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macroeconomics

Questions and Answers of Macroeconomics

Is the relationship between changes in spending and changes in real GDP in the multiplier effect a direct (positive) relationship or is it an inverse (negative) relationship? How does the size of the
Refer to the table below.a. Fill in the missing numbers in the table.b. What is the break-even level of income in the table? What is the term that economists use for the saving situation shown at the
Suppose that disposable income, consumption, and saving in some country are $200 billion, $150 billion, and $50 billion, respectively.Next, assume that disposable income increases by $20 billion,
Use your completed table for problem 1 to solve this problem. Suppose the wealth effect is such that $10 changes in wealth produce $1 changes in consumption at each level of income. If real estate
Suppose that an initial $10 billion increase in investment spending expands GDP by $10 billion in the first round of the multiplier process.If GDP and consumption both rise by $6 billion in the
Why does equilibrium real GDP occur where C + Ig = GDP in a private closed economy? What happens to real GDP when C = Ig exceeds GDP?When C = Ig is less than GDP? What two expenditure components of
Other things equal, what effect will each of the following changes independently have on the equilibrium level of real GDP in the private closed economy?a. A decline in the real interest rate.b. An
Assuming the economy is operating below its potential output, what is the impact of an increase in net exports on real GDP? Why is it difficult, if not impossible, for a country to boost its net
What is a recessionary expenditure gap? An inflationary expenditure gap? Which is associated with a positive GDP gap? A negative GDP gap?
Explain how an upsloping aggregate supply curve weakens the realized multiplier effect from an initial change in investment spending.
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall
Answer the following questions on the basis of the three sets of data for the country of North Vaudeville:a. Which set of data illustrates aggregate supply in the immediate short-run in North
Refer to the data in the table that accompanies problem 2. Suppose that the present equilibrium price level and level of real GDP are 100 and$225, and that data set B represents the relevant
Explain carefully: “A change in the price level shifts the aggregate expenditures curve but not the aggregate demand curve.”
Suppose that the price level is constant and that investment decreases sharply. How would you show this decrease in the aggregate expenditures model? What would be the outcome for real GDP? How would
Refer to Figures 1a and 1b in the Appendix. Assume that Q1 is 300, Q2 is 200, Q3 is 100, P3 is 120, P 2 is 100, and P1 is 80. If the price level increases from P1 to P3 in graph 1b, in what direction
Refer to Figure 2 in the Appendix and assume that Q1 is $400 and Q2 is$500, the price level is stuck at P1, and the slopes of the AE lines in Figure 2a are .75 and equal to the MPC. In what direction
What is the role of the Council of Economic Advisers (CEA) as it relates to fiscal policy? Use an Internet search to find the names and university affiliations of the present members of the CEA.
True or false? If false, explain why.a. The total public debt is more relevant to an economy than the public debt as a percentage of GDP.b. An internally held public debt is like a debt of the left
What do economists mean when they say Social Security and Medicare are “pay-as-you-go” plans? What are the Social Security and Medicare trust funds, and how long will they have money left in
Refer back to the table in Figure 12.7 in the previous chapter. Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level. By what
Refer to the accompanying table for Waxwania: a. What is the marginal tax rate in Waxwania? The average tax rate? Which of the following describes the tax system: proportional, progressive,
Suppose that a country has no public debt in year 1 but experiences a budget deficit of $40 billion in year 2, a budget deficit of $20 billion in year 3, a budget surplus of $10 billion in year 3,
Suppose that the investment demand curve in a certain economy is such that investment declines by $100 billion for every 1 percentage point increase in the real interest rate. Also, suppose that the
Which two of the following financial institutions offer checkable deposits included within the M1 money supply: mutual fund companies;insurance companies; commercial banks; securities firms; thrift
Why do economists nearly uniformly support an independent Fed rather than one beholden directly to either the president or Congress? .
Identify three functions of the Federal Reserve of your choice, other than its main role of controlling the supply of money.
How do each of the following relate to the financial crisis of 2007–2008: declines in real estate values, subprime mortgage loans, mortgage-backed securities, AIG.
What is TARP and how was it funded? What is meant by the term“lender of last resort” and how does it relate to the financial crisis of 2007–2008? How do government and Federal Reserve emergency
Assume that the following asset values (in millions of dollars) exist in Ironmania: Federal Reserve Notes in circulation = $700; Money market mutual funds (MMMFs) held by individuals = $400;
Assume that Jimmy Cash has $2000 in his checking account at Folsom Bank and uses his checking account card to withdraw $200 of cash from the bank’s ATM machine. By what dollar amount did the M1
Suppose that Lady Gaga goes to Las Vegas to play poker and at the last minute her record company says it will reimburse her for 50 percent of any gambling losses that she incurs. Will Lady Gaga wager
Assume that securitization combined with borrowing and irrational exuberance in Hyperville have driven up the value of existing financial securities at a geometric rate, specifically from $2 to $4 to
What is the difference between an asset and a liability on a bank’s balance sheet? How does net worth relate to each? Why must a balance sheet always balance? What are the major assets and claims
Explain why merchants accepted gold receipts as a means of payment even though the receipts were issued by gold-smiths, not the government. What risk did goldsmiths introduce into the payments system
Why is the banking system in the United States referred to as a fractional reserve bank system? What is the role of deposit insurance in a fractional reserve system?
How would a decrease in the reserve requirement affect the (a) size of the money multiplier, (b) amount of excess reserves in the banking system, and (c) extent to which the system could expand the
Suppose the assets of the Silver Lode Bank are $100,000 higher than on the previous day and its net worth is up $20,000. By how much and in what direction must its liabilities have changed from the
Suppose that Serendipity Bank has excess reserves of $8000 and checkable deposits of $150,000. If the reserve ratio is 20 percent, what is the size of the bank’s actual reserves?
If the required reserve ratio is 10 percent, what is the monetary multiplier? If the monetary multiplier is 4, what is the required reserve ratio?
Why is a decrease in the supply of Federal funds shown as an upshift of the supply curve in Figure 16.3, whereas an increase in Federal funds is shown as a downshift of the supply curve?Figure 16.3:
What are the three main aggregate supply factors that determine a nation’s potential (or full-employment) level of real output?What are the four main components of aggregate demand?
Assume that the following data characterize the hypothetical economy of Trance: money supply = $200 billion; quantity of money demanded for transactions = $150 billion; quantity of money demanded as
Refer to Table 16.2 and assume that the Fed’s reserve ratio is 10 percent and the economy is in a severe recession. Also suppose that the commercial banks are hoarding all excess reserves (not
Suppose that the demand for Federal funds curve is such that the quantity of funds demanded changes by $120 billion for each 1 percent change in the Federal funds interest rate. Also, assume that the
Suppose that inflation is 2 percent, the Federal funds rate is 4 percent, and real GDP falls 2 percent below potential GDP. According to the Taylor rule, in what direction and by how much should the
Refer to the table for Moola at the bottom of this page to answer the following questions. What is the equilibrium interest rate in Moola?What is the level of investment at the equilibrium interest
.Suppose that the city of New York issues bonds to raise money to pay for a new tunnel linking New Jersey and Manhattan. An investor named Susan buys one of the bonds on the same day that the city of
What is compound interest? How does it relate to the formula: X dollars today = (1 + i)tX dollars in t years? What is present value? How does it relate to the formula: X/(1 + i)t dollars today = X
Suppose that you invest $100 today in a risk-free investment and let the 4 percent annual interest rate compound. Rounded to full dollars, what will be the value of your investment 4 years from now?
Suppose that you desire to get a lump sum payment of $100,000 two years from now. Rounded to full dollars, how many current dollars will you have to invest today at a 10 percent interest to
Suppose that the equation for the SML is Y =0.05 + 0.04X, where Y is the average expected rate of return, 0.05 is the vertical intercept, 0.04 is the slope, and X is the risk level as measured by
Between 1990 and 2009, the U.S. price level rose by about 64 percent while real output increased by about 62 percent. Use the aggregate demand–aggregate supply model to illustrate these outcomes
Use the figure to answer the follow questions. Assume that the economy initially is operating at price level 120 and real output level $870. This output level is the economy’s potential (or
Suppose that the equation for a particular short-run AS curve is P 5 20 1. 5 Q, where P is the price level and Q is real output in dollar terms. What is Q if the price level is 120? Suppose that the
Suppose that over a 30-year period Buskerville’s price level increased from 72 to 138, while its real GDP rose from $1.2 trillion to $2.1 trillion.Did economic growth occur in Buskerville? If so,
Suppose that for years East Confetti’s short-run Phillips Curve was such that each 1 percentage point increase in its unemployment rate was associated with a 2 percentage point decline in its
Distinguish among land-, labor-, and capital-intensive goods, citing an example of each without resorting to book examples. How do these distinctions relate to international trade? How do distinctive
In 2007, manufacturing workers in the United States earned average compensation of $30.56 per hour. That same year, manufacturing workers in Mexico earned average compensation of $3.91 per hour. How
“Exports pay for imports. Yet in 2009 the nations of the world exported about $379 billion more of goods and services to the United States than they imported from the United States.” Resolve the
What have been the major causes of the large U.S. trade deficits in recent years? What are the major benefits and costs associated with trade deficits? Explain: “A trade deficit means that a nation
Alpha’s balance-of-payments data for 2010 are shown below. All figures are in billions of dollars. What are the (a) balance on goods, (b) balance on goods and services, (c) balance on current
China had a $372 billion overall current account surplus in 2007.Assuming that China’s net debt forgiveness was zero in 2007 (its capital account balance was zero), by how much did Chinese
What are the three categories used by the World Bank to classify nations on the basis of national income per capita? Identify any two nations of your choice for each of the three categories.
Indicate whether each of the following statements applies to microeconomics or macroeconomics: a. The unemployment rate in the United States was 9.7 percent in March 2010.b. A U.S. software firm
Describe the graphical relationship between ticket prices and the number of people choosing to visit amusement parks. Is that relationship consistent with the fact that, historically, park attendance
In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact do you think this had on the supply of cattle hides, hide prices, the supply of
Suppose there are three buyers of candy in a market: Tex, Dex, and Rex.The market demand and the individual demands of Tex, Dex, and Rex are shown on the next page.a. Fill in the table for the
Go to the Web site of the Energy Information Administration, www.eia.doe.gov, and follow the links to find the current retail price of gasoline. How does the current price of regular gasoline compare
Draw a graph with “Level of real output” on the vertical axis and “Time” on the horizontal axis. If the long-run trend line of economic growth for the United States were to appear on your
Did economic output start growing faster than population from the beginning of the human inhabitation of the earth? When did modern economic growth begin? Have all of the world’s nations
Why do some economists believe that better inventory control software and systems may help to reduce the frequency and severity of recessions caused by mild demand shocks? How could those same
Suppose that the annual rates of growth of real GDP of Econoland over a five-year period were sequentially as follows: 3 percent, 1 percent, −2 percent, 4 percent, and 5 percent. What was the
Suppose that Glitter Gulch, a gold mining firm, increased its sales revenues on newly mined gold from $100 million to $200 million between one year and the next. Assuming that the price of gold
Assume that a national restaurant firm called BBQ builds 10 new restaurants at a cost of $1 million per restaurant. It outfits each restaurant with an additional $200,000 of equipment and
Refer to Figure 6.1b and assume that price is fixed at $37,000 and that Buzzer Auto needs 5 workers for every 1 automobile produced. If demand is DM and Buzzer wants to perfectly match its output and
Which of the following goods are usually intermediate goods and which are usually final goods: running shoes, cotton fibers, watches, textbooks, coal, sunscreen lotion, lumber?
Provide three examples of each: consumer durable goods, consumer nondurable goods, and services.
Why are changes in inventories included as part of investment spending?Suppose inventories declined by $1 billion during 2010. How would this affect the size of gross private domestic investment and
Contrast the ideas of nominal GDP and real GDP. Why is one more reliable than the other for comparing changes in the standard of living over a series of years? What is the GDP price index and what is
Suppose that annual output in year 1 in a 3-good economy is 3 quarts of ice cream, 1 bottle of shampoo, and 3 jars of peanut butter. In year 2, the output mix changes to 5 quarts of ice cream, 2
If in some country personal consumption expenditures in a specific year are $50 billion, purchases of stocks and bonds are $30 billion, net exports are −$10 billion, government purchases are $20
Assume that a grower of flower bulbs sells its annual output of bulbs to an Internet retailer for $70,000. The retailer, in turn, brings in $160,000 from selling the bulbs directly to final
Using the following national income accounting data, compute (a) GDP,(b) NDP, and (c) NI. All figures are in billions.
Suppose that in 1984 the total output in a single-good economy was 7000 buckets of chicken. Also suppose that in 1984 each bucket of chicken was priced at $10. Finally, assume that in 2005 the price
Assume that the total value of the following items is $600 billion in a specific year for Upper Mongoose: net exports = $50 billion; value of new goods and services produced in the underground
What, if any, are the benefits and costs of economic growth, particularly as measured by real GDP per capita?
Assume that a “leader country” has real GDP per capita of $40,000, whereas a “follower country” has real GDP per capita of $20,000. Next suppose that the growth of real GDP per capita falls
Refer to Figure 8.2 and assume that the values for points a, b, and c are $10 billion, $20 billion, and $18 billion respectively. If the economy moves from point a to point b over a 10-year period,
The per-unit cost of an item is its average total cost (5 total cost/quantity). Suppose that a new cell phone application costs $100,000 to develop and only $.50 per unit to deliver to each cell
When we think about innovation and technological progress, we tend to focus on the dramatic changes: cars replacing horses and buggies, electric light bulbs replacing gaslights, computers replacing
The accompanying table shows data from the World Bank, World Development Indicators, for real GDP per capita in 2010 U.S. dollars for Argentina, Ghana, South Korea, and the United States for 1960,
According to the U.S. Energy Information Administration, the proven oil reserves existing in the world in 2018 consisted of 1,663 billion barrels. In that year, the U.S. Energy Information
The following table shows the average annual growth rate in real GDP per capita for Argentina, Ghana, and South Korea using data from the World Bank, World Development Indicators, for the past few
The following table provides approximate statistics on per capita income levels and growth rates for regions defined by income levels. According to the Rule of 70, starting in 2018 the high-income
How have U.S. policies and institutions influenced the countryʼs long-run economic growth?
The accompanying table shows data from the World Bank, World Development Indicators, for real GDP per capita (2010 U.S. dollars) in France, Japan, the United Kingdom, and the United States in 1960
The accompanying table shows data from the World Bank, World Development Indicators for real GDP per capita (2010 U.S. dollars) for Argentina, Ghana, South Korea, and the United States in 1960 and
Explain what is wrong with the following statement: “Savings and investment spending may not be equal in the economy as a whole because when the interest rate rises, households will want to save
Suppose that expected inflation rises from 3% to 6%.a. How will the real interest rate be affected by this change?b. How will the nominal interest rate be affected by this change?c. What will

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