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macroeconomics principles

Questions and Answers of Macroeconomics Principles

What difference do you notice between the variability in the inflation rate before and after 1985? Provide an explanation for this phenomenon.
Suppose that you had the special power to travel in time and to carry out any experiment you wanted on the economy. If you could turn back the clock to the time of the Great Depression, what
In Figure 1.6, does unemployment change more rapidly when it is increasing, or when it is decreasing? Speculate on why this regularity might be observed in the data.Figure 1.6: 11 10 4 1940 1950 1960
Use Figures 1.8 and 1.9 to determine why the total government deficit was large during the 2008€“2009 recession. Was the deficit large because taxes fell, because spending rose, or
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 millionIM = $80
The government is running a budget balance of zero when it decides to increase education spending by $200 billion and finance the spending by selling bonds. The accompanying diagram shows the market
Suppose a national early childhood education program for all preschool-aged children has been proposed. The federal government estimates that the program would cost $15 billion to implement. Assume
Explain why equilibrium in the loanable funds market maximizes efficiency.
How would you respond to a friend who claims that the government should eliminate all purchases that are financed by borrowing because such borrowing crowds out private investment spending?
Boris Borrower and Lynn Lender agree that Lynn will lend Boris $10,000 and that Boris will repay the $10,000 with interest in one year. They agree to a nominal interest rate of 8%, reflecting a real
Using the accompanying diagram, explain what will happen to the market for loanable funds when there is a fall of 2 percentage points in the expected future inflation rate. How will the change in the
The accompanying diagram shows data for the interest rate on 10-year euro area government bonds and inflation for the euro area for 1996 through mid-2016, as reported by the European Central Bank.
For each of the following, is it an example of investment spending, investing in financial assets, or investing in physical assets?a. Rupert Moneybucks buys 100 shares of existing Coca-Cola stock.b.
Explain how a well-functioning financial system increases savings and investment spending, holding the budget balance and any capital flows fixed.
Each month, usually on the first Friday of the month, Statistics Canada releases the Labour Force Survey for the previous month. Go to StatCan’s home page at www.statcan.gc.ca. Pick English or
The economy of Britannica produces three goods: computers, pens, and pizza. The accompanying table shows the prices and output of the three goods for the years 2014, 2015, and 2016.a. What is the
The cost of undergraduate (university) education in Canada has risen in recent years. These tables show the average cost of tuition for Canadian full-time students for the academic years that began
The accompanying table contains two price indexes for the years 2014, 2015, and 2016: the GDP deflator and the CPI. For each price index, calculate the inflation rate from 2014 to 2015 and from 2015
The accompanying table provides the annual real GDP (in billions of 2002 dollars) and nominal GDP (in billions of dollars) for Canada.a. Calculate the GDP deflator for each year.b. Use the GDP
The consumer price index, or CPI, measures the cost of living for a typical urban household by multiplying the price for each category of expenditure (housing, food, and so on) times a measure of the
East land College is concerned about the rising price of textbooks that students must purchase. To better identify the increase in the price of textbooks, the dean asks you, the Economics
The accompanying table shows data on nominal GDP (in billions of dollars), real GDP (in billions of 2007 dollars), and population (in thousands) of Canada in 1966, 1976, 1986, 1996, 2006, and 2016.
Which of the following transactions should be included in GDP for Canada?a. Coca-Cola builds a new bottling plant in the Canada.b. Air Canada sells one of its existing airplanes to Korean Air.c. Ms.
In the economy of Pizzania (from Problem 4), bread and cheese produced are sold both to the pizza company for inputs in the production of pizzas and to consumers as final goods. The accompanying
The small economy of Pizzania produces three goods (bread, cheese, and pizza), each produced by a separate company. The bread and cheese companies produce all the inputs they need to make bread and
Consider the following table for Canada€™s GDP in 2016.a. Calculate 2016 consumer spending.b. Calculate 2016 private investment spending.c. Calculate 2016 net exports.d. Calculate 2016
A more complex circular-flow diagram for the economy of Macronia is shown below.a. What is the value of GDP in Macronia?b. What is the value of net exports?c. What is the value of disposable
The accompanying figure illustrates the current account balance for Canada from 1987 to 2016. A positive balance represents a trade surplus, while a negative one represents a trade deficit. While
Each year, The Economist publishes data on the price of the Big Mac in different countries and exchange rates. The accompanying table shows some data used for the index from 2007 and 2016. Use this
In 1798, Thomas Malthus’s Essay on the Principle of Population was published. In it, he wrote: “Population, when unchecked, increases in a geometrical ratio. Subsistence increases only in an
Why do we consider a business-cycle expansion different from long-run economic growth? Why do we care about the size of the long-run growth rate of real GDP versus the size of the growth rate of the
a. What three measures of the economy tend to move together during the business cycle? Which way do they move during an upturn? During a downturn?b. Who in the economy is hurt during a recession?
In the 1990s there were some dramatic economic events that came to be known as the Asian financial crisis. A decade later similar events came to be known as the global financial crisis. The
Statistics Canada reports statistics on employment and earnings that are used as key indicators by many economists to gauge the health of the economy. Figure 6-4 plots historical data on the
How do economists in Canada determine when a recession begins and when it ends? How do other countries determine whether or not a recession is occurring?
Before the Great Depression, the conventional wisdom among economists and policy makers was that the economy is largely self-regulating. a. Is this view consistent or inconsistent with Keynesian
When one person saves more, that person’s wealth is increased, meaning that he or she can consume more in the future. But when everyone saves more, everyone’s income falls, meaning that everyone
Which of the following questions are relevant for the study of macroeconomics and which for microeconomics?a. How will Ms. Martin’s tips change when a large manufacturing plant near the restaurant
Assume Saudi Arabia and Canada face the production possibilities for oil and cars shown in the accompanying table.a. What is the opportunity cost of producing a car in Saudi Arabia? In Canada? What
Producers in import-competing industries often make the following argument: “Other countries have an advantage in production of certain goods purely because workers abroad are paid lower wages. In
Canada is highly protective of its agricultural (food) industry, imposing import tariffs, and sometimes quotas, on imports of agricultural goods. This chapter presented three arguments for trade
As Canada has opened up to trade, it has lost many of its low-skill manufacturing jobs, but it has gained jobs in high-skill industries, such as the software industry. Explain whether Canada as a
The accompanying diagram illustrates the Canadian domestic demand curve and domestic supply curve for beef.The world price of beef is PW. Canada currently imposes an import tariff on beef, so the
In Canada, producers of milk, poultry, and eggs are protected by government-imposed supply management rules. This supply management system is made up of a combination of import controls, production
Once again, using the OEC website from Problems 10 and 11, identify which country has a comparative advantage for each of the following goods. For each good, include the country’s share of global
Comparative advantage creates an opportunity for less productive economies like Bangladesh to trade with more productive economies like Canada. Using the OEC website from Problem 10, how much did
The Observatory of Economic Complexity (OEC) is a data visualization that models international trade data among countries. Go to the website at atlas.media.mit.edu to answer the following
The Canadian domestic demand schedule and domestic supply schedule for apples was given in Problem 8. Suppose that the world price of apples is $0.30. Canada introduces an import quota of 3000 apples
The accompanying table indicates the Canadian domestic demand schedule and domestic supply schedule for commercial jet airplanes. Suppose that the world price of a commercial jet airplane is $100
Before the North American Free Trade Agreement (NAFTA) gradually eliminated import tariffs on goods, the autarky price of tomatoes in Mexico was below the world price and in Canada was above the
Shoes are labour-intensive and satellites are capital-intensive to produce. Canada has abundant capital. China has abundant labour. According to the Heckscher–Ohlin model, which good will China
According to data from Statistics Canada, since 2000, the value of Canadian imports of men’s and boy’s apparel from China has increased from $382 million in 2000 to $976 million in 2016. What
Industry Canada provides statistics on Canada’s imports and exports on its website. The following steps will take you to the foreign trade statistics. Use them to answer the questions below.i. Go
Both Canada and the United States produce lumber and footballs with constant opportunity costs. The United States can produce either 10 tonnes of lumber and no footballs, or 1000 footballs and no
In Canada, all provinces except Alberta have a minimum legal retail price for beer (a price floor). Part of the rationale for this policy is to discourage immoderate consumption of alcohol. Suppose
Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that
In each of the following, what is the mistake that underlies the statement? Explain the mistake in terms of supply and demand and the factors that influence them.a. Consumers are illogical because
In May 2016, a huge wildfire tore through the Fort McMurray region in Alberta. Not only did the fire cause the mandatory evacuation of about 90 000 residents, but it also resulted in a loss of $1
In 2007, a sharp downturn in the U.S. housing market reduced the income of many who worked in the American home construction industry. In October of that year, a Conference Board of Canada report
On June 6, 2013, Stephen Poloz, the newly appointed governor of the Bank of Canada, addressed the House of Commons Standing Committee on Finance. In this speech he said, “In the immediate aftermath
Discuss the efficiency and equity implications of each of the following. How would you go about balancing the concerns of equity and efficiency in these areas?a. The government pays the full tuition
Which of the following describes an equilibrium? Which does not? If the situation does not describe an equilibrium, what would an equilibrium look like?a. Many people regularly commute from the
The Duguay family lives on the east side of Shediac Bay, and the Legault family lives on the west side. Each family’s diet consists of lobster and potatoes, and each is self-sufficient, trapping
This morning you made the following individual choices: you bought a bagel and coffee at the local café, you drove to school in your car during rush hour, and you typed your course notes for your
For the following examples, state how you would use the principle of marginal analysis to make a decision.a. Deciding how many days to wait before doing your laundryb. Deciding how much time to spend
Liza needs to buy a textbook for the next economics class. The price at the university bookstore is $65. One website offers it for $55, and another site, for $57. All prices include sales tax. The
Describe some of the opportunity costs when you decide to do the following.a. Attend college or university instead of taking a jobb. Watch a movie instead of studying for an examc. Ride the bus
In each of the following situations, identify which of the twelve principles is at work.a. You choose to purchase your textbooks online through Chegg or Text book rental. ca rather than paying a
Assess the accuracy of the following statement: “If economists just had enough data, they could solve all policy questions in a way that maximizes the social good. There would be no need for
The mayor of Gotham City, worried about a potential epidemic of deadly influenza this winter, asks an economic adviser the following series of questions. Determine whether a question requires the
A representative of the Canadian clothing industry recently made the following statement: “Workers in Asia often work in sweatshop conditions earning only pennies an hour. Canadian workers are more
The accompanying table illustrates annual salaries and income tax owed by five individuals. Apart from the fact that they receive different salaries and owe different amounts of income tax, these
An insurance company has found that the severity of property damage in a fire is positively related to the number of firefighters arriving at the scene.a. Draw a diagram that depicts this finding
The accompanying table shows the relationship between workers€™ hours of work per week and their hourly wage rate. Apart from the fact that they receive a different hourly wage rate and
You are in charge of allocating residents to your dormitory€™s baseball and basketball teams. You are down to the last four people, two of whom must be allocated to baseball and two to
Peter Pundit, an economics reporter, states that the European Union (EU) is increasing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that
Statistics Canada, in December 2016, Canada sold aircraft and spacecraft worth $113.94 million to China and bought aircraft and spacecraft worth only $40.5 million from China. During the same month,
In the ancient country of Roma, only two goods, spaghetti and meatballs, are produced. There are two tribes in Roma, the Tivoli and the Frivoli. By themselves, the Tivoli each month can produce
According to Statistics Canada, 10.7 million hectares of land in Canada were used for wheat or corn farming in 2016. Of those 10.7 million hectares, farmers used 9.4 million hectares to grow 1 134.5
In the early 1980s, economist Arthur Laffer argued in favour of lowering income tax rates in order to increase tax revenues. Like most economists, he believed that at tax rates above a certain level,
Two important industries on the island of Bermuda are fishing and tourism. According to data from the Food and Agriculture Organization of the United Nations and the Bermuda Department of Statistics,
Suppose that the demand and supply for maple syrup are given by the following equations:P = 53.25 - 1.25Qd Demand CurveP = 12.75 + 0.25QS Supply CurveIn each case below, compute the new equilibrium
Determine the amount of consumer surplus generated in each of the following situations.a. Leon goes to the clothing store to buy a new T-shirt, for which he is willing to pay up to $10. He picks out
Surveys have found that chocolate is Canadians’ favourite ice-cream flavour. For each of the following, indicate the possible effects on demand, supply, or both as well as equilibrium price and
Suppose the monthly demand and supply for iPods are given by the following equations:P = 500 - 0.001Qd Demand CurveP = 200 + 0.0005QS Supply Curvea. Use the demand and supply curves to solve for the
Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events.a. The market for newspapers in your townCase
Let’s assume each person in Canada consumed an average of 74 L of soft drinks at an average price of $0.97 per litre. Assume that, at a price of $0.75 per litre, each individual consumer would
In recent years, the number of car producers in China has increased rapidly. In fact, China now has more car brands than the United States. In addition, car sales have climbed every year and
After several years of decline, the market for handmade acoustic guitars is making a comeback. These guitars are usually made in small workshops employing relatively few highly skilled luthiers.
Demand twisters: Sketch and explain the demand relationship in each of the following statements.a. I would never buy a Justin Bieber album! You couldn’t even give me one for nothing.b. I generally
This year, the small town of Middling experiences a sudden doubling of the birth rate. After three years, the birth rate returns to normal. Use a diagram to illustrate the effect of these events on
In 2016, the price of oil fell to a 12-year low. For drivers, the cost of driving fell significantly as gasoline prices plunged. For the airline industry, the cost of operation also fell
The accompanying table gives the annual Canadian demand and supply schedules for pickup trucks.a. Plot the demand and supply curves using these schedules. Indicate the equilibrium price and quantity
In order to ingratiate himself with voters, the mayor of Gotham City decides to lower the price of taxi rides. Assume, for simplicity, that all taxi rides are the same distance and therefore cost the
In the mid-eighteenth century, the government of New France (modern-day Québec) controlled the price of bread, which was set at a predetermined price below the free market price.a. Draw a diagram
The Canadian Dairy Commission (CDC) administers the price floor for butter, which was set at $7.40 per kilogram in 2015. At that price, according to data from the CDC, the quantity of butter supplied
The accompanying table shows hypothetical demand and supply schedules for milk per year. The Canadian government decides that the incomes of dairy farmers should be maintained at a level that allows
European governments tend to make greater use of price controls than does the Canadian government. For example, the French government sets minimum starting yearly wages for new hires who have
In many European countries high minimum wages have led to high levels of unemployment and underemployment, and to a two-tier labour system. In the formal labour market, workers have good jobs that
For the last 70 years the Canadian government has used price supports to provide income assistance to Canadian farmers. To implement these price supports, at times the government has used price

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