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macroeconomics principles

Questions and Answers of Macroeconomics Principles

Suppose the parameters of the Romer model take the following values:A̅ 0 = 100, l̅ = 0.10, z̅ = 1 /500, and L̅ = 100.(a) What is the growth rate of output per person in
Consider the data in the table below. (You may find it easier to answer these questions using a spreadsheet program.) (a) Assuming no differences in TFP (ignore the last column) or the rate of
Consider a Solow economy that begins in steady state. Then a strong earthquake destroys half the capital stock. Use a Solow diagram to explain how the economy behaves over time. Draw a graph showing
In the middle of the fourteenth century, an epidemic known as the Black Death killed about a third of Europe’s population, about 34 million people. While this was an enormous tragedy, the
In addition to the benefits of economic growth, there are also potentially costs. What are some of these costs? Write a paragraph arguing that the benefits exceed the costs. Write a paragraph arguing
Suppose your bank account has a balance today of $100. Consider the following time periods: t = 0, t = 1, t = 2, t = 12, t = 24, t = 48, and t = 60. Assume there are no deposits or withdrawals in
What is the difference between real and nominal GDP? How do you compare GDPs over time within an economy? How do you compare GDPs across different economies?
What are some problems with using GDP as a measure of overall economic welfare?
What are net exports, and how is this concept related to the trade deficit?
What is GDP, and why is it a useful measure? What are the most important components of GDP in the U.S. economy today?
Suppose the following equations characterize supply and demand in the labor market model:labor supply: Ls = 2 × w + 30labor demand: Ld = 60 − wEquilibrium occurs at an employment level L* and a
Use the snapshots.pdf file, together with its hyperlinks to the underlying spreadsheet data. Use a spreadsheet program of your choice to complete the following.(a) Make a plot of per capita GDP (in
Pick a country that you find interesting, and learn some basic facts about its economy. Summarize these facts in a half-page essay. You may find the following resources to be helpful; feel free to
Suppose that in the year 2015, Oceanaire, Inc. planned to produce 500,000 units of its lightweight scuba tanks. Of the 500,000 it planned to produce, a total of 50,000 units would be added to the
In 1991, economists Joshua D. Angrist and Alan B. Krueger published a study on the correlation between date of birth and years of schooling. The premise was that the actual amount of time an average
In a randomized one-year trial of 100 elm trees with Dutch Elm Disease, 50 are slated to receive only a fungicide treatment (we will call this Group A), and the other 50 are slated to receive the
Of the following four scenarios, which survey results are likely to be the most statistically significant and which are likely to be the least statistically significant. Explain your answer.Scenario
Explain how each of the following can limit the economic growth of developing nations.a. Insufficient capital formationb. A shortage of human resourcesc. A lack of social overhead capital
Some empirical trade economists have noted that for many products, countries are both importers and exporters. For example, the United States both imports and exports shirts. How do you explain this?
When Bill Clinton took office in January 1993, he faced two major economic problems: a large federal budget deficit and high unemployment resulting from a slow recovery from the recession of 1990 to
Lydia Lopokova is 40 years old. She has assets (wealth) of $80,000 and has no debts or liabilities. She knows that she will work for 30 more years and will live 10 years after that, when she will
Futurama Medical is a high-tech medical equipment manufacturer that uses custom-designed machinery and a highly skilled, well-trained labor force in its production factory. Gonzo Garments is a
George Jetson has recently been promoted to inventory control manager at Spacely Sprockets, and he must decide on the optimal level of sprockets to keep in inventory. How should Jetson decide on the
How can a firm maintain a smooth production schedule even when sales are fluctuating? What are the benefits of a smooth production schedule? What are the costs?
Why do expectations play such an important role in investment demand? How, if at all, does this explain why investment is so volatile?
At the end of 2015, the mayor of East Magoo made the following statement: “Even after we increased the energy use tax, average power consumption increased in our town. This proves that the tax
The neighboring towns of East Magoo and West Magoo are divided by the Quincy River. The towns are similar in geographic size and population. The homes in both towns are powered entirely by
Which of the following consumption functions best fits the values in the table below?1. C = 6 + 0.8Y2. C = 4 + 0.75Y3. C = 2 + 0.6Y4. C = 3 + 0.5Y Aggregate Income (Y) Aggregate Consumption (C) 5 10
A classic example of selection bias occurred during World War II. During the war, the British were losing many airplanes over enemy territory and therefore decided to add armor plating to their
The data in the table below was used to estimate the following consumption function: C = 10 + 0.5Y On a graph, draw the consumption function and plot the points from the table. Calculate the
Identify each of the following scenarios as examples of causation, positive correlation, and/or negative correlation, and explain your answers.a. More attorneys own expensive foreign sports cars than
Describe the selection bias likely to exist in the following situations:a. A study of 5,000 office workers in Chicago found that those who ate fast food for lunch three or more times per week were 30
You have been hired as an economic consultant for the nation of Ishtar. Ishtar is a developing nation that has recently emerged from a 10-year civil war; as a result, it has experienced appreciable
In addition to fewer marriages within extended families, explain what other positive effects are likely to occur in the rural, flood-prone areas of Bangladesh because of increased government spending
Although brain drain is generally associated with developing countries, the recent debt crisis in Greece has generated an exodus of highly educated human capital from this country. In Greece, college
The distribution of income in a capitalist economy is likely to be more unequal than it is in a socialist economy. Why is this so? Is there a tension between the goal of limiting inequality and the
Corruption in a government is often accompanied by inefficiency in the economy. Why should this be true?
Find another example of the use of cell phones as a way to improve market functioning in a developing economy.
An offshoot of microfinance that has grown significantly over the past few years is an idea known as crowdfunding. With crowdfunding, individuals, businesses, and communities seek monetary support
In China, rural property is owned collectively by the village while being managed under long-term contracts by individual farmers. Why might this be a problem in terms of optimal land management,
Poor countries are trapped in a vicious circle of poverty. For output to grow, they must accumulate capital. To accumulate capital, they must save (consume less than they produce). Because they are
The small West African nation of Equatorial Guinea is designated as a high income country by the World Bank, with a GNI per capita of more than $22,000 when measured in U.S. dollars. Equatorial
A paper released by the World Bank in 2014 states that while economic growth is essential for reducing poverty rates, growth by itself is not enough, and efforts to reduce poverty must be
As the text states, investment in human capital is an important ingredient for a nation€™s economic growth. The data in the following table shows the net enrollment rates in primary school
The data in the following table represents price level changes and interest rate changes over a one-year period for three countries: Astoria, Borgia, and Calistoga. Based on the data, explain what is
Do a Web search and find a Website where you can look up historical exchange rates. Find the exchange rates between the U.S. dollar and the euro, the Canadian dollar, the Japanese yen, and the
The exchange rate between the U.S. dollar and the British pound is a floating rate, with no government intervention. If a large trade deficit with Great Britain prompts the United States to impose
Canada is the largest trading partner for the United States. In 2014, U.S. exports to Canada were more than $312 billion and imports from Canada totaled more than $347 billion. On January 1, 2014,
Suppose the exchange rate between the British pound and the U.S. dollar is £1 = $1.50.a. Draw a graph showing the demand and supply of pounds for dollars.b. If the Bank of England implements a
Suppose the exchange rate between the Danish krone and the U.S. dollar is 7 DKK = $1 and the exchange rate between the Chilean peso and the U.S. dollar is 650 CLP = $1. a. Express both of
The United States is the second-largest oil importer in the world (just recently surpassed by China), importing an average of 5 million barrels of crude oil per day in 2014. Go to
Suppose the following graph shows what prevailed on the foreign exchange market in 2015 with floating exchange rates.a. Name three phenomena that might shift the demand curve to the right.b. Which,
You are given the following model that describes the economy of Hypothetica. (1) Consumption function: C = 80 + 0.75Yd(2) Planned investment: I = 49(3) Government spending: G = 60(4) Exports: EX
What effect will each of the following events have on the current account balance and the exchange rate if the exchange rate is fixed? if the exchange rate is floating? a. The U.S. government
The exchange rate between the U.S. dollar and the Japanese yen is floating freely—both governments do not intervene in the market for each currency. Suppose a large trade deficit with Japan
Obtain a recent issue of The Economist. Turn to the section titled “Financial Indicators.” Look at the table titled “Trade, exchange rates and budgets.” Which country had the largest trade
Evaluate the following statement: If lower exchange rates increase a nation’s exports, the government should do everything in its power to ensure that the exchange rate for its currency is as low
The nation of Pixley has an absolute advantage in everything it produces compared to the nation of Hooterville. Could these two nations still benefit by trading with each other? Explain.
In 2015, the United States and Cuba re-established diplomatic relations, reopening embassies in each other’s capitals for the first time since 1961. Since the early 1960s, the United States has had
Great Britain and the United States produce cheddar cheese and blue cheese. Current domestic prices per pound for each type of cheese are given in the following table:Suppose the exchange rate is
Refer to the previous problem. Assume the market is opened to trade and Indonesia still enters the market by pricing coal at $40 per ton. But as a response to complaints from domestic coal producers,
The following table gives recent figures for yield per acre in Illinois and Kansas:a. If we assume that farmers in Illinois and Kansas use the same amount of labor, capital, and fertilizer, which
The following graph represents the domestic supply and demand for coal.a. In the absence of trade, what is the equilibrium price and equilibrium quantity?b. The government opens the market to free
The United States and Brazil each produce only cheese and wine. Domestic prices are given in the following table:On April 1, the London exchange listed an exchange rate of $1 = 1BRL.a. Which country
When a president presents a trade agreement for ratification to Congress, many domestic industries fight the ratification. In 2005, the United States was negotiating the Central America-Dominican
As is stated in the text, NAFTA was ratified by the U.S. Congress in 1993 and went into effect on January 1, 1994, and aside from a few tariffs, all of NAFTA’s commitments werefully implemented by
The following table shows imports and exports of goods during 2013 for the United States:What, if anything, can you conclude about the comparative advantage that the United States has relative to its
Suppose Latvia and Estonia each produce only two goods, tractors and bobsleds. Both are produced using labor alone. Assuming both countries are at full employment, you are given the following
In terms of value of imports and exports, the top five trading partners for the United States are Canada, China, Mexico, Japan, and Germany. Go to www.bea.gov and search for “U.S. Trade in Goods
Assume people and firms have rational expectations. Explain how each of the following events will affect aggregate output and the price level.a. The Fed announces it will increase the required
If households and firms have rational expectations, is it possible for the unemployment rate to exceed the natural rate of unemployment? Explain.
The economy of Borealis is represented by the following Lucas supply function: Y = 750 + 50(P - Pe). The current price level in Borealis is 1.45, and the expected price level is 1.70.a. What will be
In a hypothetical economy, there is a simple proportional tax on wages imposed at a rate t. There are plenty of jobs around, so if people enter the labor force, they can find work. We define total
In the nation of Lower Vicuna, the velocity of money is fairly constant, and in the nation of Upper Vicuna, the velocity of money fluctuates greatly. For which nation would the quantity theory of
In an economy with reasonably flexible prices and wages, full employment is almost always maintained. Explain why that statement is true.
During the 1980 presidential campaign, Ronald Reagan promised to cut taxes, increase expenditures on national defense, and balance the budget. During the New Hampshire primary of 1980, George Bush
The following is data from 2015 for the tiny island nation of Coco Loco: money supply = $800 million; price level = 3.2; velocity of money = 3. Use the quantity theory of money to answer the
You are a monetarist given the following information:The money supply is $1 million. The velocity of money is 4. What is nominal income? real income? What happens to nominal income if the money
The following data is for the small, recently independent island nation of Hibiscus:Tax rate: 10% flat tax on all citizens since its independence in 2010Labor supply: 200 workers in 2010, and has
Suppose you are thinking about where to live after you finish your degree. You discover that an apartment building near your new job has identical units—one is for rent and the other for sale as a
In 2000, a well-known economist was heard to say, “The problem with supply-side economics is that when you cut taxes, they have both supply and demand side effects and you cannot separate the
The table gives estimates of the rate of the M2 money supply growth and the rate of real GDP growth for five countries in 2014:a. If you were a monetarist, what would you predict about the rate of
Use aggregate supply and aggregate demand curves to show the predictions of Keynesian economic theory of the likely effects of a major tax cut when the economy is not operating at capacity and the
One source of long-run economic growth is an increase in the quality of labor, or human capital, of which education plays a major role. Go to www.bls.gov and look up the current unemployment rate.
How do each of the following relate to the rates of productivity and growth in an economy?a. Spending on research and developmentb. Government regulationc. Changes in human capitald. Output per
According to the Bureau of Labor Statistics, during the first quarter of 2015 nonfarm business productivity in the United States fell 3.1 percent and manufacturing productivity fell 1.0 percent
Why can growth lead to a more unequal distribution of income? By assuming this is true, how is it possible for the poor to benefit from economic growth?
Economists generally agree that high budget deficits today will reduce the growth rate of the economy in the future. Why? Do the reasons for the high budget deficit matter? In other words, does it
In a March 2013 press release, the World Bank announced its support to assist Indonesia in accelerating its economic growth through the Research and Innovation in Science and Technology Project
Use the data in the following table to explain what happened with respect to economic growth and the standard of living in each of the three countries. Real GDP Real GDP Population Population 2014
In the fall of 2005, the president’s tax reform commission issued a final report. The commission called for a general cut in marginal tax rates; lower tax rates on dividends, capital gains, and
The data in the following table represents real GDP per capita in 1974 and 2014 for five countries. Fill in the table by calculating the annual growth rate in real GDP per capita from 1974 to 2014.
Tables 1, 2, and 3 that follow present some data on three hypothetical economies. Complete the tables by figuring the measured productivity of labor and the rate of output growth. What do the data
The data in the following table represents real GDP from 2011€“2014 for five countries.a. Calculate the growth rate in real GDP for all five countries from 2011€“2012. Which
From 2005 through 2014, Mexico’s per-capita real GDP increased from $8,966 to $9,938 as measured in 2010 U.S. dollars, yet despite this increase in the standard of living, environmental issues such
One way that less developed countries catch up with the growth of the more developed countries is by adopting the technology of the developed countries. On average, however, developed countries are
Explain why a household’s consumption and labor supply decisions are interdependent. What impact does this interdependence have on the way in which consumption and income are related?
From March 2007 to May 2009, the price of houses decreased dramatically in many parts of the country.a. What impact would you expect decreases and increases in home values to have on the consumption
Graph the following two consumption functions:(1) C = 500 + 0.8 Y(2) C = 0.8 Ya. For each function, calculate and graph the average propensity to consume (APC) when income is $200, $500, and
In the short run, the percentage increase in output tends to correspond to a smaller percentage decrease in the unemployment rate as a result of “slippages.” Explain the three slippages between

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