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macroeconomics

Questions and Answers of Macroeconomics

Why are price ceilings during a hyperinflation problematic? What generalizations do you draw from Venezuela’s economic collapse? Would a Venezuelan-style economic collapse be less likely in the
Real (inflation-adjusted) tuition costs were nearly constant during the 1960s despite a huge increase in the number of college students as the very large Baby Boom generation came of age. What do
Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in the following table.a. What is the market equilibrium rental price per month and the market
What information does a government need if it wants to attempt to reduce a widespread negative externality like air pollution? Who, typically, is actually in possession of that information? How do
Does traditional one-person-one-vote (1p1v) majority voting allow voters to directly express differences in strengths of preference?Does quadratic voting do any better? Discuss the differences and
What are the pluses and minuses of corporate location subsidies? Why do politicians like them so much?Would you be surprised to know that many of the 238 cities bidding for Amazon’s HQ2 offered
In Figure 5.2b, we saw that traditional one-person-one-vote (1p1v) majority voting results in an inefficient majority Yes vote (two in favor, one opposed). Let’s see whether the outcome is better
Suppose that total costs (TC) double for each project listed in Table 5.2. Which project(s) is (are) now economically viable?a. Plan A onlyb. Plans C and D onlyc. Plans B and Cd. Plans A and B
Let’s see whether quadratic voting can avoid the paradox of voting that arose in Table 5.3 when using 1p1v in a series of pairedchoice majority votes. To reexamine this situation using quadratic
Are all prices in the economy equally inflexible? Which ones show large amounts of short-run flexibility? Which ones show a great deal of inflexibility over months or years?
Why do many firms strive to maintain stable prices?
Do prices tend to become more flexible or less flexible as time passes? Explain.
Are labor costs a major fraction of the typical firm’s overall production costs? How does wage stickiness cause price stickiness? Discuss why firms are averse to cutting wages and salaries during a
An increase in _________ GDP guarantees that more goods and services are being produced by an economy.a. nominalb. real
True or False. The term economic investment includes purchases of stocks, bonds, and real estate.
If an economy has sticky prices, and demand unexpectedly increases, you would expect the economy’s real GDP to:a. increase.b. decrease.c. remain the same.
If an economy has fully flexible prices and demand unexpectedly increases, you would expect the economy’s real GDP to:a. increase.b. decrease.c. remain the same.
If the demand for a firm’s output unexpectedly decreases, you would expect its inventory to:a. increase.b. decrease.c. remain the same.d. increase or remain the same, depending on whether or not
True or False. Because price stickiness matters only in the short run, economists are comfortable using just one macroeconomic model for all situations.
Why are changes in inventories included as part of investment spending? Suppose inventories decline by $1 billion during 2022. How would this $1 billion decrease affect the size of gross private
Use the concepts of gross investment and net investment to distinguish between an economy that has a rising capital stock and one that has a falling capital stock. Explain: “Though net investment
Define net exports. How are net exports determined? Explain why net exports might be a negative amount.
Why is gross output a better measure of overall economic activity than GDP is? How could you construct a new statistic that focuses only on nonfinal economic activity? Given what you know about the
How do “free” products make the calculation of GDP more difficult? What are hedonic adjustments and why are they necessary? Will inflation tend to be overstated or understated if quality
Tina walks into Ted’s sporting goods store and buys a punching bag for $100. That $100 payment counts as for Tina and for Ted.a. income; expenditureb. value added; multiple countingc. expenditure;
Which of the following transactions are counted in GDP?Select one or more answers from the choices shown.a. Kerry buys a new sweater to wear this winter.b. Patricia receives a Social Security
A small economy starts the year with $1 million in capital. During the course of the year, gross investment is $150,000 and depreciation is $50,000. What is the economy’s capital stock at the end
Suppose that this year a small country has a GDP of $100 billion.Also assume that Ig = $30 billion, C = $60 billion, and Xn = − $10 billion. What is the value of G?a. $0b. $10 billionc. $20
Suppose that California imposes a sales tax of 10 percent on all goods and services. A Californian named Ralph then goes into a home improvement store in the state capital of Sacramento and buys a
Suppose GDP is $16 trillion, with $10 trillion coming from consumption,$2 trillion coming from gross investment, $3.5 trillion coming from government expenditures, and $500 billion coming from net
Suppose GDP is $15 trillion, with $8 trillion coming from consumption, $2.5 trillion coming from gross investment,$3.5 trillion coming from government expenditures, and $1 trillion coming from net
Suppose that this year’s nominal GDP is $16 trillion. To account for the effects of inflation, we construct a price-level index in which an index value of 100 represents the price level 5 years
Which of the following items are included in official U.S. GDP statistics?Select one or more answers from the choices shown.a. Revenue generated by illegal marijuana growers.b. Money spent to clean
Suppose GDP is $5.0 trillion, depreciation is $1 trillion, and gross output (GO) is $17.25 trillion.a. What is the value of all stages of production and distribution except for final sales of goods
Suppose that in 1994 the total output in a single-good economy was 7,000 buckets of chicken. Also suppose that in 1994 each bucket of chicken was priced at $10. Finally, assume that in 2015 the price
Relate each of the following to the 1995–2010 increase in the trend rate of productivity growth:a. information technologyb. increasing returnsc. network effectsd. global competition
Has female labor force participation increased or decreased in recent decades? What is the distribution of higher education degrees like across genders? Aside from discrimination, what are the
If real GDP grows at 7 percent per year, then real GDP will double in approximately ________ years.a. 70b. 14c. 10d. 7
In 1820, living standards in various places around the globe were _______ they are today.a. more widely varying thanb. just as widely varying asc. less widely varying than
True or False. Countries that currently have a low real GDP per capita are destined to always have lower living standards than countries that currently have a high real GDP per capita.
Identify each of the following situations as something that either promotes growth or retards growth.a. Increasing corruption allows government officials to steal people’s homes.b. A nation
Real GDP equals _________ times _________.a. average hours of work; quantity of capitalb. average hours of work; allocative efficiencyc. labor input; labor productivityd. natural resources;
Suppose that just by doubling the amount of output that it produces each year, a firm’s per-unit production costs fall by 30 percent. This result is an example of:a. economies of scale.b. improved
True or False. Computers and increased global competition have retarded economic growth in recent decades.
Identify the following arguments about economic growth as either anti-growth or pro-growth.a. Growth means worker burnout and frantic schedules.b. Rising incomes allow people to buy more education,
What annual growth rate is needed for a country to double its output in 7 years? In 35 years? In 70 years? In 140 years?
Can frictional unemployment by itself explain the fact that the late 2010s saw more job openings than unemployed workers? Why are there plenty of skilled workers among older job seekers but very few
Place the phases of the business cycle in order, starting with the highest level of GDP: recession, trough, peak, expansion.
Most economists agree that the immediate cause of most cyclical changes in real output and employment is an unexpected change in ___________________.a. the level of total spendingb. the value of the
Suppose that a country has 9 million people working full-time. It also has 1 million people who are actively seeking work but are currently unemployed, along with 2 million discouraged workers who
Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment.a. Tim just graduated from college and is looking for a job.b. A recession
The unemployment rate that is consistent with full employment is __________________.a. the natural rate of unemploymentb. the unnatural rate of unemploymentc. the status quo rate of unemploymentd.
A country’s current unemployment rate is 11 percent. Economists estimate that its natural rate of unemployment is 6 percent.About how large is this economy’s negative GDP gap?a. 1 percentb. 3
Cost-push inflation occurs in the presence of __________________.a. excess inventoryb. a trade deficitc. rising per-unit production costsd. excess demand for goods and services
Zion’s nominal income will go up by 10 percent next year. Inflation is expected to be −2 percent next year. By approximately how much will Zion’s real income change next year?a. −2
Kaitlin has $10,000 of savings that she may deposit with her local bank. Kaitlin wants to earn a real rate of return of at least 4 percent, and she is expecting inflation to be exactly 3 percent.What
True or False. Lenders are helped by unanticipated inflation.
Economists agree that _____________ inflation reduces real output.a. cost-pushb. demand-pullc. push-pull
How long would it take for the price level to double if inflation persisted at (a) 2 percent per year, (b) 5 percent per year, and(c) 10 percent per year?
If the inflation premium is 2 percent and the nominal interest rate is 1 percent, what is the real interest rate? What is the real interest rate if the inflation premium is 3 percent while the
Precisely how do the MPC and the APC differ? How does the MPC differ from the MPS? Why must the sum of the MPC and the MPS equal 1?
How is it possible for investment spending to increase even in a period in which the real interest rate rises?
Suppose that an economy has the Phillips curvea. What is the natural rate of unemployment?b. Graph the short-run and long-run relationships between inflation and unemployment.c. How much cyclical
An economy has the following equation for the Phillips curve:People form expectations of inflation by taking a weighted average of the previous two years of inflation:Okun’s law for this economy
Suppose the monetary-policy rule has the wrong natural rate of interest. That is, the central bank follows this rule:where ρ′ does not equal r, the natural rate of interest in the goods demand
Gabe and Gita both obey the two-period Fisher model of consumption. Gabe earns $100 in the first period and $100 in the second period. Gita earns nothing in the first period and $210 in the second
Albert and Franco both follow the life-cycle hypothesis: they smooth consumption as much as possible. They each live for five periods, the last two of which are retirement. Here are their incomes
This problem uses calculus to compare two scenarios of consumer optimization.a. Nina has the following utility function:She starts with wealth of $120,000, earns no additional income, and faces a
In the neoclassical model of business fixed investment, under what conditions will firms find it profitable to add to their capital stock?
What is Tobin’s q, and what does it have to do with investment?
Explain why an increase in the interest rate reduces the amount of residential investment.
List four reasons firms might hold inventories.
Suppose that the government levies a tax on oil companies equal to a proportion of the value of the company’s oil reserves. (The government assures the firms that the tax is for one time only.)
Assumes that investment depends only on the interest rate. Yet our theories of investment suggest that investment might also depend on national income: higher income might induce firms to invest
When the stock market crashes, what influence does it have on investment, consumption, and aggregate demand? Why? How should the Federal Reserve respond? Why?
It is an election year, and the economy is in a recession. The opposition candidate campaigns on a platform of passing an investment tax credit, which would be effective next year after she takes
The United States experienced a large increase in the number of births in the 1950s. People in this baby-boom generation reached adulthood and started forming their own households in the 1970s.a. Use
List three policy rules that the Fed might follow.Which of these would you advocate? Why?
A central bank has decided to adopt inflation targeting and is now debating whether to target 5 percent inflation or zero inflation. The economy is described by the following Phillips curve:where u
After every policy meeting, the Federal Reserve issues a statement (sometimes called the press release), which you can find on the Fed’s Web
What was unusual about U.S. fiscal policy from 1980 to 1995?
Do you find the traditional or the Ricardian view of government debt more credible? Why?
Give three reasons that a budget deficit might be a good policy choice.
The Social Security system levies a tax on workers and pays benefits to the elderly. Suppose that Congress increases both the tax and the benefits.For simplicity, assume that Congress announces that
Find some recent projections for the future path of the U.S. government debt as a percentage of GDP. What assumptions are made about government spending, taxes, and economic growth?Do you think these
What do you think are the defining characteristics of a science? Do you think macroeconomics should be called a science? Why or why not?
What does the consumer price index measure?List three ways in which it differs from the GDP deflator.
How are the CPI and the PCE deflator similar, and how are they different?
List the three categories used by the Bureau of Labor Statistics to classify everyone in the economy. How does the BLS compute the unemployment rate?
Describe the two ways the BLS measures total employment.
Go to the website of the Bureau of Economic Analysis and find the growth rate of real GDP for the most recent quarter. Go to the website of the Bureau of Labor Statistics and find the inflation rate
Place each of the following transactions in one of the four components of expenditure: consumption, investment, government purchases, and net exports.a. Boeing sells an airplane to the U.S. Air
Find data on GDP and its components, and compute the percentage of GDP for the following components for 1950, 1980, and the most recent year available.a. Personal consumption expendituresb. Gross
Tina is the sole owner of Tina’s Lawn Mowing, Incorporated (TLM). In one year, TLM collects $1,000,000 from customers to mow their lawns. TLM’s equipment depreciates in value by $125,000. TLM
Consider an economy that produces and consumes hot dogs and hamburgers.In the following table are data for two different years.a. Using 2010 as the base year, compute the following statistics for
An economy has 100 people divided among the following groups: 25 have full-time jobs, 20 have one part-time job, 5 have two part-time jobs, 10 would like to work and are looking for jobs, 10 would
Suppose the production function in medieval Europe is Y = K 0.5L0.5, where K is the amount of land and L is the amount of labor. The economy begins with 100 units of land and 100 units of labor. Use
Consider an economy described as follows:a. In this economy, compute private saving, public saving, and national saving.b. Find the equilibrium interest rate.c. Now suppose that G is reduced by
Suppose that consumption depends on the interest rate. How, if at all, does this alter the conclusions reached in the chapter about the impact of an increase in government purchases on investment,
What are open-market operations, and how do they influence the money supply?

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