Macroeconomics Understanding The Wealth Of Nations 2nd Edition David Miles, Andrew Scott - Solutions

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If average household income rises and we observe that the demand for pork chops increases, pork chops must be(A) an inferior good.(B) a normal good.(C) a surplus good.(D) a public good.(E) a shortage good.
When the price of pears increases, we expect the following:(A) Quantity demanded of pears rises.(B) Quantity supplied of pears falls.(C) Quantity demanded of pears falls.(D) Demand for pears falls.(E) Supply of pears rises.
Ray and Dorothy can both cook and can both pull weeds in the garden on a Saturday afternoon. For every hour of cooking, Ray can pull 50 weeds and Dorothy can pull 100 weeds. Based on this information,(A) Ray pulls weeds, since he has absolute advantage in cooking.(B) Dorothy pulls weeds, since she
The shape of this PPF tells us that(A) economic resources are perfectly substitutable from production of tea to production of crumpets.(B) citizens prefer that an equal amount of tea and crumpets be produced.(C) the opportunity cost of producing crumpets rises as more crumpets are produced.(D) the
Economic growth is best represented by a movement from(A) A to B(B) B to C(C) C to D(D) D to E(E) E to A
A student decides that, having already spent three hours studying for an exam, she should spend one more hour studying for the same exam.Which of the following is most likely true?(A) The marginal benefit of the fourth hour is certainly less than the marginal cost of the fourth hour.(B) The
Economics is best described as(A) the study of how scarce material wants are allocated between unlimited resources.(B) the study of how scarce labor can be replaced by unlimited capital.(C) the study of how decision makers choose the best way to satisfy their unlimited material wants with a scarce
Which of the following tax systems is designed to redistribute income from the wealthy to the poor?(A) A progressive tax system(B) A regressive tax system(C) A proportional tax system(D) An excise tax system(E) A tariff system
A negative externality in the market for a good exists when(A) the market overallocates resources to the production of this good.(B) spillover benefits are received by society.(C) the marginal social benefit equals the marginal social cost.(D) total welfare is maximized.(E) the marginal private
Which of the following is the best example of a public good?(A) A visit to the orthodontist(B) A session at the tanning salon(C) A large pizza(D) A cup of coffee(E) The International Space Station
If the above firm were a monopsonist, the wage would be _________ and employment would be _________ the competitive outcome.(A) greater than; less than(B) less than; greater than(C) greater than; greater than(D) less than; less than(E) less than; the same as
Which of the following statements is true about the demand for labor?(A) It rises if the price of a substitute resource falls and the output effect is greater than the substitution effect.(B) It falls if the price of the output produced rises.(C) It falls if the price of a complementary resource
Which of the following is most likely to decrease the demand for kindergarten teachers?(A) An increase in funding for education(B) Increased immigration of foreign citizens and their families(C) A decrease in the average number of children per household(D) Subsidies given to college students who
If the government wishes to regulate a natural monopoly so that it produces an allocatively efficient level of output, it would be at an output(A) where price is equal to average total cost.(B) where marginal revenue equals marginal cost.(C) where normal profits are made.(D) where price is equal to
The market structures of perfect competition and monopolistic competition share which of the following characteristics?(A) Ease of entry and exit in the long run(B) Homogenous products (C) Perfectly elastic demand for the firm’s product (D) Long-run positive profits (E) Rigid or “sticky”
Which of the following is necessarily a characteristic of oligopoly?(A) Free entry into and exit from the market(B) A few large producers(C) One producer of a good with no close substitutes(D) A homogenous product(E) No opportunities for collusion between firms
When a monopolist has maximized profit,(A) price is set equal to marginal cost, creating zero economic profit.(B) output is set where price is equal to average total cost.(C) price is set above marginal cost, creating allocative inefficiency.(D) any short-run profit will be eliminated through the
If the perfectly competitive price is currently below minimum average total cost, we can expect which of the following events in the long run?(A) The price will rise and each firm’s output will fall as firms exit the industry.(B) Market equilibrium quantity will increase as firms exit the
If the market price of the output increases from P1 to P3, the profitmaximizing firm will (A) increase output from q1 to q4 and earn positive economic profits.(B) increase output from q1 to q4 and earn a normal profit.(C) increase output from q1 to q3 and earn positive economic profits.(D) increase
The shutdown point is seen at:(A) P0, q0(B) P1, q1(C) P2, q2(D) P3, q3(E) P3, q4
Monopolistic competition is often characterized by(A) strong barriers to entry.(B) a long-run price that exceeds average total cost.(C) a price that exceeds average variable cost, causing excess capacity.(D) a homogenous product.(E) many resources devoted to advertising.
At a quantity of 4, what is the total cost of production?(A) $7.50(B) $2.50(C) $15(D) $30(E) $14.50
The first unit of output to exhibit diminishing marginal productivity is the _____ unit.(A) 1st(B) 2nd(C) 3rd(D) 4th(E) 5th
The total fixed cost of producing a quantity of 4 is(A) $5.(B) $7.50.(C) $7.(D) $2.50.(E) $10.
In the short run, a firm employs labor and capital to produce gadgets.If the annual price of capital increases, what will happen to the shortrun cost curves?(A) The marginal cost and average variable cost curves will shift upward.(B) The average fixed cost and average total cost curves will shift
If a consumer is not required to pay a monetary price for each cookie she consumes, the consumer will stop eating cookies when(A) the total utility from eating cookies is equal to zero.(B) the substitution effect outweighs the income effect from eating cookies.(C) the ratio of marginal utility
Which of the following describes the theory behind the demand curve?(A) Decreasing marginal utility as consumption rises.(B) Increasing marginal cost as consumption rises.(C) Decreasing marginal cost as consumption rises.(D) Increasing total utility at an increasing rate as consumption rises.(E)
If the price of firm A’s cell phone service rises by 5 percent and the quantity demanded for firm B’s cell phone service increases by 10 percent, we can say that(A) demand for firm B is price elastic.(B) supply for firm B is price elastic.(C) firms A and B are substitutes because the
Suppose the price of beef rises by 10 percent and the quantity of beef demanded falls by 20 percent. We can conclude that(A) demand for beef is price elastic and consumer spending on beef is falling.(B) demand for beef is price elastic and consumer spending on beef is rising.(C) demand for beef is
In Figure D.2, identify the area of consumer surplus.(A) 0ACB (B) 0FCB (C) AFC (D) ACE (E) FCE E LL F Price C S A D 0 B Quantity
If the demand for grapes increases simultaneously with an increase in the supply of grapes, we can say that(A) equilibrium quantity rises, but the price change is ambiguous.(B) equilibrium quantity falls, but the price change is ambiguous.(C) equilibrium quantity rises, and the price rises.(D)
The competitive market for gasoline, a normal good, is currently in a state of equilibrium. Which of the following would most likely increase the price of gasoline?(A) Household income falls.(B) Technology used to produce gasoline improves.(C) The price of subway tickets and other public
Which of the following is true of equilibrium in a purely (or perfectly)competitive market for good X?(A) A shortage of good X exists.(B) The quantity demanded equals the quantity supplied of good X.(C) A surplus of good X exists.(D) The government regulates the quantity of good X produced at the
The graph in Figure D.1 shows a nation’s production possibility curve(PPC) for the production of bread and butter. Which of the following is true?(A) The opportunity cost of producing more butter is a decreasing amount of bread.(B) Point X represents unemployed economic resources.(C) The
Which of the following statements is most consistent with a capitalist market economy?(A) Economic resources are allocated according to the decisions of the central bank.(B) Private property is fundamental to innovation, growth, and trade.(C) A central government plans the production and
Scarcity is best defined as(A) the difference between limited wants and limited economic resources.(B) the difference between the total benefit of an action and the total cost of that action.(C) the difference between unlimited wants and limited economic resources.(D) the opportunity cost of
(21.7/21.8) A country has GDP of 10bn pesos and its government has borrowed 1bn pesos of money domestically and $4bn in U.S. dollars. The exchange rate is $1 1 peso. Interest rates are 10% on peso denominated debt and 5% on dollar denominated debt.(a) What is the debt/GDP ratio?(b) How much are
(21.7) The Republic of Argent does 50% of its trade with Eurasia and 50% with Oceania.Over the last three years, the currency has risen from 1 to 1.1 and then to 1.3 against the Oceania dollar. However, against the Eurasian euro it has fallen from 1 to 1/1.1 to 1/1.3.What is the effective exchange
(21.7) There is a fixed exchange rate system between the United States of Albion (U.S.A.)and the Republic of Oz and interest rates in the U.S.A. are always 2% higher than those in Oz due to a constant risk premium. Does UIP hold? What is the relationship between the monetary policy of the two
(Secton 21.3) Interest rates between the United States of Albion (U.S.A.) and the Republic of Oz are currently equal. However, you now think there is a 50% chance that the Oz dollar will depreciate by 30% over the next week. What has to happen to interest rates in Oz to keep a fixed exchange rate
(21.9) To what extent do you think the economic success of the United States is due to the fact it has a single currency? What lessons does this hold for the European Union?
(21.8) In a pure currency board, the central bank can only print domestic currency up to the value of the foreign currency reserves it owns. What would be the impact if it was allowed to include in its assets not just foreign currency reserves but also the central bank holding of government debt?
(21.7) China currently has a fixed exchange rate, capital controls, and independent monetary policy. Is this consistent with the impossible trilogy? How do you think these policies may change as China grows richer?
(21.6) National governments do not try to restrict the flow of finances between regions and sectors within a country. Why should they therefore use capital controls to restrict flows of finance between nations?
(21.6) “Capital account liberalization is like a medicine that is usually beneficial but often produces horrific side effects. Such a medicine cannot be left unregulated.” Discuss.
(21.5) How should IMF interventions differ in the cases of first- and second-generation currency crises?
(21.4, 21.9) If emerging markets were to completely abandon their own currency and dollarize, would this help them overcome their debt intolerance?
(21.3) A government has poor opinion poll ratings in a recession but is attempting to maintain a fixed exchange rate. To defend the currency, it raises interest rates from 5% to 10%.How do you think the markets will respond?
(21.2) Use the insights of the first-generation model to consider the impact of the government refusing to publish its holdings of foreign currency reserves. Would this lower the risk of a currency crises? How would it affect the timing of a crisis?
(Section 21.1) Table 21.1 shows that currency crises lead to sharp falls in GDP growth. Why do you think this is?
(20.9) Total national income in three countries over a recent, and typical, 10 year period are shown below Year 1 2 3 4 5 6 7 8 9 10 Country A 10 8 7 9 10 14 12 16 18 8 Country B 11 12 11 13 15 8 7 16 18 10 Country C 10 12 13 11 11 7 9 5 4 10(a) Is there scope for risk sharing between countries?
(20.4) The exchange rate between the United States of Albion (U.S.A.) and the Republic of Oz is now 1:1 with inflation in both countries expected to be 2% and interest rates 4%.(a) What does PPP imply about the exchange rate in 20 years time?(b) If inflation in the U.S.A. increases to 3% how does
(20.4) This morning the exchange rate between the United States of Albion dollar and the Republic of Oz dollar was 1.50:1 and interest rates in both countries were 6%.(a) If the market thinks that later today the Republic of Oz will raise interest rates to 8%, what will happen to the exchange
(20.3) Interest rates between the United States of Albion (U.S.A.) and the Republic of Oz are currently the same. However, you now think there is a 50% chance that the Oz dollar will depreciate by 30% over the next week. What has to happen to interest rates in Oz to keep a fixed exchange rate with
(20.3) What is the dollar rate of return on a $10,000 investment in Tokyo if the Japanese interest rate is 1% and the yen–dollar exchange rate moves from 100 to 110?
(Section 20.1) The spot euro/£ is 1.5 and the one year forward euro/£ exchange rate is 1.6 per£. What is the forward premium for £ sterling? If covered interest parity holds, what is the euro-sterling interest rate differential?
(20.10) How hard is it for you to find information about companies listed on foreign equity markets? Does this explain the home bias puzzle?
(20.9) What differences are there between national and global financial markets that can account for Figures 20.18 and 20.19?
(20.8) You are aware of all public macroeconomic information but note that many dealers are buying the dollar even though you think the dollar is overvalued. How would you respond? Why do you think order flows appear to predict future exchange rates?
(20.7) Examine the newspapers of recent days. What economic or noneconomic factors have they used to predict likely exchange rate changes?
(20.6) Considering Figure 20.10, in what period would holding dollar, rather than yen, assets have performed best?
(20.5) Is exchange rate volatility an obvious sign of a poorly operating market?
(20.5) Imagine you are a central banker who feels that an exchange rate appreciation would reduce inflationary pressures, but you wish to avoid raising interest rates today.What can you say in public to make the currency rise? What difficulties might this strategy cause?
(20.4) In response to a 1% increase in inflation, the central bank raises nominal interest rates by 1%. Use UIP and PPP to work out what should happen to the current spot rate. How would your answer differ if the central bank raised rates by 2%? Why?
(20.3) Imagine that U.S. interest rates are 5% and Japanese interest rates are 0.5% and you are buying a house in New York. Should you take out a yen denominated mortgage?
(20.3) If the chair of the U.S. Federal Reserve Board warns of an overheating economy, what will happen to the dollar? Why?
(20.2) U.K. interest rates are 4%, U.S. interest rates are 3%, and the current exchange rate is$1.60:£1. What should be the 6 month forward rate? The one year ahead forward rate?
(Section 20.1) What has happened to the yen–dollar or yen–euro rate over the last month?What factors help explain it?
(19.6) In 2003, several European nations were running large fiscal deficits. What would our net savings net exports analysis predict should happen to the euro?
(19.6) The Hong Kong dollar depreciates by 5% against the U.S. dollar, but Hong Kong inflation also rises by 5%. What will happen to the Hong Kong current account? How would your answer differ if the authorities managed to prevent inflation from increasing?
(19.5) Figure 19.9 shows the United States is a net debtor to other countries, yet Table 19.3 shows that its investment income position in the current account was nearly in balance.What might explain this?
(19.4) Assuming in Table 19.3 that “Net Other Investment” covers volatile short term financing that is easily reversed and that Central Banks cannot continuously use reserves to fund their balance of payments, assess the vulnerability of each country’s capital account position.
(19.4) A German investor places some funds with an emerging market stock market fund and intends to leave it there for 5 years and have all dividends paid into a Munich bank account. How will this affect the German current and capital account in each of the next five years?
(19.3) A multinational company has asked you for a thirty-year forecast of various African exchange rates against the U.S. dollar. The firm will give you any macroeconomic forecasts you need. What data would you ask for?
(19.3) You have been hired as a statistician by an international economic institution and asked to construct estimates of PPP exchange rates. What data do you need and what problems would you expect?
(19.2) What does the increasing impact of the Internet imply for the law of one price?
(Section 19.1) The nominal exchange rate between Eurasian and Oceanian dollars is 3:1.The average shopping trip costs E$400 in Eurasia and O$75 in Oceania. Which country is cheapest? What is the real exchange rate?
(18.4) Suppose that short-term interest rates in an economy fluctuate as the central bank tries to keep inflation stable in the face of various types of shocks. People anticipate that short-term interest rates will fluctuate around 6%, but that deviations from that level will be persistent.
(18.4) Suppose it is believed that the U.S. dollar will steadily depreciate against the euro at a rate of 2% a year over the next three years. After that, people expect the dollar–euro rate to be steady. Ten-year U.S. government dollar bonds yield 8%. What would you expect the yield to be on
(18.4) The central bank in a country has set the short-term interest rate at 6%. It is widely expected that the short-term rate will stay at this level for a year and then rise to 7% for a year before moving back to an equilibrium level of 6.5%, where it is expected to remain from two years ahead
Calculate the percentage change in the price of each bond between the start of one year and the start of the following year.Assume yields to maturity remain at a constant level of 7% throughout. Now add the coupon yield (the ratio of coupon to price) to the percentage change in price. What do the
(18.2) Consider each of the bonds you priced in question
(18.2) Using a spreadsheet, calculate the price of the following bonds on the assumption that yields to maturity are 7% for all maturity dates:(a) a bond with exactly 10 years to maturity that pays no coupon and has a face value of$100(b) a bond that pays an annual coupon worth 5% of face value and
Investment expenditure is sensitive to yields on five-year bonds. For every 1% (100 basis points) rise in yields, investment expenditure falls by 0.5%. Consumption expenditure is also sensitive to yields. For every 1% rise in yields on five-year bonds, consumption falls by 0.25%. Government
(Section 18.1) Assume short-term interest rates are set in the way outlined in question
(18.7) Suppose that two-year bonds the U.S. government issues yield 1% less than bonds the U.K. government issues but that yields on 10-year U.S. debt are 2% more than 10-year U.K.debt. What might this tell you about what direction people think the dollar–pound exchange rate is going?
(18.7) On risk grounds, should governments continue to issue fixed-rate, nominal debt when their sources of revenue are, largely, linked to inflation? Would they not be better off issuing inflation-proof debt?
(18.6) “Ricardian equivalence implies that the supply and demand curves for government debt move by the same amount.” What does this statement mean? Is it likely to be true?
(18.4) Consider the kind of inflation shocks described in question 1 and analyze how they would affect yields for inflation-proof (indexed) bonds.
(18.4) How would you expect a rise in inflation to affect the yields and prices of nominal, fixed-rate bonds? Distinguish between an anticipated and unanticipated shock to inflation and between one that was expected to persist and one that was temporary.
(18.2) Suppose yields on one-year bonds are at 6%, on two-year bonds are at 7%, and on three-year bonds are at 6.5%. What does this imply about future short-term interest rates if the expectations theory of the yield curve is valid?
(Section 18.2) What do you expect to happen to short-term interest rates when the yield curve is unusually steep? Would you expect an inverted yield curve, where longer rates are below shorter rates, to be sustainable?
(17.7) A stock is expected to pay a dividend of $3.00 each year forever. You assess that the expected return is 10% and from this you conclude that the fair price should be $30. But you know that stock prices sometimes deviate from fair value by significant amounts. When those deviations occur, you
(17.6) Suppose your weight fluctuates randomly from month to month; it is as likely to go up as down. Your current weight is 161 pounds. Looking back at records of your weight over the past year the pattern is:Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec.150 145 148 153 157 155 158 160
You are on a game show where you have already won $500,000. You can quit now with the $500,000 or take a chance by answering a question you are not sure of. If you guess right, your winnings go to $1,000,000, and you walk away a millionaire. If you guess wrong, you get to keep a mis464 CHAPTER 17
(17.5) Suppose you are risk neutral, so that your coefficient of risk aversion is
(17.5) In an economy, aggregate dividends paid by companies are expected to grow in line with GDP. The trend rate of growth of GDP is 2.5% per annum. The required rate of return on equities equals a safe rate plus a risk premium. The safe (real) rate is 3%, and the risk premium is 5%. What would
(17.4) Suppose that the price of a share always either goes up by 20% or falls by 30% over the next year whatever its current level. The chances of an up move are 0.75 and the chances of a down move are 0.25. The stock pays no dividends. Suppose you know nothing about the recent performance of the
(Section 17.3) Investors expect that a company will pay dividends per share of $1.50 for each year over the next five years. The next dividend is due a year from now. They also anticipate that the share price at the end of five years will be $17. They require an expected rate of return of 9%.(a)
(17.7) Suppose you know that some other people know some things that are relevant for predicting future corporate earnings. You do not know what these things are nor who knows them. How does this affect your response to a rise in demand for stocks and big price increases? Is it rational to follow

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Macroeconomics Understanding The Wealth Of Nations 2nd Edition David Miles, Andrew Scott - Solutions

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