase in household income will(A) increase the equilibrium quantity and increase the price.(B) decrease the equilibrium quantity and increase the price.(C) increase the equilibrium price, but the
Using Figure D.1, which of the following movements would be described as economic growth?(A) W to X(B) X to Y(C) W to Y(D) Z to W(E) X to Z
Which of the following statements is true of these production possibilities?(A) Nation X has comparative advantage in paper production and should trade paper to Nation Y in exchange for crepes.(B) Nation X has comparative advantage in crepe production and should trade crepes to Nation Y in exchange
Which of the following is an example of capital as an economic resource?(A) A cement mixer(B) A barrel of crude oil(C) A registered nurse(D) A share of corporate stock(E) A bachelor’s degree
4. Plot the interest rate on a 90-day financial commercial paper and the inflation rate for the United States and Germany in the period 2000–2015. To what extent does the nominal interest rate reflect the actual inflation rate? Is this consistent with the predictions of the monetary intertemporal
3. Plot the interest rate on a three-month certificate of deposit for the United States and China on an annual basis. What do you observe? How do the properties of assets explain the trends in this data?
2. How do the results in part (b) compare to the ones in part (a)? Explain.
1. (a) Plot the quarterly percentage increases in the consumer price index and in M1 for Brazil and China.(b) Calculate percentage increases in the consumer price index and in M1 for annual data.
12. LO 7 Explain how moral hazard arises in each of the following situations:(a) A dealer is taking great risks in the foreign exchange market using his company’s capital.(b) A bank gives a loan to an individual to open a cofee shop.(c) A student is appointed to manage the class pre-session
11. LO 6 Alter the Diamond–Dybvig model in the following way. Suppose that there are two assets, an illiquid asset that returns 1 + r units of consumption goods in period 2 for each unit invested in period 0, and a liquid asset that returns one unit of consumption goods in period 1 for each unit
10. LO 6 In the Diamond-Dybvig banking model, suppose that, instead of a bank, consumers can trade shares in the production technology. That is, each consumer invests in the production technology in period 0. Then, if the consumer learns that he or she is an early consumer in period 1, he or she
9. LO 6 In the Diamond–Dybvig banking model, suppose that the banking contract includes a suspension of convertibility provision according to which the bank allows only the irst tN depositors in line in period 1 to withdraw their deposits.Will there still be a bank run equilibrium?Carefully
8. LO 5 Consider the following assets: (i) brand names; (ii) a three-month Treasury bill; (iii) a share in Facebook; (iv) a computer program; and(v) a 12-month government bond. For each asset, answer the following questions:(a) Does the asset have a high rate of return or a low rate of return on
7. LO 4 How would we modify the Friedman rule in the context of a New Keynesian sticky price model like the one in Chapter 14, assuming that monetary policy is the only policy that can be used to close output gaps? Explain.
6. LO 4 Suppose that there are negative shocks to total factor productivity that cause aggregate output to luctuate. What does this imply for the Friedman rule? In other words, how should the central bank conduct monetary policy optimally? Discuss.
5. LO 4 Suppose that consumers are expecting an increase in bank fees and are, therefore, unwilling to use banks for transactions even if the nominal interest rate is zero. Further, suppose that the more currency consumers hold, the more people are encouraged to avoid banks for transactions as
4. LO 3 Suppose, in the monetary intertemporal model, that the government can pay interest on money, inancing this interest with lump-sum taxes on consumers. If the nominal interest rate on money is the same as the nominal interest rate on bonds, determine the efects in the model, illustrating this
3. LO 3 In the monetary intertemporal model, suppose the central bank issues money in exchange for capital, and rents this capital out to irms each period, thus earning the market real interest rate r on the capital. Over time, as the central bank earns interest on its capital holdings, it uses
2. LO 2 As an alternative to the economy depicted in Figure 18.1, suppose that there are three types of people, but now the person who consumes good 1 produces good 3, the person who consumes good 2 produces good 1, and the person who consumes good 3 produces good 2.(a) Determine who trades what
1. LO 2 Consider the absence-of-double-coincidence economy depicted in Figure 18.1. Determine who would trade what with whom if good 2 were used as a commodity money. Explain your results.
18.16 How should a central bank act under the laissez-faire view? What is the connection between a laissez-faire policy and moral hazard?
18.15 How can bank runs be prevented?
18.14 Why are there two equilibria in the Diamond–Dybvig banking model? How do the two equilibria compare?
18.13 What features of real-world banks does a Diamond–Dybvig bank have?
18.12 How does a Diamond-Dybvig bank experience a bank run and fail?
18.11 What is unusual about depository institutions relative to other financial intermediaries?
18.10 What is potentially the most significant problem with direct lending from ultimate lenders to ultimate borrowers? Explain your answer.
18.9 What are the four defining characteristics of a financial intermediary?
18.8 List four properties of assets, and explain why these properties are important.
18.7 Why don’t real-world central banks want to follow the Friedman rule?
18.6 What happens to efficiency when the nominal interest rate is positive?
18.5 What are the costs of anticipated inflation?
18.4 What is the Friedman rule for optimal money growth?
18.3 How does an absence of double coincidence of wants make money socially useful?
18.2 What do Yap stones and the playing card money of New France have in common? What is different about these two forms of money?
18.1 What are five forms that money has taken historically?
3. Plot the current account balance in the United States and the United Kingdom. What do you observe? Are we closer to having a fixed exchange regime in one of these countries?
2. Plot the ratio of M2 and M3 for the United States to M2 and M3 for Australia and the price of an Australian dollar in U.S. dollars. What do you observe? Is this consistent with the models in this chapter?
1. Plot eP*P, where P* is the consumer price index in the EU, e is the price of euro in terms of U.S. dollars, and p is the U.S. consumer price index. What do you observe in the plot?Discuss.
12. LO 7 It has been argued that Greece, which efectively has a ixed exchange rate with the rest of the EMU, would have done better after the 2008–2009 recession if it were not part of the EMU, and instead had a lexible exchange rate. Does this argument make sense? Why or why not? Discuss, with
11. LO 7 Suppose, in the New Keynesian open economy model, that there is a decrease in world interest rate r*.(a) With the aid of a diagram, determine what happens when the exchange rate is lexible.(b) Repeat part (a) for the case of a ixed exchange rate.(c) What are your policy conclusions?
10. LO 7 Suppose in the New Keynesian open-economy model, that there is a positive output gap.There is also a liquidity trap at the world level, in that r* 5 0. Is there anything that economic policy can do to close the output gap? If so, what?Explain.
9. LO 7 Suppose, in the New Keynesian open economy model, that there is a negative shock in future total factor productivity and there are no capital controls.(a) Under a lexible exchange rate, what are the equilibrium efects?(b) Now suppose that there is a ixed exchange rate. Repeat part (a).(c)
8. LO 6 Suppose that capital controls take the form of a total ban on capital inlows, but all capital outlows are permitted. Also suppose that initially the current account surplus is zero. Determine the efects of a temporary increase in total factor productivity, and of a temporary decrease in
7. LO 6 The domestic central bank increases the supply of money under a lexible exchange rate regime, leading to a depreciation of the nominal exchange rate. If the government had imposed capital controls before the increase in the money supply, would this have had any efect on the exchange rate
6. LO 3 Suppose a lexible exchange rate. There is an increase in the degree of uncertainty in credit markets, which afects irms but not consumers, as considered in Chapter 9.(a) Determine the efects on aggregate output, the price level, the exchange rate, and the real interest rate. Explain your
5. LO 6 Consider a country with a lexible exchange rate, and which initially has a current account surplus of zero. Then, suppose there is an anticipated increase in future total factor productivity.(a) Determine the equilibrium efects on the domestic economy in the case where there are no capital
4. LO 3, 4 Suppose that better transaction technologies are developed that reduce the domestic demand for money. Use the monetary small open-economy model to answer the following:(a) Suppose that the exchange rate is lexible.What are the equilibrium efects on the price level and the exchange
3. LO 3, 4 Suppose that government expenditure decreases temporarily. Determine the efects on aggregate output, absorption, current account surplus, nominal exchange rate, and price level.How would your results vary under lexible and ixed exchange rates, respectively?
2. LO 3, 4 In the equilibrium small open economy model, suppose that there is a negative temporary shock in total factor productivity.(a) If the exchange rate is lexible, determine the efects on aggregate output, absorption, current account surplus, nominal exchange rate, and price level.(b) Repeat
1. LO 3, 4 Suppose that there is a cost to carrying out transactions in the foreign exchange market.That is, to purchase one unit of foreign currency requires e(1 +a) units of domestic currency, where e is the nominal exchange rate and a is a proportional fee. Suppose that a decreases. What will be
17.19 How does the exchange rate regime matter for stabilization policy in the New Keynesian model?
17.18 What is the best approach to closing an output gap under the flexible and fixed exchange rate regimes, respectively? Is it a monetary or a fiscal policy? Discuss.
17.17 Are capital controls effective in practice? Explain.
17.16 What happens to the nominal exchange rate when capital controls are in place under flexible and fixed exchange rate regimes, respectively?
17.15 What do capital controls imply for the response of the economy to shocks?
17.14 Give two examples of countries where capital controls were imposed.
17.13 If the capital account surplus is positive, what can we say about the current account surplus?
17.12 What are the advantages and disadvantages of a common currency area or currency union?
17.11 What should a government do under a fixed exchange rate if market forces tend to push the exchange rate away from the value fixed by the government?
17.10 List the key pros and cons of fixed versus flexible exchange rate regimes.
17.9 What is the effect of an appreciation of domestic currency under a flexible exchange rate?
17.8 Explain why domestic monetary policy is not independent under a fixed exchange rate.
17.7 How would an increase in money supply affect the nominal exchange rate and price level under flexible and fixed exchange rate regimes, respectively? Is money neutral under both regimes? Explain.
17.6 Determine the effects of a real foreign shock under flexible and fixed exchange rates, respectively.
17.5 Determine the effects of a nominal foreign shock under flexible and fixed exchange rates, respectively.
17.4 Describe the role of the International Monetary Fund.
17.3 What are the different systems for fixing the exchange rate? Describe how each works.
17.2 What countries in the world have flexible exchange rates? Which have fixed exchange rates?
17.1 Does purchasing power parity hold in practice in the short run? Why or why not? Does it hold in the long run? Why or why not?

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Macroeconomics Global Edition 6th Edition Stephen D. Williamson - Solutions

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