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macroeconomics principles

Questions and Answers of Macroeconomics Principles

For each of the following, describe some of the potential opportunity costs:a. Going home for Thanksgiving vacationb. Riding your bicycle 20 miles every dayc. The federal government using tax revenue
Describe a command economy and a laissez-faire economy.Do any economic systems in the world reflect the purest forms of command or laissez-faire economies?Explain.
Calculate the slope of the demand curve at point A and at point B in the following figure. Price per unit 34 24 12 Demand 20 45 90 140 Quantity
Explain the pitfalls in the following statements.a. People who eat kale on a regular basis are more likely to exercise every day than people who do not eat kale.Therefore, exercising daily causes
The following table shows the relationship between the price of organic turkeys and the number of turkeys sold by Godfrey€™s Free-Range Gobblers.a. Is the relationship between the price of
On the Forbes 2015 list of the World’s Billionaires, Bill Gates ranks at the top with a net worth of $79.2 billion.
For each of the graphs in Figure 1, determine whether the curve has a positive or negative slope. Give an intuitive explanation for what is happening with the slope of each curve.(a)(b)(c)(d)(e)(f)
In 2012, Colorado and Washington became the first states to legalize marijuana for recreational use, and have since been joined by Oregon, Alaska and Washington, D.C. In 2014, Colorado is reported to
For each of the following situations, identify the full cost (opportunity cost) involved:a. Monique quits her $50,000 per-year job as an accountant to become a full-time volunteer at a women’s
Plot the income and consumption data in the following table on a graph, with income on the X-axis. Does the data indicate a positive or negative relationship between income and consumption? Average
Which of the following statements are examples of positive economic analysis? Which are examples of normative analysis?a. A devaluation of the U.S. dollar would increase exports from the United
Explain whether each of the following is an example of a macroeconomic concern or a microeconomic concern.a. The Federal Aviation Administration (FAA) is considering increasing the number of takeoff
Every Friday night, Gustavo pays $39.99 to eat nothing but crab legs at the all-you-can-eat seafood buffet at the M Resort in Las Vegas. On average, he consumes 28 crab legs each Friday. What is the
Graph each of the following sets of numbers. Draw a line through the points and calculate the slope of each line. 3 х х х х х 25 40 0.1 100 2 10 20 10 10 10 30 10 10 0.2 75 3 3 15 15 20 20 20 20
One of the scarce resources that constrain our behavior is time. Each of us has only 24 hours in a day. How do you go about allocating your time in a given day among competing alternatives? How do
From Figures 1.11 and 1.12, determine and discuss how fluctuations in the nominal interest rate and inflation have contributed to fluctuations in the real interest rate from 2000 to 2015.Figure
In Figure 1.13, discuss the severity of the 2008€“2009 recession relative to previous recessions.Figure 1.13: 1991-1992 2001 2008–2009 1974-1975 1981-1982 -6 -8 1940 1950 1960 1970 1980
Determine how increases in the interest rate spread in Figure 1.14 match with recessions in Figure 1.13. Does an increase in the interest rate spread always occur when there is a recession? Does a
In Figure 1.15, there were two periods prior to 2006€“2012 when the relative price of housing declined. Examine some of the other data figures in this chapter and determine what other
In this chapter, we learned that the quantity of U.S. currency outstanding per U.S. resident was $4,390 in February 2016. Suppose that we were to try to use this number to estimate the amount of
Part of gross domestic product consists of production in the so-called FIRE sector (finance, insurance, and real estate). Value added is notoriously difficult to measure in the FIRE sector, as it is
In the United States, a large fraction of transactions among banks takes place over Fed-wire, which is an electronic payments system operated by the Federal Reserve System. In December 2015, the
Suppose that, in the basic one-period model, there is no government spending and no taxes. Production by the representative firm produces pollution in proportion to the amount of output produced.
Change the model of public goods in the following fashion. Suppose that Tunits of goods acquired as taxes from the private sector produces T1/2/a units of public goods, where a > 0. Determine the
Determine the effects of an increase in the separation rate, s, on the reservation wage and on the long-run unemployment rate in the one-sided search model of unemployment. Explain your results.
Suppose that the government makes it more difficult to qualify for unemployment insurance, for example, by increasing the duration of employment required before collecting UI benefits during an
What does the two-sided search model predict would be the effects of laborsaving devices in the home, for example dishwashers, washing machines, and vacuum cleaners? Use diagrams to show the effects
Suppose that there is technological change that reduces the cost of recruiting for firms. Using the two-sided search model, deter-mine the effects on the unemployment rate, the vacancy rate, the
Suppose a pay-as-you-go social security system where social security is funded by a proportional tax on the consumption of the young. That is, the tax collected by the government is sc, where sis the
Suppose that there is an increase in the number of ATM machines in service. What are the effects of this innovation on the demand for money and on the price level?
Suppose that, in a liquidity trap, bank re-serves are less liquid than government debt. If the central bank conducts an open market purchase of government debt, what will be the effect on the price
Suppose that the central bank observes a drop in real GDP, but does not know what caused this drop.(a) How would the central bank respond if it believed that GDP dropped because of a decline in total
Suppose there is a liquidity trap. In the real business cycle model, what does this imply about the comovements we should observe between money, the price level, and output? Discuss, with the aid of
Suppose a liquidity trap . We know that conventional monetary policy does not matter in a liquidity trap. However, show that, in the coordination failure model, monetary policy could act as a signal
Suppose that the central bank could convince the public to expect more inflation in the future. If the economy is currently in a liquidity trap, what effects would this have? Use a diagram, and
If there is a liquidity trap, what will happen in the long run as prices adjust? Use a diagram, and discuss.
Suppose initially that inflation is at the central bank’s target and the output gap is zero. Then, government spending goes down. Deter-mine, with the aid of diagrams, how the degree of price
Suppose that the natural rate of interest has gone down, and that the central bank is con-strained by the zero lower bound, with inflation below the central bank’s target, and a positive output
In the NKRE model, suppose a Taylor rule as in Equation (15-8), with -d/a < h < 1. What does this imply for: (i) steady state equilibria; (ii) the whole set of equilibria that we could see?
Now, suppose in the NKRE model that the central bank follows a Taylor rule as in Equation (15 - 8), and h < -d/a.Show what this implies for steady state equilibria, and for the whole set of
Assume a two-period model where national income is 100 in the current period, and 120 in the future period. The world real interest rate is assumed to be 10% per period. The representative consumer
In Figure 3.12, what do you observe during the 1970s? Explain the significance of this.Figure 3.12: Inflation Rate 4 -2 GDP -4 -6 1940 1950 1960 1970 1980 1990 2000 2010 2020 Year 6. 2. Percentage
Average labor productivity tends to be a coincident variable. Examine Figure 3.15 care-fully. During the 1991€“1992, 2001, and 2008€“2009 recessions, how do you observe average
Consumption of durables is more variable relative to trend than is consumption of nondurables, and consumption of nondurables is more variable relative to trend than is consumption of services.
In Figure 3.11, after the 1981€“1982 recession, does the price level appear to be procyclical, countercylical, or acyclical? Why is this important?Figure 3.11: 4 Price Level -2 GDP -8 1940
The Great Moderation in part refers to the moderate variability in real GDP that occurred after the 1981€“1982 recession and before the 2008€“2009 recession. In Figure 3.12, what
Because of the economic slowdown associated with the 2008-2009 recession, the Governing Council of the Bank of Canada, between December 4, 2007 and April 21, 2009, lowered its target for the
Answer the following questions about the (real) inflation tax, assuming that the price level starts at 1.a. Maria Moneybags keeps $1,000 in her sock drawer for a year. Over the year, the inflation
a. Go to http://www.statcan.gc.ca/eng/start. Scroll down the page to find the "Consumer Price Index" link on the left side of the page. What is the annual percentage change in the CPI for the most
The following 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 2015 the high-income
This question uses the algebraic method of determining equilibrium from Appendix 3A. In Canada, producers of milk, poultry, and eggs are protected by government-imposed supply management rules. This
For each of the following trade relationships, explain the likely source of the comparative advantage of each of the exporting countries.a. Canada exports software to Venezuela, and Venezuela exports
The accompanying table shows the Canadian domestic demand schedule and domestic supply schedule for apples. Suppose that the world price of apples is $0.30 per apple.a. Draw the Canadian domestic
University tuition in most of Canada has risen significantly in the last decade. For the sake of this problem, we note that over the last 10 years the average tuition cost for full-time undergraduate
Each month Statistics Canada releases the Consumer Price Index (CPI) estimates for the previous month. Go to StatCan’s home page at www.statcan.gc.ca. Choose English or French. Click on the “CPI
Statistics Canada regularly releases data on the country’s labour productivity and labour cost. Go to StatCan’s home page at www.statcan.gc.ca. Pick English or French. Go to the middle section of
The accompanying table shows data from the World Bank, World Development Indicators for real GDP per capita (2010 U.S. dollars) for Argentina, Ghana, South Korea, and Canada in 1960 and 2015.
Most macro-economists believe it is a good thing that taxes act as automatic stabilizers and lower the size of the multiplier. However, a smaller multiplier means that the change in government
In which of the following cases does the size of the government's debt and the size of the budget deficit indicate potential problems for the economy?a. The government's debt is relatively low, but
How did or would each action affect the current public debt and implicit liabilities of the Canadian government?a. In Budget 2016, the federal government created the Canada Child Benefit (CCB) to
Unlike households, governments are often able to sustain large debts. For example, as of March 31, 2017, the Canadian government's gross debt was $716.3 billion, about 35.4% of GDP. The government
a. What measures does the government have at its disposal to undertake fiscal policy?b. What is meant by expansionary fiscal policy? How would the government undertake expansionary fiscal policy?c.
The accompanying table shows how consumers€™ marginal propensities to consume in a particular economy are related to their level of income.a. Suppose the government engages in increased
For each of the following transactions, what is the initial effect (increase or decrease) on M1? On M2? On M2+?a. You sell a few shares of stock and put the proceeds into your savings account in a
There are three types of money: commodity money, commodity-backed money, and fiat money. Which type of money is used in each of the following situations?a. Bottles of rum were used to pay for goods
The table that follows shows the components of M1+, M2, and M2+ in billions of dollars from January 2016 to March 2017 as published in the Bank of Canada's Banking and Financial Statistics published
Indicate whether each of the following is part of M1+, M2+, or none of them:a. $95 on your campus meal cardb. $0.55 in the change cup of your carc. $1663 in your savings account in a credit uniond.
Tracy Williams deposits $500 that was in her sock drawer into a chequing account at the local bank.a. How does the deposit initially change the T-account of the local bank? How does it change the
Ryan Cozzens withdraws $400 from his chequing account at the local bank and keeps it in his wallet.a. How will the withdrawal change the T-account of the local bank and the money supply?b. If the
The government of Eastlandia uses measures of monetary aggregates similar to those used by Canada, and the central bank of Eastlandia imposes a desired reserve ratio of 10%. Given the following
What will happen to the money supply under the following circumstances in a chequable-deposits-only system?a. The desired reserve ratio is 25%, and a depositor withdraws $700 from his chequable bank
Although the Bank of Canada doesn’t use changes in reserve requirements to manage the money supply, the central bank of Albernia does. The commercial banks of Albernia have $100 million in reserves
Show the changes to the T-accounts for the Bank of Canada and for commercial banks when the Bank of Canada buys $50 million in treasury bills. If the public holds a fixed amount of currency (so that
Show the changes to the T-accounts for the Bank of Canada and for commercial banks when the Bank of Canada sells $30 million in treasury bills. If the public holds a fixed amount of currency (so that
In 2016, the Bank of Canada estimated that at least $894,000 of counterfeit Canadian banknotes were in circulation (down from about $6 million in 2008).a. Why do Canadian taxpayers lose because of
As Figure 14-13 shows, the portion of the Bank of Canada's assets made up of Canadian government treasury bills and bonds declined in late 2008. Go to www. statcan.gc.ca. Under "Search," click on
Go to the schedule of key interest rate announcements page of the Bank of Canada’s website (http://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/#schedule) to find the list
Using a figure similar to Figure 15A-1, explain how the money market and the loanable funds market react to a reduction in the money supply in the short run.Figure 15A-1. (a) The Liquidity Preference
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
Contrast the short-run effects of an increase in the money supply on the interest rate to the long-run effects of an increase in the money supply on the interest rate. Which market determines the
a. Go to www.bankofcanada.ca/rates/interest-rates/t-bill-yields/. Find the part of this page that deals with average yields for recent six-month Government of Canada treasury bill auctions. What is
Go to www.bankofcanada.ca/rates/interest-rates/canadian-bonds/. Use the most recent data on the list of benchmark bond yields listed there to answer these questions.a. What are the interest rates on
An economy is facing the recessionary gap shown in the accompanying diagram. To eliminate the gap, should the central bank use expansionary or contractionary monetary policy? How will the interest
An economy is facing the inflationary gap shown in the accompanying diagram. To eliminate the gap, should the central bank use expansionary or contractionary monetary policy? How will the interest
In the economy of Eastlandia, the money market is initially in equilibrium when the economy begins to slide into a recession.a. Using the accompanying diagram, explain what will happen to the
Suppose that the money market in Westlandia is initially in equilibrium and the central bank decides to decrease the money supply.a. Using a diagram like the one in Problem 7, explain what will
An economy is in long-run macroeconomic equilibrium with an unemployment rate of 5% when the government passes a law requiring the central bank to use monetary policy to lower the unemployment rate
According to the European Central Bank website, the treaty establishing the European Community "makes clear that ensuring price stability is the most important contribution that monetary policy can
The effectiveness of monetary policy depends on how easy it is for changes in the money supply to change interest rates. By changing interest rates, monetary policy affects investment spending and
During the Great Depression, business people in the Canada were very pessimistic about the future of economic growth and reluctant to increase investment spending even when interest rates fell. How
In the economy of Scottopia, policy makers want to lower the unemployment rate and raise real GDP by using monetary policy. Using the accompanying diagram, show why this policy will ultimately result
In the following examples, would the classical model of the price level be relevant?a. There is a great deal of unemployment in the economy and no history of inflation.b. The economy has just
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 Parliament argues that the Bank of Canada should just print money to cover the
The accompanying scatter diagram shows the relationship between the unemployment rate and the output gap in Canada from 1996 to 2016. Draw a straight line through the scatter of dots in the figure.
After experiencing a recession for the past two years, the residents of Albernia were looking forward to a decrease in the unemployment rate. Yet after six months of strong positive economic growth,
The accompanying table provides data from Canada on the average annual rates of unemployment and inflation rate. Use the numbers to construct a scatter plot similar to Figure 16-5. Discuss why, in
The economy of Brittania has been suffering from high inflation with an unemployment rate equal to its natural rate. Policy makers would like to disinflate the economy with the lowest economic cost
Who are the winners and losers when a mortgage company lends $100,000 to the Miller family to buy a house worth $105,000 and during the first year prices unexpectedly fall by 10%? What would you
Due to historical differences, countries often differ in how quickly a change in actual inflation is incorporated into a change in expected inflation. In a country such as Japan, which has had very

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