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Questions and Answers of Macroeconomics

In the late 1980s Canadian economists argued that the high interest rate policies of the Bank of Canada weren’t just causing high unemployment—they were also making it hard for Canadian
How would the following transactions be categorized in the U.S. balance of payments accounts? Would they be entered in the current account (as a payment to or from a foreigner) or the financial
The accompanying diagram shows foreign-owned assets in the United States and U.S.-owned assets abroad, both as a percentage of foreign GDP. As you can see from the diagram, both increased around
In the economy of Scottopia in 2014, exports equaled$400 billion of goods and $300 billion of services, imports equaled $500 billion of goods and $350 billion of services, and the rest of the world
In the economy of Popania in 2014, total Popanian purchases of assets in the rest of the world equaled$300 billion, purchases of Popanian assets by the rest of the world equaled $400 billion, and
Based on the exchange rates for the first trading days of 2013 and 2014 shown in the accompanying table, did the U.S. dollar appreciate or depreciate during 2014? Did the movement in the value of the
Go to http://fx.sauder.ubc.ca. Using the table labeled“The Most Recent Cross-Rates of Major Currencies,”determine whether the British pound (GBP), the Canadian dollar (CAD), the Japanese yen
From January 1, 2001, to June 2003, the U.S. federal funds rate decreased from 6.5% to 1%. During the same period, the marginal lending facility rate at the European Central Bank decreased from 5.75%
In each of the following scenarios, suppose that the two nations are the only trading nations in the world. Given inflation and the change in the nominal exchange rate, which nation’s goods become
Suppose that Albernia’s central bank has fixed the value of its currency, the bern, to the U.S. dollar (at a rate of US$1.50 to 1 bern) and is committed to that exchange rate. Initially, the
Suppose the United States and Japan are the only two trading countries in the world. What will happen to the value of the U.S. dollar if the following occur, other things equal?a. Japan relaxes some
Explain why higher share prices are equivalent to saving.Canadian net saving in the first quarter of 2017 was $22 billion. Holdings of financial assets increased by $162 billion and the value of
Explain how a rise in household financial assets would be expected to influence consumption expenditure and saving and how the consumption function and the saving function would change.Canadian net
Draw a graph to illustrate how a rise in household financial assets would change the consumption function and the saving function.Canadian net saving in the first quarter of 2017 was $22 billion.
The U.S. Commerce Department reported that wholesale inventories rose 0.7 percent in May and by 0.6 percent in June. Inventory investment had a neutral effect on second quarter GDP growth.Explain why
The government of South Korea announced a $10 billion (11.2 trillion won) fiscal stimulus package. It will increase social welfare subsidies for maternity leave and for the healthcare needs of older
Japan’s government will spend $132 billion (13.5 trillion yen) on cash handouts to lowincome earners and on infrastructure projects.If Japan spends $66 billion (half the total) on cash handouts and
Explain and draw a graph to illustrate the effect of an increase in exports on equilibrium expenditure in the short run.Statistics Canada reported that in the second quarter of 2017 Canadian exports
Explain and draw a graph to illustrate the effect of an increase in exports on equilibrium real GDP in the short run.Statistics Canada reported that in the second quarter of 2017 Canadian exports
Explain and draw a graph to illustrate the effect of an increase in exports on equilibrium real GDP in the long run.Statistics Canada reported that in the second quarter of 2017 Canadian exports
After you have studied Economics in the News on pp. 286–287, answer the following questions.a. If the second quarter 2017 change in inventories was a planned change, what role did it play in
With the consumer price index rising at a faster pace, President-elect Donald Trump wants to slash taxes and boost infrastructure spending, which could cause inflation to rise further.Explain what
Another month with a low unemployment number and with no rise in the inflation rate has the Federal Reserve baffled. The Phillips curve has disappeared.a. What does the Phillips curve model say about
FOMC participants saw the data on aggregate expenditure and unemployment as little changed since June but expected the unemployment rate to fall. Participants expected that inflation would remain
Working men and women had not had it so bad since the middle of the 19th century. During the 1860s, like the 2000s and 2010s, real wages grew slowly. Those mid-Victorian years were a lost decade for
What type of inflation process does John Cochrane warn could happen? Explain the role that inflation expectations would play if the outbreak of inflation were to “happen with little
Explain why the inflation that John Cochrane fears would “bring stagnation . . .”Economist John H. Cochrane thinks the Fed must be careful not to over-stimulate the economy. He thinks inflation
Consumer prices in the Eurozone fell in January for a second consecutive month reinforcing fears of sustained deflation, higher unemployment, and stagnant incomes.a. Explain the process by which
One of the central propositions of macroeconomic theory is the Phillips curve, a pressure cooker model of the inflationary process. If the economy runs too hot, inflation will follow. If the economy
The economy is absorbing excess capacity more rapidly than we projected in April, and it now appears that the output gap will close around the end of this year. . . . Meanwhile, inflation has
The UK economy grew by 0.3 percent in the second quarter of 2017 after 0.2 percent growth in the first quarter. These slow growth rates are seen as confirming the predicted effects of the country
What would be the effect of the first quarter budget surplus on real GDP and jobs?The federal government ran a surplus of $16 million for the first quarter of the 2017–18 fiscal year but projected
What would be the effect of the budget deficit for the full fiscal year 2017–18 on real GDP and jobs? Which effect would be larger, the first quarter surplus or the full year deficit, and why?The
Canadian real GDP unexpectedly accelerated to a 4.5 percent pace in the second quarter of 2017. This faster-than-expected growth was the fastest among Group of Seven countries. It was led by the
Explain the possible reasons why fiscal stimulus is needed in China.China’s reliance on infrastructure spending to drive overall investment hit a new high in 2017. Chinese economic planners have
Is the stimulus described in the news clip discretionary or automatic? Explain your answer.China’s reliance on infrastructure spending to drive overall investment hit a new high in 2017. Chinese
What challenges that make fiscal stimulus difficult to implement does the news clip illustrate? What are the potential consequences of a stimulus being too much and being pursued for too
After you have studied Economics in the News on pp. 340–341, answer the following questions.a. On which factor incomes does the corporation income tax fall?b. How does the corporation income tax
One quadrillion yen. ¥1,000,000,000,000,000. That’s the scale of Japan’s government debt. There are only five things a country with a large public debt can do: grow faster to shrink its burden,
The 2016 inflation control target agreement between the Government of Canada and the Bank of Canada runs to the end of 2021.a. What does the inflation control agreement say about the Bank’s control
Explain the situation faced by the Bank of Canada in 2017.Bank of Canada governor, Stephen Poloz, said there is no prearranged route for further interest-rate hikes and signalled the bank would be
How would the predicted rise in mortgage rates change aggregate demand?How Will the Rise in Interest Rate Affect Us? The Bank of Canada has hiked the interest rate for the first time in seven years.
Global economic activity is picking up with a cyclical recovery in investment, manufacturing, and trade. World real GDP growth is expected to rise from 3.1 percent in 2016 to 3.6 percent in 2018.a.
What is the role of the Bank of Canada in macroprudential policy and how does inflation targeting contribute to financial stability?
a. How would the budget deficit change in 2018 and 2019 if the Bank of Canada moved interest rates up to 2 percent or higher?b. How would the budget deficit change in 2018 and 2019 if the Bank of
How might the Bank of Canada’s decisions that raised the overnight loans rate from 0.5 percent to 1.0 percent have been influenced by the unemployment rate and the inflation rate?In September 2015,
Explain the dilemma that low inflation and low unemployment poses for the Bank of Canada.In September 2015, the unemployment rate was 7.0 percent, the inflation rate was 0.1 percent, and the
Why might the Bank of Canada decide to keep the overnight loans rate at 1 percent in 2018?In September 2015, the unemployment rate was 7.0 percent, the inflation rate was 0.1 percent, and the
Why might the Bank of Canada decide to raise the overnight loans rate in 2018?In September 2015, the unemployment rate was 7.0 percent, the inflation rate was 0.1 percent, and the overnight loans
Why might the Bank of Canada decide to lower the overnight loans rate in 2018?In September 2015, the unemployment rate was 7.0 percent, the inflation rate was 0.1 percent, and the overnight loans
What do you think happened to inflation expectations between 2010 and 2017 and why?From 2010 to 2017, the long-term real interest rate paid by the safest corporations decreased from 3 percent to less
As expected, the Federal Reserve announced it would hold its key interest rate steady in the range of 1.00–1.25 percent. But the Fed’s remark that inflation is expected to stay “somewhat
The Canada–European Union Comprehensive Economic and Trade Agreement (CETA) becomes effective July 2017. It will increase Canada’s European cheese import quota by 17,700 tonnes. The change could
Biofuels (mainly ethanol) make up 10 percent of auto fuel in the United States and 5 percent in Canada, and the mandated shares have risen. Farmers are smiling because taxpayers subsidize the fuel.
Assuming that South Korea is the only importer of Canadian beef, explain how South Korea’s ban on beef imports affected beef producers and consumers in Canada. Draw a graph of the market for beef
Explain how the tariff on textiles will change the price that Canadians pay for textiles, the quantity of textiles imported, and the quantity of textiles produced in Canada.Suppose that in response
NAFTA is light on trade in services. But it is services that have dominated Canada’s export growth in the past decade. If U.S. President Donald Trump makes good on his election pledge to
What are the equilibrium real wage rate and the quantity of labour employed in 2017?The first table describes an economy’s labour market in 2017 and the second table describes its production
What are labour productivity and potential GDP in 2017?The first table describes an economy’s labour market in 2017 and the second table describes its production function in 2017. Real wage rate
Suppose that labour productivity increases in 2018. What effect will the increased labour productivity have on the demand for labour, the supply of labour, potential GDP, and real GDP per person?The
After you have studied Economics in the News on pp. 156–157, answer the following questions.a. How do the real GDP growth rates of Canada and the United States compare since 2006?b. How do the real
Lori is a student who teaches golf on Saturdays. In a year, she earns $20,000 after paying her taxes. At the beginning of 2017, Lori owned $1,000 worth of books, DVDs, and golf clubs and she had
Some of the funds popular with investment advisors are heading for a period of underperformance as interest rates rise. What does the news clip mean by “underperformance”? Why might it be smart
On January 1, 2017, Terry’s Towing Service owned 4 tow trucks valued at $300,000. During 2017, Terry’s bought 2 new trucks for a total of $180,000. At the end of 2017, the market value of all of
Calculate net investment and gross investment during 2017.An economy’s capital stock was $46.3 billion at the end of 2016, $46.6 billion at the end of 2017, and $47.0 billion at the end of 2018.
Calculate depreciation and net investment during 2018.An economy’s capital stock was $46.3 billion at the end of 2016, $46.6 billion at the end of 2017, and $47.0 billion at the end of 2018.
Annie runs a fitness centre. On December 31, 2017, she bought an existing business with exercise equipment and a building worth $300,000. During 2018, business improved and she bought some new
Karrie is a golf pro, and after she paid taxes, her income from golf and interest from financial assets was $1,500,000 in 2017. At the beginning of 2017, she owned $900,000 worth of financial assets.
Canadians are saving more, even as the returns on their savings have dwindled, which is not what standard economic theory predicts. In the second quarter of 2016, Canada’s household savings rate
Draw a graph of the Lee family’s supply of loanable funds curve.In 2015, the Lee family had disposable income of $80,000, wealth of $140,000, and an expected future income of $80,000 a year. At a
In 2016, suppose that the stock market crashes and the default risk increases. Explain how this increase in default risk influences the Lee family’s supply of loanable funds curve.In 2015, the Lee
TransCanada working with Columbia Pipeline Group aims to create a giant natural gas transmission business. The deal will create a 91,000-kilometre natural gas pipeline system.Show on a graph the
If the Indian government reduces its deficit and achieves its target, how will the demand for or supply of loanable funds in India change?The government of India set a budget deficit target of 3
If the Indian government misses its deficit target, how will the demand for or supply of loanable funds in India change?The government of India set a budget deficit target of 3 percent of GDP for
If India’s economic growth slows and incomes grow more slowly, and if other things remain the same, how will the demand for or supply of loanable funds in India change?The government of India set a
The projected deficit in 2017 is $28.5 billion and there is no timeline for a return to surplus.a. Explain the effect of the ongoing budget deficit on the loanable funds market.b. What effect does
After you have studied Economics in the News on pp. 176–177, answer the following questions.a. Why do bond prices and interest rates move in opposite directions?b. Looking at Fig. 1 on p. 177, what
In May 2014, currency held by individuals and businesses was $67 billion; chequable deposits owned by individuals were $244 billion and owned by businesses were $361 billion; nonchequable personal
U.K. banks must hold more capital as their holdings of consumer debt soars. What is the “capital” referred to in the news clip? How might the requirement to hold more capital make banks safer?
Many people stopped using cash in the early 2000s because they found debit cards were more convenient. Smartphones are now doing to plastic what cards did to cash. If people can use their smartphone
Explain how this news clip illustrates the attempts by banks to maximize profits. Banks are in business to make money for their shareholders, not to put the interests of customers first. This key
Why would banks want to be seen as friends of students and offer student accounts with no charges?Banks are in business to make money for their shareholders, not to put the interests of customers
The Federal Reserve bought Treasury bonds and mortgage-backed securities during three rounds of quantitative easing following the financial crisis. Chair Janet Yellen said the Fed will soon start the
Use the data in Problem 7 to work this problem. The interest rate is 4 percent a year. Suppose that real GDP decreases from $20 billion to $10 billion and the quantity of money remains unchanged. Do
After you have studied Economics in the News on pp. 204–205, answer the following questions.a. What changes in the interest rate and the quantity of M2 occurred between 2007 and 2017?b. When the
The table gives some information about Canada’s international transactions in 2013.a. Calculate the balance on the three balance of payments accounts.b. Was Canada a net borrower or a net lender in
Explain why property investors are expected to sell in London and buy in New York and why a fall in the pound might make this predicted effect of Brexit less likely.Property investors are looking
Explain what will happen if the expectation of rising prices on New York and falling prices in London becomes widespread. Might expectations become self-fulfilling?Property investors are looking
The Economist magazine uses the price of a Big Mac to determine whether a currency is undervalued or overvalued. In July 2017, the price of a Big Mac was $5.30 in New York, 19.80 yuan in Beijing, and
Since 1982, Denmark has pegged the exchange rate for the crown against first the German mark and later against the euro. In recent weeks the fixed exchange-rate regime has come under strain as the
After you have studied Economics in the News on pp. 234–235, answer the following questions.a. What are the U.S. trade balances with Mexico and Canada and how have those balances changed since
The increase in real GDP in the first quarter of 2017 primarily reflected changes in personal consumption expenditure (+1.1%), exports (-0.1%), and investment (+2.9%). Imports of goods and services
When real GDP increased in the first quarter of 2017, businesses accumulated $12.2 billion in inventories, following a decrease of $2.8 billion in the previous quarter. Explain how a fall in business
Explain the effect of a rise in expenditure by millenials on real GDP and the price level in the short run.Millennials, who spend an average of $85 a day, are expected to spend at a higher rate in
Describe the macroeconomic equilibrium after the change in spending by millenials:a. If the economy had been operating below full-employment equilibrium,b. If the economy had been operating at a
Brazil is experiencing a collapse in business investment, rising unemployment, and falling consumer spending. Business and consumer confidence are low.a. Explain and draw a graph to illustrate the
Brazilian federal, state, and local governments spent R$2.8 billion and private sponsors spent R$4.2 billion on 17 new Olympic facilities, 10 of which will be used for sporting events after the
Kayne West has teamed with Los Angeles innercity schools to offer free passes for students!When Kayne West gave away tickets, what was free and what was scarce? Explain your answer.
What is the opportunity cost of creating the technology for trips around the moon?SpaceX CEO Elon Musk announced that SpaceX plans to send two citizens on a one-week, 350,000-mile trip around the
Sketch SpaceX’s PPF for trips around the moon and other goods and services and its planned production in 2018.SpaceX CEO Elon Musk announced that SpaceX plans to send two citizens on a one-week,

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