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macroeconomics canada in the global environment

Questions and Answers of Macroeconomics Canada In The Global Environment

a. Show that Eq. (15.4), which describes how the debt-GDP ratio evolves, still holds if the primary budget deficit, the outstanding stock of government bonds, the interest rate, and the growth rate
Both transfer programs and taxes affect incentives. Consider a program designed to help the poor that promises each aid recipient a minimum income of $10,000. That is, if the recipient earns less
Using the Economic Report of the President, compare the Federal government's budget in 1979, 1992, and 2000. Express the main components of Federal spending and receipts in each year as fractions of
Why is some state and local spending paid for by grants in aid from the Federal government, instead of having every state and locality pay for its own spending by levying taxes on its residents? What
Consider an economy in which the money supply con- sists of both currency and deposits. The growth rate of the monetary base, the growth rate of the money supply, inflation, and expected inflation
Real money demand in an economy is L = 0.2Y - 500i, where Y is real income and i is the nominal interest rate. In equilibrium, real money demand, L, equals real money supply, M/P. Suppose that Y is
In this problem you are asked to analyze the question: By issuing new bonds and using the proceeds to pay the interest on its old bonds, can government avoid ever repaying its debts?a. Suppose that
Find the largest nominal primary deficit that the gov- ernment can run without raising the debt-GDP ratio, under each of the following sets of assumptions:a. Nominal GDP growth is 10%, the nominal
Suppose that all workers value their leisure at 90 goods per day. The production function relating output per day, Y, to the number of people working per day, N, is Y = 250N -0.5N. Corresponding to
Suppose that the income tax law exempts income of less than $8000 from the tax, taxes income between $8000 and $20,000 at a 25% rate, and taxes income greater than $20,000 at a 30% rate.
Because of automatic stabilizers, various components of the government's budget depend on the level of output, Y. The following are the main components of that budget: Tax revenues Transfers
Congress votes a special one-time $1 billion transfer to bail out the buggy whip industry. Tax collections don't change, and no change is planned for at least several years. By how much will this
The following budget data are for a country having both a central government and provincial governments: Central purchases of goods and services Provincial purchases of goods and services Central
Define inflation tax (also called seignorage). How does the government collect this tax, and who pays it? Can the government always increase its real revenues from the inflation tax by increasing
Discuss four reasons why the Ricardian equivalence proposition isn't likely to hold exactly.
In what ways is the government debt a potential burden on future generations? What is the relation- ship between Ricardian equivalence and the idea that government debt is a burden?
Why do economists suggest that tax rates be kept roughly constant over time, rather than alternating between high and low levels?
Give a numerical example that shows the difference between the average tax rate and the marginal tax rate on a person's income. For a constant before-tax real wage, which type of tax rate most
Define automatic stabilizer and give an example. For pro- ponents of antirecessionary fiscal policies, what advan- tage do automatic stabilizers have over other types of taxing and spending policies?
What are the three main ways that fiscal policy affects the macroeconomy? Explain briefly how each channel of policy works.
How is government debt related to the government deficit? What factors contribute to a high growth rate of the debt-GDP ratio?
Explain the difference between the overall government budget deficit and the primary deficit. Why are two deficit concepts needed?
What are the major components of government out- lays? What are the major sources of government rev- enues? How does the composition of the Federal government's outlays and revenues differ from that
As discussed in the text, if money demand is unstable, the Fed may prefer to target interest rates rather than the money supply itself. When the Fed follows an interest-rate-targeting policy, "Fed
During much of the postwar period, the Fed attempted to stabilize nominal interest rates. However, during 1979-1982 the Fed under Paul Volcker greatly reduced its emphasis on interest rate
Obtain data on currency held by the nonbank public, which is called the currency component of M1 (starting in 1959). Define "deposits" for each year since 1959 to be M1 minus currency, and define
Why do many governments have policies against nego- tiating with hostage-taking terrorists? Under what con- ditions, if any, are such policies likely to reduce hostage taking? Discuss the analogy to
In the game between the Fed and the firms shown diagrammatically in Fig. 14.9(b), what happens if the Fed doesn’t value having the unemployment rate below the natural rate, 7? Specifically, assume
Suppose that the Fed were committed to following the Taylor rule, given in Box 14.2, p. 545. For each of the following types of shocks, determine whether the use of the Taylor rule would tend to be
Suppose that the central bank strictly followed a rule of keeping the real interest rate at 3% per year. That rate happens to be the real interest rate consistent with the economy’s initial general
How would each of the following affect the U.S. money supply? Explain.a. Banks decide to hold more excess reserves. (Excess reserves are reserves over and above what banks are legally required to
This question asks you to analyze a game played by two players, player I and player II. Player I can choose one of two actions, A and B. Player II also has two actions from which to choose, a andb.
The real quantity of money demanded is L(Y, i) 0.5Y 10i,
When the real interest rate increases, banks have an incentive to lend a greater portion of their deposits, which reduces the reserve-deposit ratio. In particular, suppose that res = 0.4-2r, where
a. The money supply is $6,000,000, currency held by the public is $2,000,000, and the reserve-deposit ratio is 0.25. Find deposits, bank reserves, the mon- etary base, and the money multiplier.b. In
The Agricolan monetary base is 1,000,000 florins. The public always holds half its money supply as currency and half as deposits. Banks hold 20% of deposits in the form of reserves. Starting with the
Has the use of money-growth targets significantly improved central bank credibility? Besides adopting money-growth targets, what other actions can a coun- try take to increase the credibility of its
"It is plain to see that discretion is a better way to run monetary policy than following a rule because a policy of discretion gives the central bank the ability to react to news about the economy."
What are the three channels of monetary policy? Explain each channel briefly.
What are intermediate targets? How do they differ from monetary policy goals? List the two principal types of intermediate targets that the Fed has used.
Besides open-market operations, what other means does the Federal Reserve have for controlling the money supply? Explain how these alternative meth- ods work.
Who determines monetary policy in the United States? What role does the President play?
What is the effect on the monetary base of an open- market purchase of U.S. Treasury securities? What is the effect on the money supply?
Discuss how actions of the public and banks can cause the money multiplier to rise or fall. Does the fact that the public and banks can affect the money multiplier imply that the central bank cannot
Define money multiplier. What is the value of the money multiplier in a system of 100% reserve banking? What is the value of the money multiplier in a system of fraction- al reserve banking, if all
Define monetary base. What is the relationship between the monetary base and the money supply in an all- currency economy?
Plot the exchange rate of the Hong Kong dollar relative to the U.S. dollar from January 1981 to the present. Was the Hong Kong dollar generally appreciating or depre- ciating relative to the U.S.
Using quarterly data since 1973, graph the U.S. real exchange rate (as calculated in Exercise 1) and net exports as a fraction of GDP in the same figure.
The United States left the Bretton Woods fixed- exchange-rate system in stages during the early 1970s.a. Graph the U.S. nominal exchange rate from 1973 to the present. Calculate and graph the U.S.
Use a diagram like Fig. 13.6 to analyze the effect on a country's net exports of a beneficial supply shock that temporarily raises full-employment output by 100 per person. Assume that the basic
East Bubble's main trading partner is West Bubble. To fight inflation, West Bubble undertakes a contrac- tionary monetary policy.
Use the classical IS-LM model for two countries to ana- lyze the idea that the United States became a relatively more attractive place to invest in the early 1980s. Assume that, because of more
Recessions often lead to calls for protectionist measures to preserve domestic jobs. Suppose that a country that is in a recession imposes restrictions that sharply re- duce the amount of goods
(Appendix 13.A)a. For the economy described in Numerical Problem 4, find the values of all the parameters of Eqs. (13.A.1), (13.A.2), and (13.A.3). Use Eqs. (13.A.8) and (13.A.9) to derive the
Consider the following classical economy: AD AS Y 400+50 M/P. Y=Y=1000.
Consider the following Keynesian economy: Desired consumption Desired investment Taxes Government purchases C4 200+0.6(Y-T)-200r. Id=300-300r. T= 20 +0.2Y. G = 152. NX 150-0.08Y-500r. Net exports
Consider the following classical economy: Desired consumption Desired investment Government purchases Net exports Real exchange rate Full-employment output Cd 300+ 0.5Y - 200r. Id=200-300r. G = 100.
Japan produces and exports only cameras, and Saudi Arabia produces and exports only barrels of oil. Initial- ly, Japan exports 40 cameras to Saudi Arabia and imports 64 barrels of oil. The real
West Bubble makes ordinary soap bars that are sold for 5 guilders each. East Bubble makes deluxe soap bars that are sold for 100 florins each. The real exchange rate between West and East Bubble is
Discuss the relative advantages and disadvantages of flexible exchange rates, fixed exchange rates, and a currency union.
Why is a country limited in changing its money supply under a fixed-exchange-rate system? Explain how policy coordination among countries in a fixed- exchange-rate system can increase the degree to
What is the fundamental value of a currency? What does saying that a currency is overvalued mean? Why is an overvalued currency a problem? What can a country do about an overvalued currency?
What effects does expansionary monetary policy have on the nominal exchange rate in both the short and long run? Explain.
How are net exports affected by expansionary fiscal policy? By expansionary monetary policy? What is the potential ambiguity in determining these effects?
How does the IS-LM model for an open economy differ from the IS-LM model for a closed economy? Illustrate the use of the open-economy IS-LM model in describ- ing how a recession in one country may be
Why do foreigners demand dollars in the foreign exchange market? Why do U.S. residents supply dol- lars to the foreign exchange market? Give two exam- ples of changes that would lead to an increased
For a given real exchange rate, how are a country's net exports affected by an increase in domestic income? An increase in foreign income? How does an increase in the domestic real interest rate
What is the J curve? What explains the behavior of net exports represented by the J curve?
Define purchasing power parity, or PPP. Does PPP work well empirically? Explain.
What are the two main types of exchange-rate systems? Currently, which type of system determines the values of the major currencies, such as the dollar, yen, and euro?
Define nominal exchange rate and real exchange rate. How are changes in the real exchange rate and the nominal exchange rate related?
For each year since 1948, calculate the share of total unemployment accounted for by people unemployed for fifteen weeks or more. How is this ratio related to the business cycle (for peak and trough
Using annual averages since 1972, produce scatter plots of the adult white male unemployment rate against:a. The adult white female unemployment rateb. The white teenager unemployment ratec. The
The purpose of this question is to obtain estimates of how the natural rate of unemployment for various demographic groups has changed over time. The idea is to look for periods in which the actual
Using annual data since 1956, create scatter plots of the following variables:a. CPI inflation rate (December to December) against the average unemployment rate for the year.b. CPI inflation rate
How would each of the following likely affect the nat- ural unemployment rate?a. A new law prohibits people from seeking employ- ment before age eighteen.b. A new Internet service, Findwork.com,
To fight an ongoing 10% inflation, the government makes raising wages or prices illegal. However, the government continues to increase the money supply (and hence aggregate demand) by 10% per year.
Some economists have suggested that someday we will live in a "cashless society" in which all businesses (including stores) and banks will be linked to a cen- tralized accounting system. In this
In this problem you are asked to show that the expectations-augmented Phillips curve (derived in the text using the extended classical model) can be derived using the Keynesian model. Consider a
Two extended classical economies (in which the mis- perceptions theory holds) differ only in one respect: In economy A money growth and inflation have been low and stable for many years, but in
Suppose that the government institutes a program to help unemployed workers learn new skills, find new jobs, and relocate as necessary to take the new jobs.a. If this program reduces structural
An economy is described by the following equations: AD SRAS Okun's law Y 4000+2(M/P) Y Y+100(P-P) (Y-Y)/Y=-2(u-) In this economy full-employment output Y equals 6000 and the natural unemployment rate
In a certain economy the expectations-augmented Phillips curve is =-2(u-) and =0.06.a. Graph the Phillips curve of this economy for an expected inflation rate of 0.10. If the Fed chooses to keep the
Consider the following extended classical economy (in which the misperceptions theory holds): AD Y 300+10(M/P). SRAS Okun's law (Y-Y)/Y=-2(u-). Full-employment output Natural unemployment rate Y = Y
Consider an economy in long-run equilibrium with an inflation rate, , of 12% (0.12) per year and a natural unemployment rate, , of 6% (0.06). The expectations- augmented Phillips curve is =-2(u-u).
Why does the Federal Reserve work hard to establish its credibility? What benefits might the public gain if the Federal Reserve has a great deal of credibility?
Discuss at least two strategies for reducing expected inflation rapidly. What are the pros and cons of these strategies?
What is the greatest potential cost associated with dis- inflation? How does the responsiveness of the public's inflation expectations affect the size of this potential cost?
Give two costs of anticipated inflation and two costs of unanticipated inflation. How is the magnitude of each affected if, instead of a moderate inflation, hyperinflation occurs?
Why is the natural unemployment rate an important economic variable? What factors explain the changes in the natural rate over time in the United States and in Europe? What government policies, if
Why do policymakers want to keep inflation low? Who suffers when there is unemployment?
Can policymakers exploit the Phillips curve relation- ship by trading more inflation for less unemployment in the short run? In the long run? Explain both the clas- sical and Keynesian points of view.
How do changes in the expected inflation rate account for the behavior of the Phillips curve in the 1960s, 1970s, and 1980s in the United States? What role do supply shocks play in explaining the
How does the expectations-augmented Phillips curve differ from the traditional Phillips curve? According to the theory of the expectations-augmented Phillips curve, under what conditions should the
What is the Phillips curve? Does the Phillips curve rela- tionship hold for U.S. data? Explain.
For each year since 1948, calculate the share of total unemployment accounted for by people unemployed for fifteen weeks or more. How is this ratio related to the business cycle (for peak and trough
Using annual averages since 1972, produce scatter plots of the adult white male unemployment rate against:a. The adult white female unemployment rateb. The white teenager unemployment ratec. The
The purpose of this question is to obtain estimates of how the natural rate of unemployment for various demographic groups has changed over time. The idea is to look for periods in which the actual
Using annual data since 1956, create scatter plots of the following variables:a. CPI inflation rate (December to December) against the average unemployment rate for the year.b. CPI inflation rate
How would each of the following likely affect the nat- ural unemployment rate?a. A new law prohibits people from seeking employ- ment before age eighteen.b. A new Internet service, Findwork.com,

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