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macroeconomics

Questions and Answers of Macroeconomics

Fill in the values in the table below for inflation and expected inflation using the 1960s. The data will come from FRED as they did in the last question. You will have the most success using a
The estimated Phillips curve from Figure 8.5 is: \[\pi_{t}=2.8 \%-0.16 u_{t}\]Fill in the table below using the Phillips curve above after collecting the data from the FRED database. The monthly
Consider the market for butter, shown in the accompanying figure. The government imposes an excise tax of $0.30 per pound of butter. What is the price paid by consumers post-tax? What is the price
The demand for economics textbooks is very inelastic, but the supply is somewhat elastic. What does this imply about the incidence of an excise tax? Illustrate with a diagram.
True or false? When a substitute for a good is readily available to consumers, but it is difficult for producers to adjust the quantity of the good produced, then the burden of a tax on the good
The supply of bottled spring water is very inelastic, but the demand for it is somewhat elastic. What does this imply about the incidence of a tax? Illustrate with a diagram.
True or false? Other things equal, consumers would prefer to face a less elastic supply curve for a good or service when an excise tax is imposed. Explain your answer.
The accompanying table shows five consumers’ willingness to pay for one can of diet soda each, as well as five producers’ costs of selling one can of diet soda each.Each consumer buys at most one
In each of the following cases, focus on the price elasticity of demand and use a diagram to illustrate the likely size—small or large—of the deadweight loss resulting from a tax. Explain your
Assess each of the following taxes in terms of the benefits principle versus the ability-to-pay principle. What, if any, actions are distorted by the tax? Assume for simplicity in each case that the
An income tax taxes 1% of the first $10,000 of income and 2% on all income above$10,000.a. What is the marginal tax rate for someone with income of $5,000? How much total tax does this person pay?
When comparing households at different income levels, economists find that consumption spending grows more slowly than income. Assume that when income grows by 50%, from $10,000 to $15,000,
True or false? Explain your answers.a. Payroll taxes do not affect a person’s incentive to take a job because they are paid by employers.b. A lump-sum tax is a proportional tax because it is the
When comparing households at different income levels, economists find that consumption spending grows more slowly than income. Assume that when income grows by 50%, from $10,000 to $15,000,
True or false? Explain your answers.a. Payroll taxes do not affect a person’s incentive to take a job because they are paid by employers.b. A lump-sum tax is a proportional tax because it is the
True or false? Explain your answer.a. Policy choice A and policy choice B attempt to achieve the same social goal. Policy choice A, however, results in a much less efficient use of resources than
Consider the market for cheese-stuffed jalapeno peppers. There are two consumers, Casey and Josey, and their willingness to pay for each pepper is given in the accompanying table. (Neither is willing
Consider again the market for cheese-stuffed jalapeno peppers. There are two producers, Cara and Jamie, and their costs of producing each pepper are given in the accompanying table. (Neither is
Using the tables in Check Your Understanding 4-1 and 4-2, find the equilibrium price and quantity in the market for cheese-stuffed jalapeno peppers. What is total surplus in the equilibrium in this
Show how each of the following three actions reduces total surplus:a. Having Josey consume one fewer pepper, and Casey one more pepper, than in the market equilibriumb. Having Cara produce one fewer
Suppose UNOS decides to further alter its guidelines for the allocation of donated kidneys, no longer relying solely on the concept of net survival benefit but also giving preference to patients with
In some states that are rich in natural resources, such as oil, the law separates the right to above-ground use of the land from the right to drill below ground (called “mineral rights”). Someone
Suppose that in the market for used textbooks the equilibrium price is $30, but it is mistakenly announced that the equilibrium price is $300. How does this affect the efficiency of the market? Be
What is wrong with the following statement? “Markets are always the best way to organize economic activity. Any policies that interfere with markets reduce society’s welfare.”
Which of the following create deadweight loss? Which do not and are simply a transfer of surplus from one person to another? Explain your answer.a. You have been evicted from your rent-controlled
The price of strawberries falls from $1.50 to $1.00 per carton and the quantity demanded goes from 100,000 to 200,000 cartons. Use the midpoint method to find the price elasticity of demand.
The price elasticity of demand for ice-cream sandwiches is 1. 2 at the current price of $0.50 per sandwich and the current consumption level of 100,000 sandwiches.Calculate the change in the quantity
For each case, choose the condition that characterizes demand: elastic demand, inelastic demand, or unit-elastic demand.a. Total revenue decreases when price increases.b. The additional revenue
What is the elasticity of demand for the following goods? Explain. What is the shape of the demand curve?a. Demand for a blood transfusion by an accident victimb. Demand by students for green erasers
After Chelsea’s income increased from $12,000 to $18,000 a year, her purchases of album downloads increased from 10 to 40 downloads a year. Calculate Chelsea’s income elasticity of demand for
Expensive restaurant meals are income-elastic goods for most people, including Sanjay. Suppose his income falls by 10% this year. What can you predict about the change in Sanjay’s consumption of
As the price of margarine rises by 20%, a manufacturer of baked goods increases its quantity of butter demanded by 5%. Calculate the cross-price elasticity of demand between butter and margarine. Are
Using the midpoint method, calculate the price elasticity of supply for web-design services when the price per hour rises from $100 to $150 and the number of hours transacted increases from 300,000
Are each the following statements true or false? Explain.a. If the demand for milk rose, then, in the long run, milk-drinkers would be better off if supply were elastic rather than inelastic.b.
Consider the market for butter, shown in the accompanying figure. The government imposes an excise tax of $0.30 per pound of butter. What is the price paid by consumers post-tax? What is the price
The demand for economics textbooks is very inelastic, but the supply is somewhat elastic. What does this imply about the incidence of an excise tax? Illustrate with a diagram.
True or false? When a substitute for a good is readily available to consumers, but it is difficult for producers to adjust the quantity of the good produced, then the burden of a tax on the good
The supply of bottled spring water is very inelastic, but the demand for it is somewhat elastic. What does this imply about the incidence of a tax? Illustrate with a diagram.
True or false? Other things equal, consumers would prefer to face a less elastic supply curve for a good or service when an excise tax is imposed. Explain your answer.
Using the midpoint method, calculate the price elasticity of supply for web-design services when the price per hour rises from $100 to $150 and the number of hours transacted increases from 300,000
Are each the following statements true or false? Explain.a. If the demand for milk rose, then, in the long run, milk-drinkers would be better off if supply were elastic rather than inelastic.b.
Using the information in this chapter, label each of the following statements true, false, or uncertain. Explain briefly.a. If the nominal exchange rate is fixed, the real exchange rate is fixed.b.
Consider a country operating under fixed exchange rates. The IS curve is given by relation (20.1)\[\begin{array}{r}Y=Y\left(\frac{\overline{E P}}{P^{*}}, G, T, i^{*}-\pi^{e}, Y^{*}ight) \\(-,+,-,
Policy choices when the real exchange rate is "too high" and the nominal exchange rate is fixed An overvalued real exchange rate is a rate such that domestic goods are too expensive relative to
An exchange rate crisis occurs when the peg (the fixed exchange rate) loses its credibility. Bond holders no longer believe that next period's exchange rate will be this period's exchange rate. The
Modeling the movements in the exchange rate Equation (20.5) provides insight into the movements of nominal exchange rates between a domestic and a foreign country. Remember that the time periods in
Realignments of exchange rate Look at Figure 1 in the box 'The 1992 EMS Crisis." European nominal exchange rates had been fixed between the major currencies from roughly 1979 to 1992.a. Explain how
Real and nominal exchange rates for Canada and Mexico Two of the largest trading partners of the United States are Canada and Mexico. The FRED database at the Federal Reserve Bank of St. Louis
Exchange rates and expectations In this chapter, we emphasized that expectations have an important effect on the exchange rate. In this problem, we use data to get a sense of how large a role
Using the information in this chapter, label each of the following statements true, false, or uncertain. Explain briefly.a. There is so much uncertainty about the effects of monetary policy that we
Implementing a political business cycle You are the economic adviser to a newly elected president.In four years he or she will face another election. Voters want a low unemployment rate and a low
Suppose the government amends the constitution to prevent government officials from negotiating with terrorists.What are the advantages of such a policy? What are the disadvantages?
New Zealand rewrote the charter of its central bank in the early 1990s to make low inflation its only goal.Why would New Zealand want to do this?
Deficit reduction as a prisoner's dilemma game Suppose there is a budget deficit. It can be reduced by cutting military spending, by cutting welfare programs, or by cutting both.The Democrats have to
Games, pre-commitment, and time inconsistency in the news Current events offer abundant examples of disputes in which the parties are involved in a game, try to commit themselves to lines of action
The legislation governing the Federal Reserve Board The 1977 Federal Reserve Act, as amended in 1978, 1988, and 2000 governs the behavior of the Federal Reserve.a. In your opinion, does this excerpt
Using information in this chapter, label each of the following statements true, false, or uncertain. Explain briefly.a. The deficit is the difference between real government spending and taxes net of
Consider the following statement:A deficit during a war can be a good thing. First, the deficit is temporary, so after the war is over, the government can go right back to its old level of spending
Consider an economy characterized by the following facts:i. The official budget deficit is \(4 \%\) of GDP.ii. The debt-to-GDP ratio is \(100 \%\).iii. The nominal interest rate is \(10 \%\).iv. The
Assume that money demand takes the form\[\frac{M}{P}=Y\left[1-\left(r+\pi^{e}ight)ight]\]where \(Y=1,000\) and \(r=0.1\).a. Assume that, in the short run, \(\pi^{e}\) is constant and equal to \(25
Consider the economy described in Problem 3 and assume that there is a fixed exchange rate, \(\bar{E}\). Suppose that financial investors worry that the level of debt is too high and that the
Ricardian equivalence and fiscal policy First consider an economy in which Ricardian equivalence does not hold.a. Suppose the government starts with a balanced budget. Then, there is an increase in
Consider an economy characterized by the following facts:i. The debt-to-GDP ratio is \(40 \%\).ii. The primary deficit is \(4 \%\) of GDP.iii. The normal growth rate is \(3 \%\).iv. The real interest
The fiscal situation in the United States and in other countries From the FRED economic database at the Federal Reserve Bank of St. Louis, you can retrieve two series: General Government Gross Debt
Using the information in this chapter, label each of the following statements true, false, or uncertain. Explain briefly.a. The most important argument in favor of a positive rate of inflation in
Breaking the link between money growth and inflation in the medium run The money demand relationship in Chapter 4 is used implicitly in Figure 23-1. That relation is\[\frac{M}{P}=Y L(i)\]The central
Inflation targets Consider a central bank that has an inflation target, \(\pi^{*}\). We studied two versions of the Phillips curve in Chapter 9. The general Phillips curve
Indexed bonds and inflation uncertainty In Chapter 14, in a Focus Box titled "The Vocabulary of Bond Markets," the concept of an inflation-indexed bond was introduced. Although such bonds are
Unwinding unconventional monetary policy It was noted in the text that the Federal Reserve purchased, in addition to Treasury bills, large amounts of mortgage-backed securities and long-term
The maximum loan-to-value ratio Most home-buyers purchase their home with a combination of a cash down payment and a mortgage. The loan-to-value ratio is a rule that establishes the maximum mortgage
Taxes, inflation, and home ownership In this chapter, we discussed the effect of inflation on the effective capital-gains tax rate on the sale of a home. In this question, we explore the effect of
Suppose you have been elected to Congress. One day, one of your colleagues makes the following statement:The Fed chair is the most powerful economic policy maker in the United States. We should not
The frequency of the zero lower bound around the world Use the FRED database at the Federal Reserve Bank of St Louis to find the monthly average nominal policy interest rates for four major players.
Chinese economic growth is the outstanding feature of the world economic scene over the past two decades.a. In 2014, U.S. output was $17.4 trillion, and Chinese output was $10.4 trillion. Suppose
An economy produces three goods: cars, computers, and oranges. Quantities and prices per unit for years 2009 and 2010 are as follows:a. What is nominal GDP in 2009 and in 2010? By what percentage
Consider the economy described in Problem 4.a. Use the prices for 2009 as the set of common prices to compute real GDP in 2009 and in 2010. Compute the GDP deflator for 2009 and for 2010, and compute
Consider the economy described in Problem 4.a. Construct real GDP for years 2009 and 2010 by using the average price of each good over the two years.b. By what percentage does real GDP change from
The Consumer Price Index represents the average price of goods that households consume. Many thousands of goods are included in such an index. Here consumers are represented as buying only food
Using macroeconomic relations:a. Okun’s law stated that when output growth is higher than usual, the unemployment rate tends to fall. Explain why usual output growth is positive.b. In which year, a
Comparing the recessions of 2001 and 2009. One very easy source for data is the Federal Reserve Bank of St. Louis FRED database. The series that measures real GDP is GDPC1, real GDP in each quarter
Use the economy described in Problem 2.a. Solve for equilibrium output. Compute total demand. Is it equal to production? Explain.b. Assume that G is now equal to 110. Solve for equilibrium output.
Using fiscal policy in this first (and simplest model) to avoid the recession of 2009: GDP in 2009 was roughly $15,000 billion. You learned in Chapter 1 that GDP fell by approximately 3 percentage
Suppose that a person’s yearly income is $60,000. Also suppose that this person’s money demand function is given by:a. What is this person’s demand for money when the interest rate is 5%?
Consider a bond that promises to pay $100 in one year.a. What is the interest rate on the bond if its price today is$75? $85? $95?b. What is the relation between the price of the bond and the
In this chapter, you learned that an increase in the interest rate makes bonds more attractive, so it leads people to hold more of their wealth in bonds as opposed to money. However, you also learned
Choosing the quantity of money or the interest rate Suppose that money demand is given by:where $Y is $100.a. If the Federal Reserve Bank sets an interest rate target of 5%, what is the money supply
Monetary policy in a liquidity trap Suppose that money demand is given by:as long as interest rates are positive. The questions below then refer to situations where the interest rate is zero.a. What
Go to the Web site for the Federal Reserve Board of Governors (www.federalreserve.gov) and download the most recent monetary policy press release of the Federal Open Market Committee (FOMC). Make
Consider the following numerical example of the IS-LM model:a. Derive the IS relation. (Hint: You want an equation with Y on the left side and everything else on the right.)b. The central bank sets
In 2001, the Fed pursued an expansionary monetary policy and reduced interest rates. At the same time, President George W. Bush pushed through legislation that lowered income taxes.a. Illustrate the
The (less paradoxical) paradox of saving A chapter problem at the end of Chapter 3 considered the effect of a drop in consumer confidence on private saving and investment, when investment depended on
Compute the real interest rate using the exact formula and the approximation formula for each set of assumptions listed in (a) through (c).a. \(i=4 \% ; \quad \pi^{e}=2 \%\)b. \(i=15 \% ; \quad
Fill in the table below and answer the questions that relate to the data in the tablea. Which situations correspond to a liquidity trap as defined in Chapter 4?b. Which situations correspond to the
Consider a simple bank that has assets of 100, capital of 20 , and checking deposits of 80. Recall from Chapter 4 that checking deposits are liabilities of a bank.a. Set up the bank's balance
Nominal and real interest rates around the worlda. There are a few episodes of negative nominal interest rates around the world. Some may or may not be in play as you read this book. The Swiss
Calculating the risk premium on bonds The text presents a formula where \[ (1+i)=(1-p)(1+i+x)+p(0) \]\(p\) is the probability the bond does not pay at all (the bond issuer is bankrupt) and has a
Un conventional monetary policy: financial policy and quantitative easing We have written the IS-LM model in terms:\[\begin{align*}\text { IS relation: } & Y=C(Y-T)+I(Y, r+x)+G \tag{6.5}\\L M
The spread between riskless and risky bonds The text used Figure 6-3 to describe fluctuations in the spreads between riskless rate on 10-year U.S. Treasury bonds and 10-year \(A A A\) and BBB
Answer the following questions using the information provided in this chapter.a. As a percentage of employed workers, what is the size of the flows into and out of employment (i.e., hires and
The Existence of unemploymenta. Consider Figure 7-6. Suppose the unemployment rate is very low. How does the low unemployment rate change the relative bargaining power of workers and firms? What do

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