Macroeconomics Theories And Policies 10th Global Edition Froyen, Richard T - Solutions

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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.
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
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 Crepes X W. Y Z Paper
Which of the following statements is true of these production ossibilities?(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
Suppose the saving rate were increased from 10 percent to 20 percent in a middle-income country such as Egypt. What prediction does the neoclassical growth model have for the effect this would have on per capita income in Egypt over the next 30 years? Illustrate the predicted effect with a graph.
Why do many economists think that large cross-country income differences are hard to reconcile with implications of the neoclassical growth model?
What does it mean to say that growth is exogenous or endogenous? How does the production structure of an endogenous growth model differ from that of the neoclassical growth model?
Explain the convergence hypothesis. How does the hypothesis of absolute convergence differ from that of conditional convergence?
What features of the neoclassical growth model led to the criticism that the model did not really explain the processes that generated economic growth? How do endogenous growth models try to remedy this possible weakness of the neoclassical model?
In the neoclassical growth model with exogenous technological change, the long-run equilibrium rate of growth in output is independent of the saving rate (S/Y). Does this mean saving is unimportant in the neoclassical growth model? Explain.
Explain how technological change is incorporated in the neoclassical growth model.
President Ronald Reagan often said that government was not the solution; government was part of the problem. In what way is this consistent with the supply-side policy views?
Use the IS–LM and aggregate demand–aggregate supply diagrams to present the case in favor of the George W. Bush administration tax cuts as a stimulus to growth. What criticisms would Keynesian economists put forward to refute this case?
Outline recent (post-1998) trends in U.S. growth rates in GDP and labor productivity. What are the possible factors responsible for these trends?
An investment tax credit allows firms to deduct a portion of investment spending from their corporate tax liability. Analyze the effect on output of such a tax credit in the Keynesian model and, alternatively, within the supply-side framework.
Explain the critiques made by Keynesians against the major propositions of the supply-side economists.
Explain how supply-side explanations of the determinants of saving, investment, and capital formulation differ from those of classical economists.
Compare Keynesian and supply-side economists’ positions on the effects of reduction in the income tax rate.
Outline the main features of a supply-sider’s prescription for policies to foster noninflationary economic growth. How do these policy prescriptions differ from those of Keynesians?
Suppose that the marginal propensity to consume out of disposable income is 0.8 and the marginal income tax rate is 0.1. What is the value of the autonomous expenditure multiplier? Now suppose that the marginal income tax rate rises to 0.2. What is the new value of the multiplier? Explain the
Return to the simple Keynesian model in Section 18.4 . Suppose that: G is 700; I is 310; and C is given by C = 250 + 0.8YD Net taxes ( T ) are given by the tax function T = -50 + 0.25Y Calculate equilibrium income. Now assume that I falls 80 units to 230. Calculate the new level of equilibrium
Now suppose that the intercept of the net tax function ( t0 ) changes from 50 to 40. Find the new level of equilibrium income.
Refer to the first equilibrium income you calculated in problem
Explain the Keynesians’ objections to fixed rules for fiscal policy, such as a constitutional amendment that would mandate a balanced federal budget.
Suppose that, within the simple Keynesian model used in Section 18.4 , the level of government spending ( G ) was 100, the level of investment spending ( I ) was 75, and consumption( C ) was given by C = 25 + 0.8YD Net taxes ( T ) are initially given by the tax function T = -50 + 0.20Y Calculate
Using the concept of an automatic fiscal stabilizer, explain how the effects of an exogenous shock such as changes in autonomous investment demand or government spending on economic activity are reduced.
Explain the central element of the partisan theory of fiscal policymaking. Contrast the implications of the partisan theory concerning the relationship of fiscal policy to the business cycle with those of the public-choice view.
Some economists who accept the public-choice view of the fiscal policy-making process have concluded that a constitutional amendment to mandate a balanced federal budget would be desirable. Summarize their arguments in favor of such an amendment.
Currently, no major central bank closely targets the money supply. Why do you think this is the case? Still, no major central bank completely ignores money growth numbers. Why?
Suppose that the IS schedule is vertical because the interest elasticity of investment demand is zero; investment is completely insensitive to the interest rate. Is it still true that for the case of IS shocks a money-supply target is preferable to an interest-rate target? Show why or why not using
What relationship do you see between the problems many countries have experienced with money supply targeting and the move to inflation targeting?
Explain the time inconsistency problem as it pertains to monetary policy.
Suppose the Federal Reserve is using an interest rate as a target, while real income is the ultimate policy target, and there is an autonomous drop in business investment that the Federal Reserve had not predicted. Use the IS – LM model to show the effects of the shock.Would income have been
Describe the shift that took place in Federal Reserve policy in 1979. Explain the reasons for this shift.
Using the IS – LM framework, analyze whether an increase in the instability of the money demand function would increase or decrease the desirability of intermediate targeting a monetary aggregate.
Describe the difference between an ultimate target and an intermediate target in the conduct of monetary policy.
Explain how the independence of the monetary policy-making authority is ensured in the United States.
Explain the concept of open market operation. How would the federal funds rate be affected by a Federal Reserve purchase of securities in the open market? Would the rate rise or fall? Explain.
Within the IS–LM model, i llustrate the conflict the Federal Reserve faces between trying to control the money supply and trying to achieve “desirable” interest-rate levels.
The Federal Reserve found it necessary to employ new tools to expand credit during the financial crisis that began in 2007. Provide an example of the tools they developed, and explain the problems that made the new tools necessary.
Within the IS–LM schedule model used in Chapters 6 and 7 , s how how income and the interest rate will be affected by each of the following changes:a. An increase in the required reserve ratio for checkable deposits.b. An open-market sale of securities by the Federal Reserve.c. A decrease in the
Explain the concept of the money multiplier. What factors determine the size of the money multiplier?
Suppose the level of the required reserve ratio on checkable deposits was 0.10. Also assume that the public’s holdings of currency were constant, as were banks’ desired excess reserves.Analyze the effects on the money supply of a $1,000 open-market sale of securities by the Federal Reserve. In
What is the maximum amount of the increase in checkable deposits that can result from a $1,000 increase in legal reserves if the required reserve ratio for checkable deposits is 10 percent? Explain how this increase comes about in the banking system. Give two reasons why the actual increase may
Suppose the Federal Reserve wants to increase bank reserves. Explain the various measures that could be used to do so. In each case, illustrate the link between the Federal Reserve’s policy action and the level of bank reserves.
Explain the official measures of money supply in the United States. What is the rationale of having a broader measure of money?
Within the Mundell–Fleming model assuming imperfect capital mobility, analyze the effect of a fall in autonomous investment. Focus on the effect on income. Is this effect larger under fixed or flexible exchange rates? (Assume that the BP schedule is flatter than the LM schedule.)
Within the Mundell–Fleming model assuming perfect capital mobility, analyze the effect of a decrease in government spending for the case of a fixed exchange rate.
Within the Mundell–Fleming model assuming perfect capital mobility, analyze the effects of a positive shock to money demand (i.e., an increase in the demand for money for given levels of income and the interest rate). Consider the effect of the shock on income when the exchange rate is fixed and
What is meant by sterilization of the effects of foreign exchange market intervention?Explain how sterilization works in the case of imperfect capital mobility.
Consider the effects of a lump-sum tax cut, from T0 to T1 , in a fixed exchange rate system.Consider both imperfect and perfect capital mobility. In which case will the tax cut have a larger effect on income?
Explain why with perfect capital mobility, monetary policy is completely ineffective when exchange rates are fixed.
Within the Mundell–Fleming model assuming imperfect capital mobility, analyze the effects of the following policy actions for both the fixed and flexible exchange rate cases:a. A decline in the money supply from M0 to M1 .b. A decrease in government spending from G0 to G1 .Include in your answer
Explain why the BP schedule in Figure 15-1 is upward sloping. What factors cause a shift in the BP schedule? Explain.
4), explain why these two deficits might be expected to at times move together. Why might this not be the case at other times?
Sometimes a country’s current account deficit and the country’s government budget deficit are termed the “twin” deficits because they move closely together in the same direction.Relying on the analysis in Section 14.6 (especially equation
Suppose you observe that a country has a large current account surplus. From this fact, what can you determine about whethera. the country has a balance of payments surplus or deficit?b. the country has a surplus or deficit in its financial account?
Illustrate graphically the effects in the foreign exchange market of an expansionary monetary policy carried out by the foreign country in our two-country framework. Consider the cases of both a fixed and a flexible exchange rate.
What are some of the relative advantages and disadvantages of fixed versus flexible exchange rates?
“Adoption of a system of flexible exchange rates would free monetary and fiscal policy for use in attaining domestic goals of full employment and price stability.” Do you agree or disagree with this statement? Explain.
Taking account of the effect on both the trade balance and the financial account, explain the relationships between balance of payments equilibrium and both expansionary monetary and fiscal policies within a fixed exchange rate system.
Explain the relationship between the trade balance and the level of economic activity in a fixed exchange rate system. Why does this relationship create a potential conflict between the goals of internal and external balance?
Describe the Bretton Woods system of exchange rate determination that was set up at the end of World War II and lasted until 1973.
Why could the United States be able to run continual balance of payments deficits during the Bretton Woods period? Why could other countries not run persistent deficits without losing their reserves? Explain.
Analyze the effects of an autonomous fall in the demand for a country’s exports under fixed and flexible exchange rate systems. In each case, indicate the effects on the country’s balance of payments and on the exchange rate.
Explain how the exchange rate for a country is determined undera. a fixed exchange rate system.b. a flexible exchange rate.c. a managed, or dirty, float.
Define balance of payments accounts. Explain the types of items listed in the balance of payments accounts.
Explain one area in which the Keynesian and the Classical economists have reached some level of agreement.
Describe the major policy controversy in economics. Why does such controversy still remain today without resolution? Explain.
Which of the frameworks that we have considered do you view as the most useful in explaining the behavior of the economy and in providing proper policy prescriptions? Have events since 2007 affected your choice?
One rule that has been proposed for fiscal policy is that the government budget should be balanced each year—no budget deficits. What position do you think each of the following groups of economists would take on this proposal?a. New classical economistsb. Keynesiansc. Real business cycle
Within the classical, real business cycle, Keynesian, monetarist, and new classical models, analyze the effect of an autonomous fall in the price of imported oil. Explain the effect of this change on output, employment, and the aggregate price level within each framework.
The question of what information market participants possess at any point in time and how quickly they learn—in other words, the information structure of the model—is a distinguishing feature of the different macroeconomic systems discussed. With reference to the classical, Keynesian,
Suppose that investment demand in a given economy is predicted to be weak next year, say 10 percent below this year’s level, because of an exogenous shock. All other components of aggregate demand are predicted to be at levels comparable to this year’s. These levels were consistent with high
During the administration of George W. Bush, reductions in the tax rates on labor income, dividends, and capital gains were the centerpiece of fiscal policy. Analyze the effects of these tax cuts within the real business cycle theory.
Explain the relationship of the new Keynesian models to the Keynesian models considered in Chapters 5 through 8 .
New classical economists believe that in useful macroeconomic models (a) agents optimize and (b) markets clear. Do the models that emerge from the new Keynesian research effort have either or both of these properties? Explain.
Explain how the insider–outsider model accounts for the persistent high unemployment in European countries during the post-1980 period.
Suppose wage data show that workers with identical skills are paid very different wage rates in different industries. Is this difference consistent with the assumption that the labor market is competitive? Is it consistent with the efficiency wage model?
Explain the types of menu cost that a firm may have to incur if it changes its product price .
Suppose there was a change in preferences in a real business cycle model such that the representative agent valued leisure more and consumption goods less. How would output and employment be affected by the change?
Explain the real business cycle theorists’ views on the proper conduct of monetary and fiscal policies.
Within the simple real business cycle model presented in Section 12.1 , analyze the effect of a negative shock to technology (a negative shock to z t ) that lasts for one period.
Explain the main features of real business cycle models. How does the real business cycle theorists’ view of the causes of fluctuations of output and employment differ from the view of the Keynesians?
During the administration of George W. Bush, reductions in the tax rates on labor income, dividends, and capital gains were the centerpiece of fiscal policy. Analyze the macroeconomic effects of such tax cuts within the new classical model.
How would a supply shock, such as the exogenous increase in the price of oil analyzed in Section 8.5 , affect the aggregate price level and the level of real output in the new classical model?
Comment on the following statement. Do you agree or disagree with this view concerning the effectiveness of systematic or anticipated fiscal policy actions within a new classical economic framework? Explain.
Why attach the adjective new to classical to describe the model in this chapter? How does this analysis differ from the classical model presented in Chapters 3 and 4 ?
Even within the new classical model, anticipated policy actions such as an increase in the money supply will affect nominal income. Explain why the adjustment of economic agents’expectations, which offsets the real effects of such a policy change, does not offset the nominal effects as well.
Compare the new classical and monetarist positions concerning the effectiveness of aggregate demand management policies to stabilize output.
Explain the views of the Keynesians on rational expectation formulation and its implication on the effectiveness of stabilization policy.
Explain the major criticisms of the New Classical Economists against the Keynesian orthodoxy.
Explain in what sense the Keynesian view of price expectations is considered naïve by the New Classical economists.
Explain the concept of rational expectations . How does this view of how expectations are formed differ from the assumption made in previous chapters that workers form expectations of current and future price levels based on past information about prices?

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Macroeconomics Theories And Policies 10th Global Edition Froyen, Richard T - Solutions

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