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macroeconomics

Questions and Answers of Macroeconomics

Rank the following assets in terms of (i) level of transaction costs, (ii) level of risk, (iii) level of liquidity. a. A bank deposit with a guaranteed interest rate b. A share of a highly
What relationship would you expect to find between the level of development of a countryʼs financial system and its level of economic development? Explain in terms of the countryʼs level of savings
What is the likely effect of each of the following events on the stock price of a company? Explain your answers.a. The company announces that although profits are low this year, it has discovered a
Assess the following statement: “Although many investors may be irrational, it is unlikely that over time they will behave irrationally in exactly the same way — such as always buying stocks the
An old joke says that a banker will only lend you money if you donʼt need it. So when Guadalupe Perez found it hard to pay the rent for her party decoration store in Queens, New York, as the Great
What are the important types of financial intermediaries in the U.S. economy? What are the primary assets of these intermediaries, and how do they facilitate investment spending and saving?
Congress estimated that the cost of increasing support and expanding pre-kindergarten education and infant and toddler child care would cost $28 billion in 2014. Since the U.S. government was running
Lynn agrees to lend Boris $10,000, which Boris will repay with interest in one year. They agree to a nominal interest rate of 8%, reflecting a real interest rate of 3% on the loan and a commonly
Explain why a decline in investment spending caused by a change in business expectations leads to a fall in consumer spending.
What is the multiplier if the marginal propensity to consume is 0.5? What is it if MPC is 0.8?
As a percentage of GDP, savings accounts for a larger share of the economy in the country of Scania compared to the country of Amerigo. Which country is likely to have the larger multiplier? Explain.
Suppose the economy consists of three people: Angelina, Felicia, and Marina. The table shows how their consumer spending varies as their current disposable income rises by $10,000.a. Derive each
Suppose that problems in the capital markets make consumers unable either to borrow or to put money aside for future use. What implication does this have for the effects of expected future disposable
For each event, explain whether planned investment spending or unplanned inventory investment will change and in what direction.a. An unexpected increase in consumer spendingb. A sharp rise in the
Historically, investment spending has experienced more extreme upward and downward swings than consumer spending. Why do you think this is so?
Consumer spending was sluggish in late 2007, and economists worried that an inventory overhang — a high level of unplanned inventory investment throughout the economy — would make it difficult
With the economy in a steep nosedive in 2009, the U.S. government took many stabilization measures, some of which were highly controversial. The decision to use taxpayerʼs funds to bail out General
The chapter introduced a linear consumption function, which assumes the marginal propensity to consume is equal at all levels of disposable income. Yet many research studies show that MPC varies
From 2014 to 2019, Eastlandia experienced large fluctuations in both aggregate consumer spending and disposable income, but wealth, the interest rate, and expected future disposable income did not
The Bureau of Economic Analysis reported that, in real terms, overall consumer spending increased by $335.5 billion in 2019.a. If MPC is 0.50, by how much will real GDP change in response?b. If
Although the United States is one of the richest nations in the world, it is also the worldʼs largest debtor nation. We often hear that the problem is the nationʼs low savings rate. Suppose policy
Determine the effect on aggregate demand of each of the following events. Explain whether it represents a movement along the aggregate demand curve (up or down) or a shi of the curve (leward or
Determine the effect on short-run aggregate supply for each of the following events. Explain whether it represents a movement along the SRAS curve or a shi of the SRAS curve. a. A rise in the
Suppose the economy is initially at potential output and the quantity of aggregate output supplied increases. What information would you need to determine whether this was due to a movement along the
If you or someone you know bought a new car recently, the odds are pretty good that it was manufactured by one of two Japanese companies, Toyota or Honda. Together, these companies account for about
In each of the following cases, determine whether the policy is expansionary or contractionary fiscal policy.a. Several military bases around the country, which together employ tens of thousands of
Explain why federal disaster relief, which quickly disburses funds to victims of natural disasters such as hurricanes, floods, and large-scale crop failures, will stabilize the economy more
Is the following statement true or false? Explain. “When the government expands, the private sector shrinks; when the government shrinks, the private sector expands.”
Explain why a $500 million increase in government purchases of goods and services will generate a larger rise in real GDP than a $500 million increase in government transfers.
Explain why a $500 million reduction in government purchases of goods and services will generate a larger fall in real GDP than a $500 million reduction in government transfers.
The country of Boldovia has no unemployment insurance benefits and a tax system using only lump-sum taxes. The neighboring country of Moldovia has generous unemployment benefits and a tax system in
Why is the cyclically adjusted budget balance a better measure of whether government policies are sustainable in the long run than the actual budget balance is?
Explain why states required by their constitutions to balance their budgets are likely to experience more severe economic fluctuations than states not held to that requirement.
The Solana power plant covers three square miles of the Sonoran Desert in Gila Bend, Arizona, about 70 miles from Phoenix. Whereas most solar installations rely on photovoltaic panels that convert
The CARES Act was the largest in both nominal and real measures of fiscal relief/stimulus passed in U.S. history. The package will cost more than $2 trillion as it stabilizes consumer spending during
With the CARES Act costing over $2 trillion and the federal government facing a significant decline in tax revenue, explain the effectiveness of fiscal policy using the three claims outlined in the
Suppose you have a gift card, good for certain products at participating stores. Is this gift card money? Why or why not?
Although most bank accounts pay some interest, depositors can get a higher interest rate by buying a certificate of deposit, or CD. The difference between a CD and a checking account is that the
Explain why a system of commodity-backed money uses resources more efficiently than a system of commodity money.
Suppose you are a depositor at First Street Bank. You hear a rumor that the bank has suffered serious losses on its loans. Every depositor knows that the rumor isnʼt true, but each thinks that most
A con artist has a great idea: theyʼll open a bank without investing any capital and lend all the deposits at high interest rates to real estate developers. If the real estate market booms, the
Itʼs always nice when someone gives you a gift. Over the past few years, more people have been showing their appreciation by giving gift cards, often prepaid plastic cards issued by a retailer that
Your roommate is considering purchasing cryptocurrency, as they believe it can be used in place of money. Can cryptocurrency function as money?
During the economic collapse of 2020 many people had concerns about the stability of the financial system. As employment fell, many residents were unable to make mortgage, rent, car, or credit card
The following table shows the components of M1 and M2 in billions of dollars for the month of December in the years 2009 to 2019 reported by the Federal Reserve Bank of St. Louis. Complete the table
The accompanying figure shows new U.S. housing starts, in thousands of units per month, between January 1980 and March 2020. The figure shows a large drop in new housing starts from 1984–1991 and
Suppose that all wages and prices in an economy are indexed to inflation — that is, wages and prices are automatically adjusted to incorporate the latest inflation figures. Can there still be an
Explain how the short-run Phillips curve illustrates the negative relationship between cyclical unemployment and the actual inflation rate for a given level of the expected inflation rate.
Which way does the short-run Phillips curve move in response to a fall in commodities prices? To a surge in commodities prices? Explain.
Which of the balance of payments accounts do the following events affect? a. Boeing, a U.S.-based company, sells a newly built airplane to China.b. Chinese investors buy stock in Boeing from U.S.
What effect do you think the collapse of the U.S. housing bubble in 2008, and the ensuing Great Recession, had on international capital flows into the United States?
Mexico discovers huge reserves of oil and starts exporting oil to the United States. Describe how this would affect the following.a. The nominal peso–U.S. dollar exchange rate.b. Mexican exports
A basket of goods and services that costs $100 in the United States costs 800 pesos in Mexico, and the current nominal exchange rate is 10 pesos per U.S. dollar. Over the next five years, the cost of
You recently read a headline that states: “The U.S. loses $500 billion a year to trade with China.” This amount would be included as part of the U.S. current account deficit. How is this headline
During his presidency, Donald Trump attempted to alleviate the U.S. trade deficit by passing a series of tariffs on Chinese exports. Prior to President Trump taking office, the U.S. had an average
With oil priced in U.S. dollars, most Middle Eastern and other oil-producing countries have a fixed exchange rate peg to the U.S. dollar. What are the pros and cons of these countries pegging their
In January 2020, the Boeing 777X, an update to the widely popular 777, took its maiden flight. The 777X was the product of what Boeing calls its advanced manufacturing process. With it, Boeing
Penelope Pundit, an economics reporter, states that the European Union (EU) is increasing its productivity very rapidly in all industries. She claims that this productivity advance is so rapid that
One July, the United States sold aircra worth $1 billion to China and bought aircra worth only $19,000 from China. During the same month, however, the United States bought $83 million worth of menʼs
You are in charge of allocating residents to your dormitoryʼs baseball and basketball teams. You are down to the last four people, two of whom must be allocated to baseball and two to basketball.
Explain whether each of the following events represents (i) a shi of the demand curve or (ii) a movement along the demand curve. a. A store owner finds that customers are willing to pay more for
Explain whether each of the following events represents (i) a shi of the supply curve or (ii) a movement along the supply curve. a. More homeowners put their houses up for sale during a real estate
In the following three situations, the market is initially in equilibrium. Explain the changes in either supply or demand that result from each event. Aer each event described below, does a surplus
For each of the following, determine (i) the market in question; (ii) whether a shi in demand or supply occurred, the direction of the shi, and what induced the shi; and (iii) the effect of the shi
When a new, faster computer chip is introduced, demand for computers using the older, slower chips decreases.Simultaneously, computer makers increase their production of computers containing the old
Two young entrepreneurs, Garrett Camp and Travis Kalanick, created Uber in 2009 to alleviate a common frustration: how to find a taxi when you need to get somewhere and there arenʼt any taxis
In the market for automobiles explain how demand responds to (i) an increase in the price of automobiles today and (ii) an expected increase in the future price of automobiles.
Explain why the following statement is misleading: “Apple increases supply of watches following an unexpected increase in demand.”
Two students are debating the effects of an expected decline in future home prices. One student claims that a decline in home prices will increase the total quantity of homes while the other student
Letʼs assume that each person in the United States consumes an average of 37 gallons of so drinks (nondiet) at an average price of $2 per gallon and that the U.S. population is 294 million. At a
In 2018 the price of oil fell to a 14-year low. For drivers, the cost of driving fell significantly as gasoline prices plunged. For the airline industry, the cost of operation also fell significantly
On game days, homeowners near Middletown Universityʼs stadium used to rent parking spaces in their driveways to fans at a going rate of $11. A new town ordinance now sets a maximum parking fee of
True or false? Explain your answer. A price ceiling below the equilibrium price of an otherwise efficient market does the following: a. Increases quantity supplied. b. Makes some people who want to
The state legislature mandates a price floor for gasoline of PF per gallon. Assess the following statements and illustrate your answer using the figure provided. a. Proponents of the law claim it
Suppose that the supply and demand for taxi rides is given by Figure 4-7 but the quota is set at 6 million rides instead of 8 million. Find the following and indicate them on Figure 4-7.a. The price
August 8, 2019, was a grim day at the San Francisco headquarters of Uber, the global leader in ride-hailing companies. That day it announced a staggering loss of $5.2 billion in just the previous 3
Oregon recently became the first state to adopt legislation capping housing rents statewide. Explain how Oregonʼs policy will affect landlords, renters, and the quality of rental units available.
Many Washington State residents and politicians are concerned about the declining salmon population, a primary food source for local wildlife, including the endangered orca whale. To protect the
In your state the minimum wage is $12 per hour. Yet, you notice that many fast-food restaurants have posted help wanted signs for jobs paying $15 per hour. What does this tell you about the minimum
In 2019, the U.S. House of Representatives approved a new farm bill modifying the price supports for dairy farmers. The new program, the Dairy Margin Coverage, supports dairy farmers when the margin
In the United States, the opportunity cost of 1 ton of corn is 50 bicycles. In China, the opportunity cost of 1 bicycle is 0.01 ton of corn.a. Determine the pattern of comparative advantage.b. In
Explain the following patterns of trade using the Heckscher–Ohlin model. a. France exports wine to the United States, and the United States exports movies to France. b. Brazil exports shoes to
Due to a strike by truckers, trade in food between the United States and Mexico is halted. In autarky, the price of Mexican grapes is lower than that of U.S. grapes. Using a diagram of the U.S.
What effect do you think the strike will have on Mexican grape producers? Mexican grape pickers? Mexican grape consumers? U.S. grape pickers?
Suppose the world price of butter is $0.50 per pound and the domestic price in autarky is $1.00 per pound. Use a diagram similar to Figure 5-10 to show the following.a. If there is free trade,
Suppose the government imposes an import quota rather than a tariff on butter. What quota limit would generate the same quantity of imports as a tariff of $0.50 per pound?
Itʼs a very good bet that as you read this, youʼre wearing something manufactured in Asia. And if you are, itʼs also a good bet that the Hong Kong company Li & Fung was involved in getting your
In the context of supply and demand under international trade, when will a country decide to export a particular good? Import a good? Who gains and loses under each decision?
In 2018 the United States announced 25% tariffs on avocados imported from Mexico and that the higher price of avocados would be paid entirely by Mexico. Supporters of the tariff claimed that the
According to data from the U.S. Census Bureau, since 2000, the value of U.S. imports of menʼs and boyʼs shirts from China has more than tripled from a relatively small $244 million in 2000 to $753
Which of the following questions involve microeconomics, and which involve macroeconomics? In each case, explain your answer.a. Why did consumers switch to smaller cars in 2008?b. Why did overall
In 2008, problems in the financial sector led to a drying up of credit around the country: home-buyers were unable to get mortgages, students were unable to get student loans, carbuyers were unable
Why do we talk about business cycles for the economy as a whole, rather than just talking about the ups and downs of particular industries?
Describe who gets hurt in a recession, and how?
Many poor countries have high rates of population growth. What does this imply about the long-run growth rates of overall output that they must achieve in order to generate a higher standard of
Argentina used to be as rich as Canada; now itʼs much poorer. Does this mean that Argentina is poorer than it was in the past? Explain.
Which of these sound like inflation, which sound like deflation, and which are ambiguous?a. Gasoline prices are up 10%, food prices are down 20%, and the prices of most services are up
Which of the following reflect comparative advantage, and which reflect macroeconomic forces?a. Thanks to the development of huge oil sands in the province of Alberta, Canada has become an exporter
Once upon a time, General Motors (GM) was widely regarded as the worldʼs greatest corporation. It was the largest employer in the United States; its success was so bound up with that of the nation
The accompanying figure illustrates the trade deficit of the United States since 1987. The United States has been consistently and, on the whole, increasingly importing more goods than it has been

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