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macroeconomics principles

Questions and Answers of Macroeconomics Principles

Explain the difference between actual investment and planned investment. When are actual investment and planned investment equal? When is actual investment greater than planned investment? When is
Briefly define the following terms and explain the relationship between MPC and MPS and the relationship between aggregate output and aggregate income.a. MPCb. MPSc. Aggregate outputd. Aggregate
Explain the multiplier intuitively. Why is it that an increase in planned investment of $100 raises equilibrium output by more than $100? Why is the effect on equilibrium output finite? How do we
In each of the following cases, classify the person as cyclically unemployed, structurally unemployed, frictionally unemployed, or not in the labor force. Explain your answers.a. Samuel quit his job
On average, nations in Europe pay higher unemployment benefits for longer periods of time than does the United States. How do you suppose this would impact the unemployment rates in these nations?
Suppose the number of employed people in an economy is 312,545,372. The unemployment rate in this economy is 7.4 percent, or .074, and the labor force participation rate is 80 percent, or .80.a. What
Consider the following statements:a. Fewer people are employed in Freedonia now than at any time in the past 75 years.b. The unemployment rate in Freedonia is lower now than it has been in 75
The CPI is 120 in year 1 and 150 in year 2. All inflation is anticipated. If the Gringotts Bank charges an interest rate of 30 percent in year 2, what is the bank’s real interest rate?
Consider the following five situations. In which situation would a borrower be best off and in which situation would a lender be best off?a. The nominal interest rate is 6 percent and the inflation
According to the National Bureau of Economic Research (NBER), the United States experienced five recessions from 1980 to 2010. Following is the NBER’s list of the start and end dates for each of
In his 2015 State of the Union speech, President Barack Obama urged Congress to raise the federal minimum wage from $7.25 to $10.10 per hour, and stated that future minimum wage increases should be
For each of the following events, explain what is likely to happen to the labor force participation rate:a. The federal minimum wage is abolished.b. The minimum legal working age is lowered from 16
An article in the Gotham Times states that the stock of capital and the workforce in Gotham are both increasing at an annual rate of 7 percent. The same article states that real output is growing by
The CPI is a fixed-weight index. It compares the price of a fixed bundle of goods in one year with the price of the same bundle of goods in some base year. Calculate the price of a bundle containing
When an inefficient firm or a firm producing a product that people no longer want goes out of business, people are unemployed, but that is part of the normal process of economic growth and
What do the CPI and PPIs measure? Why do we need both of these types of price indexes? What purpose you would use each one for?
In late 2010 economists were debating whether the U.S. economy was in a recession. GDP seemed to be rising, yet the unemployment rate was stuck at close to 10 percent. In thinking about the economic
Policy makers talk about the “capacity” of the economy to grow. What specifically is meant by the “capacity” of the economy? How might capacity be measured? In what ways is capacity limited
Suppose all wages, salaries, welfare benefits, and other sources of income were indexed to inflation. Would inflation still be considered a problem? Why or why not?
Evaluate the following statement: Even if the prices of a large number of goods and services in the economy increase dramatically, the real GDP for the economy can still fall, but if the prices of a
The following table contains nominal and real GDP data, in billions of dollars, from the U.S. Bureau of Economic Analysis for 2013 and 2014. The data is listed per quarter, and the real GDP data was
Gorgonzola is a small island nation with a simple economy that produces only six goods: sugar cane, yo-yos, rum, peanuts, harmonicas, and peanut butter. Assume that onequarter of all the sugar cane
Beginning in 2005, the housing market, which had been booming for years, turned. Housing construction dropped sharply in 2006. Go to www.bea.gov. Look at the GDP release and at past releases from
By mid-2009, many economists believed that the recession had ended and the U.S. economy had entered an economic expansion. Define recession and expansion. Go to www.bea.gov and look at the growth of
Explain why imports are subtracted in the expenditure approach to calculating GDP.
If you buy a new car, the entire purchase is counted as consumption in the year in which you make the transaction. Explain briefly why this is in one sense an “error” in national income
Anissa makes custom bird houses in her garage and she buys all her supplies from a local lumber yard. Last year she purchased $3,500 worth of supplies and produced 250 bird houses. She sold all 250
The following table gives some figures from forecasts of real GDP (in 2005 dollars) and population done in mid-2014. According to the forecasts, approximately how much real growth will there be
During 2002, real GDP in Japan rose about 1.3 percent. During the same period, retail sales in Japan fell 1.8 percent in real terms. What are some possible explanations for retail sales to consumers
Tobias, a classic car enthusiast in Phoenix, occasionally offers for sale one of his classic automobiles at the Barrett-Jackson collector car auction in neighboring Scottsdale. In January 2016,
What are some of the problems in using fixed weights to compute real GDP and the GDP deflator? How does the BEA’s approach attempt to solve these problems?
How do we know that calculating GDP by the expenditure approach yields the same answer as calculating GDP by the income approach?
Which of the following transactions would not be counted in GDP? Explain your answers.a. You buy a new pair of Lucchese Cowboy boots at the Lucchese factory in El Paso, Texas.b. You buy a vintage
GDP calculations do not directly include the economic costs of environmental damage—for example, global warming and acid rain. Do you think these costs should be included in GDP? Why or why not?
As the following table indicates, GNP and real GNP were almost the same in 1972, but there was a $300 billion difference by mid-1975. Explain why. Describe what the numbers here suggest about
In a simple economy, suppose that all income is either compensation of employees or profits. Suppose also that there are no indirect taxes. Calculate gross domestic product from the following set of
Explain what double counting is and discuss why GDP is not equal to total sales.
According to the National Bureau of Economic Research (NBER), what has been dubbed the Great Recession officially began in December, 2007 and ended in June, 2009. During this recession, national
For each of the following statements, draw a diagram that illustrates the likely effect on the market for eggs. Indicate in each case the impact on equilibrium price and equilibrium quantity.a. The
In 1974, the price of a first-class postage stamp was 10 cents, a loaf of bread averaged 28 cents, gasoline was 53 cents per gallon, and the average price of a new car was $3,500. In 2014, the
Explain briefly how macroeconomics is different from microeconomics. How can macroeconomists use microeconomic theory to guide them in their work, and why might they want to do so?
Explain why the length and severity of the Great Depression necessitated a fundamental rethinking of the operations of the macroeconomy.
Assume that the demand for flight attendants increases significantly as a result of an increase in demand for air travel. Explain what will happen to unemployment using both classical and Keynesian
John Maynard Keynes was the first to show that government policy could be used to change aggregate output and prevent recession by stabilizing the economy. Describe the economy of the world at the
In which of the three market arenas is each of the following goods traded?a. The athletic skills of the Green Bay Packers’ quarterback Aaron Rodgersb. Shares of Nike stockc. The hair-braiding
Define unemployment. Should everyone who does not hold a job be considered “unemployed”? To help with your answer, draw a supply and demand diagram depicting the labor market. What is measured
Many of the expansionary periods during the twentieth century occurred during wars. Why do you think this is true?
During 1993 when the economy was growing slowly, President Clinton recommended a series of spending cuts and tax increases designed to reduce the deficit. These were passed by Congress in the Omnibus
Define inflation. Assume that you live in a simple economy in which only three goods are produced and traded: cashews, pecans, and almonds. Suppose that on January 1, 2015, cashews sold for $12.50
The following graph represents the market for wheat. The equilibrium price is $20 per bushel and the equilibrium quantity is 14 million bushels.a. Explain what will happen if the government
Lines for free tickets to see free Shakespeare in Central Park are often long. A local politician has suggested that it would be a great service if the park provided music to entertain those who are
Many cruise lines offer 5-day trips. A disproportionate number of these trips leave port on Thursday and return late Monday. Why might this be true?
In April 2015, the U.S. Energy Information Administration projected that the average retail price for regular-grade gasoline would be $2.45 per gallon for the remainder of the year. Do some research
The feature states that in New Jersey, a law against price gouging prohibits price increases of more than 10 percent in an emergency situation. Assume that prior to Sandy the equilibrium price for
Illustrate the following with supply or demand curves:a. A situation of excess labor demand caused by a salary cap in the National Basketball Association (NBA).b. The effect of a sharp decrease in
Illustrate the following with supply or demand curves:a. In Joseph Heller’s iconic novel, Catch 22, one of the characters was paid by the government to not grow alfalfa. According to the
The rent for 2-bedroom apartments in Detroit has fallen from an average of $796 in September 2014 to $717 in March 2015. Demand for 2-bedroom apartments in Detroit was falling during this period as
The following graph represents the market for DVDs.a. Find the values of consumer surplus and producer surplus when the market is in equilibrium, and identify these areas on the graph.b. If
In an effort to “support” the price of some agricultural goods, the Department of Agriculture pays farmers a subsidy in cash for every acre that they leave unplanted. The Agriculture Department
On April 20, 2010, an oil-drilling platform owned by British Petroleum exploded in the Gulf of Mexico, causing oil to leak into the gulf at estimates of 1.5 to 2.5 million gallons per day for well
When excess demand exists for tickets to a major sporting event or a concert, profit opportunities exist for scalpers. Explain briefly using supply and demand curves to illustrate. Some argue that
Suppose the market demand for a cup of cappuccino is given by QD = 24 – 4P and the market supply for a cup of cappuccino is given by QS = 8P – 12, where P = price (per cup).a. Graph the supply
Use the data in the preceding problem to answer the following questions. Now suppose that the United States allows no oil imports.a. What are the equilibrium price and quantity for oil in the United
Every demand curve must eventually hit the quantity axis because with limited incomes, there is always a price so high that there is no demand for the good. Do you agree or disagree? Why?
Use the following diagram to calculate total consumer surplus at a price of $12 and production of 500 thousand flu vaccinations per day. For the same equilibrium, calculate total producer surplus.
Suppose that the world price of oil is $60 per barrel and that the United States can buy all the oil it wants at this price. Suppose also that the demand and supply schedules for oil in the United
Illustrate the following with supply and demand curves:a. In November 2014, Andy Warhol’s silkscreen artwork Triple Elvis [Ferus Type] was sold at Christie’s Auction House in New York for $81.9
Analyst 1 suggested that the demand curve for newspapers in Baltimore might have shifted to the right because people were becoming more literate. Think of two other plausible stories that would
The following table represents the market for solar wireless keyboards. Plot this data on a supply and demand graph and identify the equilibrium price and quantity. Explain what would happen if the
The growing popularity of quinoa has had an impact on the market for brown rice. With its higher fiber, protein, and iron content, quinoa is replacing brown rice as a staple food for many
Suppose the market demand for pizza is given by Qd = 300 - 20P and the market supply for pizza is given by Qs = 20P - 100, where P = price (per pizza).a. Graph the supply and demand schedules for
Housing policy analysts debate the best way to increase the number of housing units available to low-income households. One strategy—the demand-side strategy—is to provide people with housing
Suppose the demand and supply curves for eggs in the United States are given by the following equations:Qd= 100 - 20PQs= 10 + 40Pwhere Qd= millions of dozens of eggs Americans would like to buy each
During the period 2006 through 2010, housing production in the United States fell from a rate of more than 2.27 million housing starts per year to a rate of less than 500,000, a decrease of greater
Through October 2014, the U.S. government administered two programs that affected the market for cigarettes. Media campaigns and labeling requirements, which are still in place, aim at making the
In the town of Hurley, Wisconsin, an unseasonably warm summer saw temperatures rising into the mid-90s for a weeklong stretch in July. This was almost 20 degrees above the average high temperature of
Do you agree or disagree with each of the following statements? Briefly explain your answers and illustrate each with supply and demand curves.a. The price of a good rises, causing the demand for
For each of the five statements (a–e) in the previous question, draw a demand graph representing the appropriate change in quantity demanded or change in demand.
On Saturday, September 13, the Los Angeles Dodgers and the San Francisco Giants played baseball at AT&T Park in San Francisco. Both teams were in pursuit of league championships. Tickets to the
The following sets of statements contain common errors. Identify and explain each error:a. Supply decreases, causing prices to rise. Higher prices cause supply to increase. Therefore, prices fall
Explain whether each of the following statements describes a change in demand or a change in quantity demanded, and specify whether each change represents an increase or a decrease.a. Julio believes
Illustrate the following with supply and demand curves:a. With increased access to wireless technology and lighter weight, the demand for tablet computers has increased substantially. Tablets have
The market for fitness trackers is made up of five firms, and the data in the following table represents each firm€™s quantity supplied at various prices. Fill in the column for the
Merchandise sales for professional sports leagues is a multibillion dollar business, and leagues such as the NBA, NFL, and MLB have strict licensing rules for official league merchandise. Suppose you
Identify whether each of the following transactions will take place in an input market or in an output market, and whether firms or households are demanding the good or service or supplying the good
List three examples of entrepreneurs in the tech industry and the firms they created. Explain how these people fit the definition of entrepreneur.
Explain how each of the following situations would affect a nation’s production possibilities curve. a. A law is passed which makes community college tuition-free for all U.S. citizens.b. An
The nation of Billabong is able to produce surfboards and kayaks in combinations represented by the data in the following table. Each number represents thousands of units. Plot this data on a
High school football is arguably more popular in West Texas than in any other region of the country. During football season, small towns seem to shut down on Friday nights as local high school teams
At the end of the 2014 NFL regular season, the Louisiana Lottery allowed customers to enter their non-winning New Orleans Saints scratch-off lottery game tickets in a final second-chance drawing,
Betty Lou has a car washing and detailing business. She charges $20 to wash a car, a process that takes her 20 minutes and requires no help or materials. For car detailing, a process requiring 1
An analysis of a large-scale survey of consumer food purchases by Mark Aguiar and Erik Hurst indicates that retired people spend less for the same market basket of food than working people do. Use
A nation with fixed quantities of resources is able to produce any of the following combinations of carpet and carpet looms:Yards of carpet (Millions) Carpet looms
Match each diagram in Figure 1 with its description here. Assume that the economy is producing or attempting to produce at point A and that most members of society like meat and not fish. Some
The countries of Orion and Scorpius are small mountainous nations. Both produce granite and blueberries. Each nation has a labor force of 800. The following table gives production per month for each
Briefly describe the trade-offs involved in each of the following decisions. Specifically, list some of the opportunity costs associated with each decision, paying particular attention to the
Alexi and Tony own a food truck that serves only two items, street tacos and Cuban sandwiches. As shown in the table, Alexi can make 80 street tacos per hour but only 20 Cuban sandwiches. Tony is a
You are an intern to the editor of a small-town newspaper in Mallsburg, Pennsylvania. Your boss, the editor, asks you to write the first draft of an editorial for this week’s paper. Your assignment
Suppose that a simple society has an economy with only one resource, labor. Labor can be used to produce only two commodities—X, a necessity good (food), and Y, a luxury good (music and
“As long as all resources are fully employed and every firm in the economy is producing its output using the best available technology, the result will be efficient.” Do you agree or disagree

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