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Exploring Macroeconomics 7th Edition Robert L. Sexton - Solutions
What is a tariff?
Why do U.S. exporters, such as farmers, favor free trade more than U.S. producers of domestic products who face competition from foreign imports, such as the automobile industry?
When a country has a comparative disadvantage in a good, why do domestic consumers gain more than domestic producers lose from free international trade?
When a country has a comparative advantage in the production of a good, why do domestic producers gain more than domestic consumers lose from free international trade?
If the world price of a good is less than the domestic price prior to trade, why does it imply that the domestic economy has a comparative disadvantage in producing that good?
If the world price of a good is greater than the domestic price prior to trade, why does it imply that the domestic economy has a comparative advantage in producing that good?
How does voluntary trade generate both consumer and producer surplus?
Compared to the no-trade situation, when a country exports a good:a. domestic consumers gain, domestic producers lose, and the gains outweigh the losses.b. domestic consumers lose, domestic producers gain, and the gains outweigh the losses.c. domestic consumers gain, domestic producers lose, and
Compared to the no-trade situation, when a country imports a good,a. domestic consumers gain, domestic producers lose, and the gains outweigh the losses.b. domestic consumers lose, domestic producers gain, and the gains outweigh the losses.c. domestic consumers gain, domestic producers lose, and
Which of the following statements is true?a. The difference between what a consumer is willing and able to pay and what a consumer actually has to pay is called consumer surplus.b. The difference between what a supplier is willing and able to supply and the price a supplier actually receives for
Who benefits and who loses when a country becomes an importer?
Who benefits and who loses when a country becomes an exporter?
What is producer surplus?
What is consumer surplus?
If you can wash the dishes in two-thirds the time it takes your younger sister to wash them, do you have a comparative advantage in washing the dishes with respect to her?
Why do you think the introduction of the railroad reduced self-sufficiency in the United States?
How could a country have an absolute advantage in producing one good or service without also having a comparative advantage in its production?
Why do people voluntarily choose to specialize and trade?
In Samoa the opportunity cost of producing one coconut is four pineapples, while in Guam the opportunity cost of producing one coconut is five pineapples. In this situation,a. if trade occurs, both countries will be able to consume beyond the frontiers of their original production possibilities.b.
Assume that the opportunity cost of producing a pair of pants in the United States is 2 pounds of rice, while in China it is 5 pounds of rice. As a result,a. the United States has a comparative advantage over China in the production of pants.b. China has a comparative advantage over the United
Which of the following statements is true?a. If two nations with different opportunity costs of production specialize, total output of both products may be higher as a result.b. By specializing in products in which it has a comparative advantage, an area can have more goods and services if it
If a nation does not have an absolute advantage in producing anything, ita. can have no comparative advantage either.b. will have a comparative advantage in the activity in which its disadvantage is the least.c. will benefit if it refuses to trade.d. will export raw materials and import finished
Comparative advantagea. means that nations or areas that export goods will necessarily be able to produce those goods or services more cheaply than other nations in an absolute sense.b. means a country, or a region, should specialize in producing and selling those items that it can produce at a
What benefits are derived from specialization?
What is the principle of comparative advantage?
Does voluntary trade lead to an improvement in economic welfare?
Why would U.S. producers and consumers be more concerned about Canadian trade restrictions than Swedish trade restrictions?
Why is it important to understand the effects of international trade?
Which of the following countries are important import markets for the United States?a. Chinab. Canadac. Mexicod. Japane. All of the above
Which of the following statements is true?a. The importance of international trade varies greatly from place to place.b. The volume of international trade has increased tremendously.c. The composition of America’s international trading partners has changed over time.d. International capital flows
Which of the following countries are important export markets for the United States?a. Canadab. Mexicoc. Chinad. Japane. All of the above
What does the United States export?Import?
Who trades with the United States?
What has happened to the volume of international trade over time?
Does stagflation contradict the theory of the Phillips curve?
Why do economists who believe people form rational expectations have little faith that announced changes in monetary policy will have substantial effects on real output?
How would each of the following likely affect long-run and/or short-run aggregate supply and employment in the macro economy?a. An increase in the productivity of the labor force due to increased educationb. The coldest year in a century leads to frequent ice and snow stormsc. Major advances in
How are the long-run Phillips curve and the long-run aggregate supply curve related?
Suppose the following data represent points along a short-run Phillips curve. Are the data consistent with what you would expect? Why or why not? Inflation Rate Unemployment Rate 0% 5% 4.5 1234 ABCDE 3.75 2.75 1.5
Why is the credibility of the monetary authorities so crucial to quickly overcoming expected inflation?
Answer the following questions.a. Why does an upward shift in the Phillips curve correspond to an upward shift in the short-run aggregate supply curve?b. Why does a movement up and to the left along a Phillips curve correspond to a movement up and to the right along a short-run aggregate supply
If money wages are rising faster than output prices,a. what is happening to real wages?b. what would happen to unemployment as a result?c. what would happen to SRAS as a result?
Predict whether unemployment will increase or decrease as a result of each of the following monetary policies. If it is unanticipated? What if it is anticipated?a. A reduction in the discount rate from 6 percent to 5.5 percentb. An open, market sale by the Federal Reserve Bankc. An increase in the
Predict the impact an unexpected decrease in the money supply would have on the following variables in the short run and in the long run.a. The inflation rateb. The unemployment ratec. Real outputd. Real wages
Abraham Lincoln once said, “You can fool all of the people some of the time, and some of the people all of the time, but you cannot fool all of the people all of the time.” How can a central bank that conducts monetary policy “fool people” and thereby affect the level of unemployment in the
Use the diagram from problem 2 and indicatea. which movement would correspond to an unanticipated expansionary government policy in the short run.b. which movement would correspond to an unanticipated contractionary government policy in the short run.c. which movement would correspond to a
Use the diagram to answer the following questions.a. At which point might expansionary government policy help stabilize the economy?b. At which point might contractionary government policy help stabilize the economy? Price Level LRAS SRAS PL D B E F SRAS AD PLO C A AD 0 RGDPR Real GDP
Use the following diagrams and show in both diagrams what would happen ifa. government purchases increase in the short run.b. the growth rate of the money supply was reduced in the short run.c. people came to expect a higher rate of inflation.d. if a favorable supply shock occurred. Inflation Rate
Another problem with indexing is that it reduces the ability for _____________________ changes to efficiently allocate resources.
If _____________________ becomes rapid, it could be almost impossible to administer an indexing scheme.
One main argument against indexing is that it can _____________________ inflation, by making one price increase lead to others.
_____________________ is a way of protecting parties against unanticipated changes in inflation by using contracts that automatically adjust to changes in purchasing power.
Under a Taylor rule, for each one percentage point deviation from potential GDP or from the target inflation rate, the federal funds rate should change by _____________________ point.
Under a Taylor rule, when real GDP falls below potential GDP, the federal funds rate should _____________________, and when inflation falls above the target the federal funds rate should _____________________.
The Taylor rule suggests changes in the _____________________ rate when real output or inflation rates deviate from their targets.
The Taylor approach uses a(n) _____________________ to decide when to use _____________________ actions.
To reduce the inflation rate by one percentage point may require reducing real output by _____________________ 1 percent.
One worry about inflation targeting is that it would reduce monetary authorities’ _________________ to respond to _____________________ shocks and crises.
Shoe leather costs and menu costs are probably small if inflation is _____________________ and expected to _____________________.
Inflation targeting is intended to help ________________ inflation expectations and lead to ___________________ price stability.
Monetary policy rules and inflation targeting are intended to add _____________________ to the Federal Reserve’s determination to hold inflation down.
Monetary policy is often the preferred stabilization tool due to its _____________________ inside lags.
If the timing or the magnitude of a macroeconomic policy change is not what is intended, it could make the economy _____________________ stable.
With _____________________ expectations, but not _____________________ expectations, inflation could potentially be lowered by macroeconomic policy without causing a recession.
The rational expectations school, the form that assumes instant adjustment, believes that government _____________________ impact real output in the short run.
Most economists accept the notion that unemployment will be close to the natural rate of unemployment in the _____________________ run.
Activist macroeconomists believe that in the short run, discretionary macroeconomic policy can _____________________ economic fluctuations.
If aggregate demand is insufficient, policy makers can stimulate aggregate demand by _____________________ government spending, _____________________ taxes, or _____________________ the growth rate of the money supply.
If input prices adjust _____________________, the rational expectations view that changes in government policy would have no effect on real output in the short run would be incorrect.
If people expect a larger increase in aggregate demand than the actual increase in aggregate demand that occurs, the price level would _____________________ and real output would _____________________ in the short run.
In the short run, an increase in aggregate demand will _____________________ the price level, whether it is anticipated or not, but it will increase real output only if it is _____________________.
Whether a macroeconomic policy change is anticipated or unanticipated, it will not change real output or unemployment in the _____________________ run.
When expansionary macroeconomic policy is unanticipated, the short-run aggregate supply curve _____________________ in the short run, but when it is correctly anticipated, the short-run aggregate supply curve _____________________.
An increase in aggregate demand that is correctly anticipated and responded to will _____________________ the price level, _____________________ real output and _____________________ the unemployment rate.
If changes in the inflation rate are quickly reflected in expectations, unemployment or real output from macroeconomic policy would experience _____________________ effect.
According to rational expectations, when policy targets become public, people will alter their behavior to largely _____________________ the intended effects.
Rational expectations economists think the economy tends to be inherently _____________________ and that government policy has the desired effects only when consumers and workers are caught _____________________.
Rational expectations economists believe that wages and prices are _____________________ and workers _____________________ incorporate the likely consequences of government policy changes into their expectations.
The theory of rational expectations leads to a(n) _____________________ conclusion about macroeconomic policy’s ability to achieve our economic goals.
If people could _____________________ to policy changes, it might not be possible to increase real output or employment through policy actions.
An increase in oil prices is considered a(n)_____________________ supply shock.
If people expect supply shocks to be permanent, the result would be inflation and unemployment both _____________________ for adverse supply shocks and both _____________________ for favorable supply shocks.
A positive supply shock can result in both unemployment and inflation _____________________ at the same time.
A negative supply shock _____________________ cause inflation to increase and unemployment to increase at the same time.
Higher production costs due to adverse supply shocks shift the short-run Phillips curve _____________________.
When people adapt their inflationary expectations after actual inflation changes, it is called _____________________ expectations.
If inflation is steady, actual inflation _____________________ expected inflation.
A decrease in inflation will _____________________ real wages at first, _____________________ real output and _____________________ unemployment.
In the long run, when inflation increases, there is _____________________ in unemployment.
When actual inflation equals expected inflation, real output equals its _____________________ level and unemployment equals the _____________________.
In the long run, when expected inflation rises, workers adjust to the higher rate of inflation by shifting the short-run Phillips curve _____________________.
An unanticipated increase in inflation will _____________________ real wages, resulting in a _____________________ unemployment rate.
An increase in the growth rate of the money supply _____________________ aggregate demand, _____________________ output, _____________________ inflation, and _____________________ unemployment.
The _____________________ hypothesis states that the economy will self-correct to the natural rate of unemployment.
In the long run when the expected inflation rate falls, the short-run Phillips curve shifts _____________________.
The data from the 1970s indicated that the Phillips curve _____________________ remain in place.
According to Milton Friedman, a trade-off occurs between inflation and unemployment in the _____________________ run but not in the _____________________ run; the trade-off comes from _____________________ inflation.
Economists who questioned the long-term validity of the Phillips curve were largely _____________________ in the 1960s.
When moving up along a Phillips curve, employment rates tend to _____________________.
An increase in aggregate demand would cause the economy to move _____________________ along a Phillips curve, causing the inflation rate to _____________________ and the rate of unemployment to _____________________.
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