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macroeconomics principles

Questions and Answers of Macroeconomics Principles

We showed that a reduction in the interest rate in an economy operating under flexible exchange rates leads to an increase in output and a depreciation of the domestic currency.a. How does the
Flexible exchange rates and foreign macroeconomic events Consider an open economy with flexible exchange rates. Let UIP stand for the uncovered interest parity condition.a. In an IS-LM-UIP diagram,
Flexible exchange rates and the responses to changes in foreign macroeconomic policy Suppose there is an expansionary fiscal policy in the foreign country that increases \(Y^{*}\) and \(i^{*}\) at
Fixed exchange rates and foreign macroeconomic policy Consider a fixed exchange rate system, in which a group of countries (called follower countries) peg their currencies to the currency of one
A flexible exchange rate combined with a willingness to change the domestic interest rate can increase the effectiveness of monetary policy in an open economy. Consider an economy that suffers a fall
This question explores how an increase in demand for US assets may have slowed the depreciation of the dollar that many economists believe is warranted by the large US trade deficit and the need to
a. Go the Web site of The Economist (www.economist.com) and find data on 10-year interest rates. Look in the section "Markets \& Data" and then the subsection "Economic and Financial Indicators."
The Trump administration tariffs Use a search engine to find material on the Trump administration tariffs' impact on the economy. What do economists say about them? You will learn something even by
Chinese economic growth is the outstanding feature of the world economic scene over the past two decades.a. In 2018, US output was $20.5 trillion, and Chinese output in 2017 was $13.5 trillion.
The rate of growth of output per person was identified as a major issue facing the United States as of the writing. Go to the 2018 Economic Report of the President
The FRED database contains updates of the unemployment rate in Spain (Figure 1-6) as well as unemployment rates for the European Union as a whole and for individual countries for the seasonally
Label each of the following statements true, false, or uncertain. Explain briefly.a. US GDP was 38 times higher in 2018 than it was in 1960.b. When the unemployment rate is high, the participation
During a given year, the following activities occur:i. A silver mining company pays its workers $200,000 to mine 75 pounds of silver. The silver is then sold to a jewelry manufacturer for
An economy produces three goods: cars, computers, and oranges.Quantities and prices per unit for years 2012 and 2013 are as follows:a. What is nominal GDP in 2012 and in 2013? By what percentage does
Consider the economy described in Problem 4.a. Use the prices for 2012 as the set of common prices to compute real GDP in 2012 and in 2013. Compute the GDP deflator for 2012 and for 2013, and compute
Consider the economy described in Problem 4.a. Construct real GDP for years 2012 and 2013 by using the average price of each good over the two years.b. By what percentage does real GDP change from
The Consumer Price Index The Consumer Price Index represents the average price of goods that households consume. Many thousands of goods are included in such an index. Here consumers are represented
Using macroeconomic relations:a. Okun’s law states that when output growth is higher than usual, the unemployment rate tends to fall. Explain why usual output growth is positive.b. In which
Comparing the recessions of 2000 and 2008.One very easy to use source of data is the FRED database.The series that measures real GDP is GDPC1, real GDP in each quarter of the year expressed at a
Label each of the following statements true, false, or uncertain. Explain briefly.a. The largest component of GDP is consumption.b. Government spending, including transfers, was equal to 17.4% of GDP
Suppose that the economy is characterized by the following behavioral equations:Solve for the following variables.a. Equilibrium GDP (Y)b. Disposable income (YD)c. Consumption spending (C) C 160
GDP in 2009 was roughly $15,000 billion. In 2009, GDP fell by approximately 3 percentage points in 2009.a. How many billion dollars is 3 percentage points of $15,000 billion?b. If the propensity to
The Tax Cut and Jobs Act was passed by Congress in December 2017. GDP grew from $18,000 billion (2012 dollars) in 2017 to $18,500 billion (2012 dollars) in 2018.a. By what percentage did real GDP
Label each of the following statements true, false, or uncertain. Explain briefly.a. Income and financial wealth are both examples of stock variables.b. The term investment, as used by economists,
Suppose that money demand is given bywhere $Y is $100. Also, suppose that the supply of money is $20.a. What is the equilibrium interest rate?b. If the Federal Reserve Bank wants to increase the
Go to the website for the Federal Reserve Board of Governors (www.federalreserve.gov) and download the most recent monetary policy press release of the Federal Open Market Committee (FOMC), the body
This chapter explains that consumers prefer balance in their consumption of goods and services. Provide an example of how the desire for balance affects your own consumption behavior.
Explain an activity not mentioned in this chapter that occurs where you live and causes a positive or negative externality. Why does the activity cause market failure? In your opinion, what is the
Given the pros and cons of price ceilings, if it were your decision, would you impose a price ceiling on the rent for apartments in New York City? Why or why not?
What is a benefit of price ceilings? Identify four unintended consequences of price ceilings.
Identify each of the following as an intermediate good or a final good.a. A toothbrushb. Helium sold to a circus to fill balloonsc. Glass sold to Samsung to make into cell-phone screensd. Flour sold
Consider a typical worker, an unemployed worker who got divorced and had heart-bypass surgery in the same year, and a blissful retiree. The typical worker produces about $110,000 worth of output each
The following table provides fictional 2018 data for the Island of Hot Air. What was the Island of Hot Air’s GDP in that year? Category Household spending Investment spending by firms Government
Suppose that in 2020, a store owner offers you an annual salary of $50,000 to work as a manager. The owner says the last manager, hired in 2010, was pleased to accept $50,000 as a starting salary. Is
The federal minimum wage in 1981 was $3.35; in 2018, it was $7.25. Yet some people say the federal minimum wage in place in 2018 was lower than the federal minimum wage in 1981. On what basis could
What aspect of the U.S. monetary system that is no longer in place limited the expansion of the money supply early in the Great Depression? Explain your answer.
Suppose that Devon’s landlord starts charging a $5 fee for each haircut Devon provides, and that nothing else changes.a. Make a table showing Devon’s new marginal cost for each of the first 4
Supply curves generally slope upward due to the rise in which of the following?a. Marginal utilityb. Marginal costc. Rent costd. Advertising coste. Demand
Redraw the graph shown here and label each of the following:a. The equilibrium pointb. The equilibrium price and quantityc. The level of a price floor that would alter the price charged in the
Draw a smooth, upward-sloping supply curve for a firm selling soap. Then show the effect of each of the indicated changes on the graph. Label the original supply curve “Supply1.” If the supply
Draw a smooth, upward-sloping supply curve for a firm selling soap. Then show the effect of each of the indicated changes on the graph. Label the original supply curve “Supply1.” If the supply
Draw a smooth, upward-sloping supply curve for a firm selling soap. Then show the effect of each of the indicated changes on the graph. Label the original supply curve “Supply1.” If the supply
Draw a smooth, upward-sloping supply curve for a firm selling soap. Then show the effect of each of the indicated changes on the graph. Label the original supply curve “Supply1.” If the supply
Draw a smooth, upward-sloping curve to represent supply in the entire soap market and label it “Supply1.” Suppose that because firms in the soap market are experiencing losses, some shut down.
At a price of $18 for a haircut, Devon’s supply curve indicates that he would supply 1 haircut. However, if he supplied 2 haircuts for $18 each, he would take in a total of $36. His only costs for
Draw Francis’s supply curve as shown in the chapter and indicate the following:a. The producer surplus when the price is $40 per haircut, shaded with horizontal stripes.b. The increase in producer
Suppose people in your area hire college students to do yard work.a. Make a table that indicates the lowest hourly wage that you would accept to provide the first, second, third, fourth, and fifth
The price of a good naturally gravitates toward the level at which thea. Supply curve intersects the vertical axis.b. Demand curve intersects the vertical axis.c. Supply curve intersects the demand
In order to have an effect on the market, a price ceiling must bea. Above the equilibrium price.b. Below the equilibrium price.c. Equal to the equilibrium price.d. At a price that equates the
Draw a supply and demand graph for the college-education market, which has an upward-sloping supply curve and a downward sloping demand curve. Consider tuition to be the price of a college education.
Suppose the demand for acoustic (non-electric) guitars is unit elastic. If Christopher Woods increases the price he charges for acoustic guitars, assuming that the price elasticity of demand does not
How would you expect the elasticity of demand for each of the following products to compare with the price elasticity of demand for standard car tires? Explain your answer.a. Snow tires (not
Insert the missing values for the marginal utility and the total utility received from smoothies: Smoothies 1 2 3 4 5 сл 6 Marginal Utility 100 95 50 -30 Total Utility 100 280 340
For each of the following scenarios, draw a graph that shows how an increase in supply will affect the equilibrium price and quantity.a. Demand is perfectly inelastic and supply is upward sloping.b.
Suppose a 15 percent increase in the price of hot dogs sold at gas stations would lead to a 20 percent decrease in the quantity of hot dogs purchased at gas stations. What is the price elasticity of
Suppose that your friend’s income increases from $25,000 to $50,000, and, as a result, the quantity of energy drinks she purchases increases from 4 per week to 10 per week. What is your friend’s
Suppose the price of an ad on a typical news website falls from $1,000 to $800, and, as a result, the quantity of ads on news websites rises by 10 percent and the quantity of ads in newspapers falls
Provide an example not mentioned in the chapter of each of the following types of goods:a. A normal goodb. An inferior goodc. Two goods that are substitutesd. Two goods that are complementse. A
The following table provides information on the daily productivity of robots at the Island Bakery.a. Fill in the missing values for the marginal product of robots and the total output per day.b. Draw
True or False: The slope of a demand curve at any particular point is equal to the price elasticity of demand at that point. Explain your answer.
The following table provides cost information for the first 5 loaves of bread produced by the Island Bakery. Fill in the missing values.
Identify at least 2 fixed inputs and 2 variable inputs in this picture. wavebreakmedia/Shutterstock.com
Draw an upward-sloping supply curve and a downward-sloping demand curve for the tire market. Label the equilibrium price and quantity as P1 and Q1. Now suppose the government imposes a tax on
The demand for some pharmaceutical drugs is quite inelastic because customersneed the drugs to survive. This has made it possible for some drug companies to charge more than $1,000 for a daily dose
Suppose you and your neighbor indicate that you each receive 1,000 utils per month from the neighborhood park. Explain why this doesn’t mean that you each receive the same amount of happiness from
Explain whether the following statement is true, false, or uncertain: When marginal utility is decreasing, total utility is decreasing.
Use the information in the table from problem 4 to draw the marginal cost curve and the average total cost curve for the first 5 loaves made by the Island Bakery. If you were to continue these curves
Suppose this weekend you’re going to the sporting goods store to spend a $75 gift certificate on some combination of $15 soccer balls and $5 pairs of socks. Draw your budget constraint, with the
On your graph for problem 5, draw the new budget constraint that results if the price of soccer balls increases to $25 and the price of socks remains $5 per pair. Shade the area on your graph that
Suppose that at your currently weekly consumption levels, your marginal utility from bagels is 100 and your marginal utility from oranges is 75. The price per bagel is $1.00 and the price per orange
Gas prices typically end with 9/10 of a cent. If a price of $2.49(9/10) per gallon seems better to consumers than a price of $2.50 per gallon, this is most likely the result ofa. Gasoline being an
This chapter explains three things that behavioral economists have determined that consumers want: (1) Balance, (2) Some options, but not too many(3) Fairness. Which of these things leads
Does your decision making resemble the optimal consumption rule? Is there any way you could change your spending to receive more bang per buck?
Ben plays the bassoon in an orchestra for an annual salary of $60,000. He is considering the possibility of quitting his job as a musician and opening Ben’s Bagel Shop instead. Ben estimates that
Suppose that, with your current use of inputs, the marginal product of labor is 100, the marginal product of capital is 12, the wage is $25, and the rental rate is $2. Could your firm lower its costs
Suppose your family chooses to stay in an expensive hotel because it offers free breakfast. The next morning you notice a lovely bakery across the street that serves more appealing breakfasts. Your
Is the following statement true or false? The marginal cost curve is downward sloping whenever the average total cost curve is downward sloping. Explain your answer.
Is the following statement true or false? Diseconomies of scale exist throughout the range of output for which the marginal cost is rising. Explain your answer.
Identify whether each of the following is an implicit cost or an explicit cost:a. The income you could earn if you weren’t in collegeb. The money you pay for college tuitionc. The money you could
Describe a real-life situation in which you have observed the diminishing marginal product of an input such as labor.
Which of the following is not a characteristic of a perfectly competitive market?a. There are many buyers and sellers.b. The firms sell differentiated products.c. Firms are price-takers.d. Buyers and
Assume that peaches are grown in a perfectly competitive market and that peach farms have cost curves that look like those in this chapter. Draw a graph for a peach farm that earns a profit. Label
Suppose firms in a perfectly competitive market incur losses in the short run. Explain how this market will reach a long-run equilibrium. Illustrate your answer with side-by-side graphs of the market
Suppose firms in a perfectly competitive market earn profits in the short run. Explain how this market will reach a long-run equilibrium. Illustrate your answer with side-by-side graphs of the market
True, false, or uncertain: Unlike the marginal revenue curves for firms in other market structures, the marginal revenue curve for a perfectly competitive firm is horizontal. Explain your answer.
True, false, or uncertain: After some firms leave a market in which they were experiencing losses, the remaining firms will produce the same quantity of output as before the other firms left. Explain
The following table shows a firm’s output, fixed cost, marginal costs, and marginal revenue. Do the values in this table indicate that the firm is a monopolist or part of a perfectly competitive
Suppose Cotton Acres Farm earns revenue of $550,000 per year. Cotton Acres faces an annual variable cost of $300,000 and an annual fixed cost of $150,000. Is the cotton market in long-run
In the case of a prisoner’s dilemma, the outcome when each player adopts its dominant strategy is worse than the outcome that could be achieved with cooperation. The following payoff matrix shows
Suppose you start a peach farm and find yourself earning zero economic profit. Explain why that is not a good reason to shut the farm down.
True, false, or uncertain: A firm maximizes its profit by producing the quantity at which the marginal cost is as far below the price as possible. Explain your answer.
True, false, or uncertain: A firm will stay open in the short run even though it is incurring losses. Explain your answer.
What characteristics does the hamburger market in your area share with a perfectly competitive industry? What conditions for perfect competition does it violate?
Identify one example of a market not discussed in this chapter that closely resembles a perfectly competitive market.
Fill in the missing numbers in the following table.If the wage rate is $25, how many workers should the firm hire? Quantity of Labor (workers) 1 2 3 st 4 5 Total Output 22 45 80 Marginal Product
For which of the following types of firms does the marginal revenue equal the price?a. A firm in a perfectly competitive marketb. A monopolist that charges all customers the same pricec. A perfect
What three conditions are required for price discrimination? Describe a situation not mentioned in the book in which you have seen customers paying different prices for the same good or service.
Suppose a patent makes you the only seller of a new cold remedy. Draw a graph for your monopoly, assuming it resembles a typical monopoly. Include the curves for demand, marginal revenue, marginal
Suppose the patent held by the monopoly in problem 3 expires and many competitors enter the market. Which of the following will be eliminated in the long run due to monopolistic competition?a.
True, false, or uncertain: In a perfectly competitive market, firms are interdependent, and economists use game theory to analyze the firms’ behavior. Explain your answer.

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