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macroeconomics

Questions and Answers of Macroeconomics

Consider Figure 9-9, panel (b). Based on the data there, which regions support the convergence hypothesis? Which do not? Explain. FIGURE 9-9 Do Economies Converge? (b) But Not for the World as a
Some economists think the best way to help African countries is for wealthier countries to provide more funds for basic infrastructure. Others think this policy will have no long-run effect unless
Are economists typically more concerned about the limits to growth imposed by environmental degradation or those imposed by resource scarcity? Explain, noting the role of negative externalities in
What is the link between greenhouse gas emissions and growth? What is the expected effect on growth from emissions reduction? Why is international burden sharing of greenhouse gas emissions reduction
The accompanying table shows data from the Penn World Table, Version 8.0, for real GDP per capita in 2005 U.S. dollars for Argentina, Ghana, South Korea, and the United States for 1960, 1970, 1980,
The accompanying table shows the average annual growth rate in real GDP per capita for Argentina, Ghana, and South Korea using data from the Penn World Table, Version 8.0, for the past few decades.a.
The accompanying 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 2012 the high-income
The Bureau of Labor Statistics regularly releases the“Productivity and Costs” report for the previous month.Go to www.bls.gov and find the latest report. (On the Bureau of Labor Statistics home
The accompanying table shows data from the Penn World Table, Version 8.0, for real GDP per capita (2005 U.S. dollars) in France, Japan, the United Kingdom, and the United States in 1950 and 2011.
The accompanying table shows data from the Penn World Table, Version 8.0, for real GDP per capita (2005 U.S. dollars) for Argentina, Ghana, South Korea, and the United States in 1960 and 2011.
Why would you expect real GDP per capita in California and Pennsylvania to exhibit convergence but not in California and Baja California, a state of Mexico that borders the United States? What
According to the Oil & Gas Journal, the proven oil reserves existing in the world in 2012 consisted of 1,525 billion barrels. In that year, the U.S. Energy Information Administration reported that
The accompanying table shows the annual growth rate for the years 2000–2011 in per capita emissions of carbon dioxide (CO2) and the annual growth rate in real GDP per capita for selected countries.
Use a diagram of the loanable funds market to illustrate the effect of the following events on the equilibrium interest rate and investment spending.a. An economy is opened to international movements
Given the following information about the open economy of Regalia, what is the level of investment spending and private savings, and what are the budget balance and net capital inflow? What is the
Assume the economy is open to capital inflows and outflows and therefore net capital inflow equals imports(IM) minus exports (X). Answer each of the following questions. a. X = $125 million IM = $80
The accompanying table, taken from the National Income and Product Accounts Tables, shows the various components of U.S. GDP in 2012 and 2013 in billions of dollars.a. Complete the table by filling
The accompanying diagram shows data for the interest rate on 10-year euro area government bonds and inflation rate for the euro area for 1996 through mid-2014, as reported by the European Central
Sallie Mae is a quasi-governmental agency that packages individual student loans into pools of loans and sells shares of these pools to investors as Sallie Mae bonds.a. What is this process called?
Assuming that the aggregate price level is constant, the interest rate is fixed, and there are no taxes and no foreign trade, what will be the change in GDP if the following events occur?a. There is
The Bureau of Economic Analysis reported that, in real terms, overall consumer spending increased by$66.2 billion during the second quarter of 2014.a. If the marginal propensity to consume is 0.52,
During the early 2000s, the Case–Shiller U.S. Home Price Index, a measure of average home prices, rose continuously until it peaked in March 2006. From March 2006 to May 2009, the index lost 32% of
How will planned investment spending change as the following events occur?a. The interest rate falls as a result of Federal Reserve policy.b. The U.S. Environmental Protection Agency decrees that
Explain how each of the following actions will affect the level of planned investment spending and unplanned inventory investment. Assume the economy is initially in income–expenditure
The U.S. economy slowed significantly in early 2008, and policy makers were extremely concerned about growth. To boost the economy, Congress passed several relief packages (the Economic Stimulus Act
Describe the short-run effects of each of the following shocks on the aggregate price level and on aggregate output.a. The government sharply increases the minimum wage, raising the wages of many
A rise in productivity increases potential output, but some worry that demand for the additional output will be insufficient even in the long run. How would you respond?
A fall in the value of the dollar against other currencies makes U.S. final goods and services cheaper to foreigners even though the U.S. aggregate price level stays the same. As a result, foreigners
The Conference Board publishes the Consumer Confidence Index (CCI) every month based on a survey of 5,000 representative U.S. households. It is used by many economists to track the state of the
There were two major shocks to the U.S. economy in 2007, leading to the severe recession of 2007–2009. One shock was related to oil prices; the other was the slump in the housing market. This
The late 1990s in the United States were characterized by substantial economic growth with low inflation;that is, real GDP increased with little, if any, increase in the aggregate price level.
In each of the following cases, in the short run, determine whether the events cause a shift of a curve or a movement along a curve. Determine which curve is involved and the direction of the
Figure 13-10 shows the actual budget deficit and the cyclically adjusted budget deficit as a percentage of GDP in the United States from 1970 to 2014. Assuming that potential output was unchanged,
In 2014, the policy makers of the economy of Eastlandia projected the debt–GDP ratio and the ratio of the budget deficit to GDP for the economy for the next 10 years under different scenarios for
How did or would the following affect the current public debt and implicit liabilities of the U.S. government?a. In 2003, Congress passed and President Bush signed the Medicare Modernization Act,
Unlike households, governments are often able to sustain large debts. For example, in 2013, the U.S. government’s total debt reached $17.3 trillion, approximately equal to 101.6% of GDP. At the
Assume that total reserves are equal to $200 and total checkable bank deposits are equal to $1,000. Also assume that the public does not hold any currency. Now suppose that the required reserve ratio
Take the example of Silas depositing his $1,000 in cash into First Street Bank and assume that the required reserve ratio is 10%. But now assume that each time someone receives a bank loan, he or she
Assume that any money lent by a bank is always deposited back in the banking system as a checkable deposit and that the reserve ratio is 10%. Trace out the effects of a $100 million open-market
What are the similarities between the Panic of 1907, the S&L crisis, and the crisis of 2008?
Why did the creation of the Federal Reserve fail to prevent the bank runs of the Great Depression? What measures stopped the bank runs?
Describe the balance sheet effect. Describe the vicious cycle of deleveraging. Why is it necessary for the government to step in to halt a vicious cycle of deleveraging?
The following table shows the components of M1 and M2 in billions of dollars for the month of December in the years 2003 to 2013 reported by the Federal Reserve Bank of St. Louis. Complete the table
Using Figure 14-6, find the Federal Reserve district in which you live. Go to www.federalreserve.gov/bios/pres.htm and click on your district to identify the president of the Federal Reserve Bank in
The Congressional Research Service estimates that at least $45 million of counterfeit U.S. $100 notes produced by the North Korean government are in circulation.a. Why do U.S. taxpayers lose because
As shown in Figure 14-9, the portion of the Federal Reserve’s assets made up of U.S. Treasury bills has declined since 2007. Go to www.federalreserve.gov.Under “Select Statistical Releases,”
The accompanying figure shows new U.S. housing starts, in thousands of units per month, between January 1980 and January 2014. The graph shows a large drop in new housing starts in 1984–1991 and
Show the changes to the T-accounts for the Federal Reserve and for commercial banks when the Federal Reserve buys $50 million in U.S. Treasury bills. If the public holds a fixed amount of currency
Explain how each of the following would affect the quantity of money demanded.Does the change cause a movement along the money demand curve or a shift of the money demand curve?a. Short-term interest
Which of the following will increase the opportunity cost of holding cash? Reduce it? Have no effect? Explain.a. Merchants charge a 1% fee on debit/credit card transactions for purchases of less than
Assume that there is an increase in the demand for money at every interest rate.Using a diagram, show what effect this will have on the equilibrium interest rate for a given money supply.
Now assume that the Fed is following a policy of targeting the federal funds rate.What will the Fed do in the situation described in Question 1 to keep the federal funds rate unchanged? Illustrate
Frannie must decide whether to buy a one-year bond today and another one a year from now, or buy a two-year bond today. In which of the following scenarios is she better off taking the first action?
Suppose the economy is currently suffering from an output gap and the Federal Reserve uses an expansionary monetary policy to close that gap. Describe the short-run effect of this policy on the
In setting monetary policy, which central bank—one that operates according to a Taylor rule or one that operates by inflation targeting—is likely to respond more directly to a financial crisis?
Assume the central bank increases the quantity of money by 25%, even though the economy is initially in both short-run and long-run macroeconomic equilibrium.Describe the effects, in the short run
Why does monetary policy affect the economy in the short run but not in the long run?
Go to the FOMC page of the Federal Reserve Board’s website (www.federalreserve.gov/FOMC/) to find the statement issued after the most recent FOMC meeting.(Click on “Meeting calendars and
How will the following events affect the demand for money? In each case, specify whether there is a shift of the demand curve or a movement along the demand curve and its direction.a. There is a fall
a. Go to www.treasurydirect.gov. Under “Individuals,”go to “Treasury Securities & Programs.” Click on“Treasury bills.” Under “at a glance,” click on “rates in recent auctions.”
Go to www.treasurydirect.gov. Under “Individuals,” go to “Treasury Securities & Programs.” Click on “Treasury notes.” Under “at a glance,” click on “rates in recent auctions.” Use
During the Great Depression, business people in the United States were very pessimistic about the future of economic growth and reluctant to increase investment spending even when interest rates
Because of the economic slowdown associated with the 2007–2009 recession, the Federal Open Market Committee of the Federal Reserve, between September 18, 2007, and December 16, 2008, lowered the
Suppose there is a large increase in the money supply in an economy that previously had low inflation. As a consequence, aggregate output expands in the short run. What does this say about situations
Why is there no long-run trade-off between unemployment and inflation?
British economists believe that the natural rate of unemployment in that country rose sharply during the 1970s, from around 3% to as much as 10%. During that period, Britain experienced a sharp
Why is disinflation so costly for an economy? Are there ways to reduce these costs?
Why won’t anyone lend money at a negative nominal rate of interest? How can this pose problems for monetary policy?
The Federal Reserve regularly releases data on the U.S.monetary base. You can access that data at various websites, including the website for the Federal Reserve Bank of St. Louis. Go to
The inflation tax is often used as a significant source of revenue in developing countries where the tax collection and reporting system is not well developed and tax evasion may be high.a. Use the
Concerned about the crowding-out effects of government borrowing on private investment spending, a candidate for president argues that the United States should just print money to cover the
The accompanying scatter diagram shows the relationship between the unemployment rate and the output gap in the United States from 1996 to 2013. Draw a straight line through the scatter of dots in
a. Go to www.bls.gov. Click on link “Subjects”; on the left, under “Inflation & Prices,” click on the link“Consumer Price Index.” Scroll down to the section“CPI Tables,” and find the
The accompanying table provides data from the United States on the average annual rates of unemployment and inflation. Use the numbers to construct a scatter plot similar to Figure 16-5. Discuss why,
Which of the following are examples of maturity transformations? Which are subject to a bank-run-like phenomenon in which fear of a failure becomes a selffulfilling prophecy? Explain.a. You sell
Regarding the Economics in Action “Erin Go Broke,” identify the following:a. The asset bubbleb. The channel of financial contagion
Again regarding “Erin Go Broke,” why do you think the Irish government tried to stabilize the situation by guaranteeing the debts of the banks? Why was this a questionable policy?
Explain why the Federal Reserve was able to prevent the crisis of 2008 from turning into another Great Depression but was unable to prevent the surge in unemployment that occurred.
Explain why, in the aftermath of a severe banking crisis, a very low interest rate—even as low as 0%—may be unable to move the economy back to full employment.
In November 2011, the government of France announced that it was reducing its forecast for economic growth in 2012. It was also reducing its estimates of tax revenue for 2012, since a weaker economy
Why does the use of short-term borrowing and being outside of the lender-of-lastresort system make shadow banks vulnerable to events similar to bank runs?
How do you think the crisis of 2008 would have been mitigated if there had been no shadow banking sector but only the formal depository banking sector?
Describe the incentive problem facing the U.S. government in responding to the 2007–2009 crisis with respect to the shadow banking sector. How did the Dodd-Frank bill attempt to address those
Which of the following are not examples of a vicious cycle of deleveraging? Explain.a. Your university decides to sell several commercial buildings in the middle of town in order to upgrade buildings
In the following figure showing the Case–Shiller U.S. Home Price Index from 2000 to 2010, did housing prices peak before or after the financial crisis in the United States? Explain your answer.
Figure 17-2 tracks the unemployment rate in the years before and after the Panic of 1893 in the United States, the banking crisis of 1991 in Sweden, and the American financial crisis of 2008.a. In
In 2007–2009, the Federal Reserve, acting as a lender of last resort, stepped in to provide funds when private markets were unable to do so. The Fed also took over many banks. In 2007, it seized 3
During the financial crisis in October 2008, the federal government could borrow at a rate of 2.73% (the yield on five-year Treasury securities). During October 2008, though, Baa borrowers (corporate
Go to www.federalreserve.gov and click on the tab“Banking Information & Regulation.” Then select the links “Banking Data” followed by “Large Commercial Banks.” Once there, choose the
Go to www.fdic.gov and click on the tab “Industry Analysis” and then on the link “Research & Analysis.”Select “The First Fifty Years: A History of the FDIC 1933–1983.” Open Chapter 3,
The U.S. Government Accountability Office (GAO)does research to support congressional decision making.After the Long-Term Capital Management (LTCM)crisis, the GAO produced a summary of the events of
Which of the following are examples of debt overhang?Which examples are likely to lead to a cutback in spending? Explain.a. Your uncle starts a restaurant, borrowing to fund his investment. The
When Ben Bernanke, in his tribute to Milton Friedman, said that “Regarding the Great Depression . . . we did it,” he was referring to the fact that the Federal Reserve at the time did not pursue
In a press release from early 2012, the National Federation of Independent Business, which calculates the Small Business Optimism Index, stated “The Small Business Optimism Index rose just 0.1
Consider Figure 18-5.a. If the Federal Reserve had pursued a monetarist policy of a constant rate of growth in the money supply, what would have happened to output beginning in 2008 according to the
What are the limits of macroeconomic policy activism?
In late 2008, as it became clear that the United States was experiencing a recession, the Fed reduced its target for the federal funds rate to near zero, as part of a larger aggressively expansionary
Why did the Great Recession lead to the decline of the Great Moderation consensus?Given events, why is it predictable that a new consensus has not emerged?
Draw a diagram, similar to Figure 19-10, representing the foreign exchange situation of China when it kept the exchange rate fixed. (Hint: Express the exchange rate as U.S. dollars per yuan.) Then
Look at the data in Figure 19-11. Where do you see devaluations and revaluations of the franc against the mark?Figure 19-11 Exchange rate (francs per mark) FF4.0 3.5 3.0 2.5 2.0 1.5 1971 Attempts to

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