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business
macroeconomics principles
Questions and Answers of
Macroeconomics Principles
In which market structures do firms enjoy some degree of market power?
What is the source of market power for each of the following producers?a. Author Stephen Kingb. Cable television provider Spectrumc. Perrier water producer Nestlé, which owns the Perrier spring
There are many competing laundromats in Cleveland, but some will wash and fold your clothes for you, some provide free beverages, and some offer Wi-Fi. Which market structure characterizes the
Given that monopolies create deadweight loss, why does the government grant patents and copyrights that give firms monopoly power?
Identify one monopolistically competitive market that was not mentioned in this chapter. Discuss how firms in that market try to differentiate their products and encourage consumers to be loyal to
Using a separate graph for each change, show the effects of the following changes on the market labor demand curve.a. An increase in the wage rateb. An increase in the price of the good that the
Using a separate graph for each change, show the effects of the following changes on the market labor supply curve.a. A decrease in the wage rateb. An increase in the opportunity cost of time spent
For 30 years, the Ringling Brothers’ and Barnum and Bailey Circus operated Clown College. Suppose the tuition for Clown College doubles, making it more difficult to obtain clown qualifications.
Suppose the demand for hammocks increases. What will happen to each of the following in the market for hammock makers?a. The market labor supply curveb. The market labor demand curvec. The
Suppose a shop called Buy the Sea Shore sells seashells in a perfectly competitive shell market and hires labor from a perfectly competitive labor market. Draw the labor demand curve and the labor
Draw a graph for a labor market with a perfectly inelastic (vertical) labor demand curve and an upward-sloping labor supply curve. Label the equilibrium quantity of labor Le and the equilibrium wage
Workers in each of the following occupations earn more than the average wage. Indicate characteristics of each occupation that might lead to high wages by causing the demand for labor to be
Describe one situation not mentioned in the chapter in which discrimination in the hiring process would:a. Conflict with a firm’s profit maximizationb. Be acceptable due to a bona fide occupational
What is one pro and one con of a minimum wage? Do you believe that raising the minimum wage would be an appropriate way to decrease income inequality? Why or why not?
Advances in automation and robotics have eliminated some jobs. Examples include cashiers replaced by self-checkout lanes and manufacturing workers replaced by robotic arms. At the same time, those
True, false, or uncertain? Perfectly competitive markets allocate resources efficiently. Explain your answer
Identify whether each of the following statements refers to a problem caused by a positive externality, a negative externality, imperfect information, imperfect competition, a public good, or none of
Identify the source of market failure addressed by each of the following remedies:a. Copayments made by insurance customersb. Antitrust legislationc. The pre-purchase of mechanical checkups for used
Suppose the strings of holiday lights used to decorate yards are produced in a perfectly competitive market and that each string purchased creates a positive externality of $1 due to its visual
The Urban Dictionary defines second-hand rap as the “phenomenon created when some idiot with a loud car stereo believes the entire community would like to have their own music, conversations, or
The government of Jefferson County, Colorado, purchases forests and preserves them as “green space” so the surrounding communities can enjoy views of the natural landscape. These views are
Use the CPI values provided below to calculate the inflation rate between the given years. a. CPI1973 = 44.4; CPI1974 = 49.3 b. CP/2011 = 224.9; CP/2012 =229.6
Policy making to remedy market failure requires the government to estimate values such as marginal private costs, marginal private benefits, marginal external costs, and marginal external benefits.
In 2017, the CPI was 245.1 and a ticket to the Super Bowl cost $2,200. Use the following CPI values and the nominal Super Bowl ticket prices provided to calculate the real price of Super Bowl tickets
To check for conflicting agendas among your friends, ask five of them which policy option they would vote for in each of the following categories of government spending:a. Increase Decrease Make no
Excessive paperwork requirements can be a source of government failure.a. Identify a paperwork task that you must complete for school, work, or the government.b. What is the benefit of the
Explain a specific situation in which equity and efficiency are conflicting goals. In the situation you described, would you be willing to sacrifice some efficiency to gain more equity? Why or
Which of the following contribute to the quality of life but not to the standard of living? a. Socksb. Clean airc. Watermelonsd. Leisure timee. Freedom
Categorize each of the following people as being part of the labor force or not.a. Jesse, a new college graduate looking for her first jobb. Lin, a 70-year-old practicing optometristc. Greg, who is
Suppose 10,000 people live on the island of Yap. Its labor force is made up of 6,000 workers, 2,000 of whom are unemployed. Calculate the unemployment rate in Yap.
Indicate whether each of the following people causes the official unemployment rate to overestimate or underestimate the severity of the unemployment problem.a. John, who sells drugs illegallyb.
Categorize each of the following people as being frictionally unemployed, structurally unemployed, cyclically unemployed, or seasonally unemployed.a. Chloe, who lost her job as a florist when a
True or false: The aggregate demand curve slopes downward because when the price level rises, consumers substitute one good for another. Explain your answer.
True or false: The short-run aggregate supply curve slopes upward because when the price level rises, sticky wages create incentives for firms to produce more output. Explain your answer.
Which of the following changes cause the aggregate demand curve to shift to the left? Choose all that apply.a. An increase in the price levelb. A decrease in wealthc. An increase in exportsd. A
Which of the following changes cause the short-run aggregate supply curve to shift to the right? Choose all that apply.a. An increase in the price levelb. A decrease in input pricesc. An increase in
Calculate the spending multiplier in each of the following situations under the assumption that there are no taxes or imports:a. The MPS = 0.10b. The MPS = 0.05c. The MPC = 0.75d. Half of all new
Suppose the government spends $10 billion that it already has on hand to improve the nation’s railway system. If the marginal propensity to consume is 0.80, what will the total increase in spending
The short-run aggregate supply curve can have three ranges: the Keynesian range, the upward-sloping range, and the classical range. In which range does an increase in aggregate demand cause each of
The aggregate supply curve takes on a different shape in the long run.a. Draw a long-run aggregate supply curve and label it LRAS1.b. What is the name for the level of output at which the long-run
Draw a graph of aggregate demand, short-run aggregate supply, and long-run aggregate supply. Label the curves and axes. Label the price level as PL1 and the real GDP as Y1.a. Show how the graph will
Identify a possible cause of each of the following in the country where you live:a. A negative supply shockb. A positive supply shockc. A decrease in aggregate demandd. An increase in aggregate demand
Suppose you are the president of your country and are making a speech to the public about government efforts to boost the economy. How would you explain the way an increase in government spending can
True or false: Classical economists argue that the economy can correct itself quickly after a destabilizing event, such as a decrease in aggregate demand. Explain your answer.
True or false: Keynesian economists are opposed to the use of fiscal policy. Explain your answer.
True or false: Monetarist economists support the use of adjustments in the money supply to actively respond to swings in the business cycle. Explain your answer.
Which of the following are areas of general agreement among modern economists?a. To stabilize the economy, fiscal policy should be used prior to monetary policy.b. Expansionary fiscal policy
Suppose the economy is experiencing a recessionary gap.a. Draw a graph showing aggregate demand, short-run aggregate supply, and long-run aggregate supply. Label both axes, all curves, and the
Suppose the economy is experiencing an inflationary gap.a. Draw a graph showing aggregate demand, short-run aggregate supply, and long-run aggregate supply. Label both axes, all curves, and the
Suppose the economy is experiencing a recessionary gap.a. Draw a graph showing aggregate demand, short-run aggregate supply, and long-run aggregate supply. Label both axes, all curves, and the
Suppose the economy develops an inflationary gap. Identify two automatic stabilizers that will help dampen the upswing in the economy.
Which of the following events is most likely to cause or contribute to each of the problems listed below in the context of fiscal policy? Events:a. A decline in interest ratesb. Government
If you were the president of your country and you felt that government spending must be cut, in which specific category of spending would you recommend the largest cuts be made? Discuss the costs and
For which of the ideal characteristics of money are coins clearly superior to bills? Explain your answer.
True or false: A barter system would be as convenient as a money system if you happened to produce something easy to carry such as pencils. Explain your answer.
True or false: Modern U.S. currency can be exchanged for a set amount of silver or gold.
Write “M1” next to each of the following items that is part of the M1 money supply; write “M2” next to the items that are part of the M2 money supply.a. Currency in circulationb. Currency
Suppose the Federal Reserve buys $4,000 worth of Treasury bonds from River Bank. Calculate the largest total increase in the money supply that could result if the reserve requirement is:a. 25%b. 20%
Indicate whether an increase in each of the following would increase or decrease the total amount of money created when the Federal Reserve adds money into the economy by purchasing Treasury bonds
True or false: Banks and thrifts started out as very similar financial institutions, but over time they became increasingly specialized. Explain your answer.
Suppose the highest return you can receive on your money is a 6 percent rate of interest from your bank. That interest is paid in one lump sum at the end of each year for amounts deposited for the
Do you think that digital alternatives to cash will completely replace cash in the next decade? Why or why not?
Which of the following is not among the primary responsibilities of the Fed?a. Conducting the nation’s monetary policy with the goal of maintaining full employment, price stability, and economic
Explain how open market operations can lead to an increase in aggregate demand.
Which of the following constitutes easy money policy and is carried out directly by the Fed?a. The sale of Treasury securitiesb. A decrease in the federal funds ratec. A decrease in the discount
Suppose the reserve requirement is 10 percent.a. If the Fed buys $10 billion worth of bonds from commercial banks, what is the largest possible increase in the money supply that could result from
True or false: During the Great Recession, the Fed increased the availability of loans by opening a facility that loaned money directly to individual consumers. Explain your answer.
Suppose the money supply increases by 8 percent.a. Given what monetarists believe about the equation of exchange, what do they predict will be the result of the increase?b. If prices and the velocity
Explain two reasons why a person might hold money other than for day-to-day purchases.
Which of the following would not shift the money demand curve to the right?a. A decrease in the interest rateb. An increase in the price levelc. An increase in real GDPd. A computer glitch that
Use the graph to answer each of the following questions:a. What is Italy’s opportunity cost of producing one computer?b. What is Japan’s opportunity cost of producing one computer?c. Which
Draw a graph showing the supply and demand curves for money and label the curves and axes. Show what would happen to the equilibrium interest rate and the equilibrium quantity of money if the
Suppose you are the Federal Reserve chairperson and you see the economy slipping into a recession. Which of the Federal Reserve’s tools would you use first in efforts to stabilize the economy? Why
A graph illustrating the general relationship between the wealth of a country and the size of the Gini coefficient would look like which of the following?a. A smileb. A frownc. A horizontal lined. A
By reducing its unemployment rate, Sierra Leone was able to produce more diamonds and more dried fish without making less of anything. Use a PPF graph to illustrate the change that occurred in this
After investing in new mining equipment and roads, Jamaica was able to increase its production of coffee and bauxite. Use a PPF graph to illustrate the change that occurred in this scenario.
Research at Abdou Moumouni University (AMU) in Niger has been hampered by a lack of adequate computer systems. Suppose Mondelez International, Inc., the maker of Oreo cookies and Ritz crackers, wants
Suppose that a country’s HDI value increased and its real GDP per capita decreased in the same year. What could cause the HDI to increase despite a decrease in real GDP per capita? Is it common to
True or false: An increase in the money supply is among the most effective ways to promote economic growth. Explain your answer.
Which of the following is an example of foreign direct investment?a. You buy bonds sold by the government of Belize.b. You buy stock in BP, a British company.c. You buy a cheese factory in
Give two reasons why microcredit is often the only hope for entrepreneurs in developing nations who need loans.
According to Robert Lucas, how can your roommate’s investment in human capital make you more productive?
Volcanic activity is slowly forming new islands in the Pacific Ocean. Suppose you will become the president of one such island, Loihi. When above water, Loihi will have a small population of people
True or false: When one country has an absolute advantage over another country, there are definitely opportunities for mutually beneficial trade. Explain your answer.
Calzonia and Pizzaland both make calzones and pizza, but Pizzaland chefs are less proficient than Calzonian chefs in the doughfolding process that converts pizza ingredients into calzones. Workers in
Answer the following questions on the basis of the information provided in problem 3:a. Which country has a comparative advantage in pizza production?b. Which country has a comparative advantage in
Explain one pro and one con of U.S. trade deficits.
Which of the following equalities must hold for a country?a. Imports = exportsb. Incoming gifts and donations = outgoing gifts and donationsc. Foreign investments in real estate = domestic
Which of the following scenarios would cause the peso to depreciate relative to the dollar?a. The government of Mexico buys pesos with its reserve of dollars.b. Inflation strikes the United States
Although trade can be mutually beneficial to the participating countries overall, how might trade create both winners and losers within each country?
Suppose you learn that firms in a particular country mistreat workers or cause excessive environmental damage. Would you avoid buying products made in that country? If so, provide an example of one
Use the concept of diminishing marginal utility to explain why customers eventually stop drinking coffee, even at a café that provides free coffee refills.
Draw a smooth, downward-sloping market demand curve for tea. Then show the effect of each of the indicated changes. Be sure to label the axes. Label the original demand curve Demand1. If the demand
Draw a smooth, downward-sloping market demand curve for tea. Then show the effect of each of the indicated changes. Be sure to label the axes. Label the original demand curve Demand1. If the demand
Draw a smooth, downward-sloping market demand curve for tea. Then show the effect of each of the indicated changes. Be sure to label the axes. Label the original demand curve Demand1. If the demand
Draw a smooth, downward-sloping market demand curve for tea. Then show the effect of each of the indicated changes. Be sure to label the axes. Label the original demand curve Demand1. If the demand
Draw a smooth, downward-sloping market demand curve for tea. Then show the effect of each of the indicated changes. Be sure to label the axes. Label the original demand curve Demand1. If the demand
Draw a smooth, downward-sloping market demand curve for tea. Then show the effect of each of the indicated changes. Be sure to label the axes. Label the original demand curve Demand1. If the demand
Draw Brian’s original demand curve for lattes, as you did in problem 2b.a. Use horizontal stripes to shade the area that represents Brian’s consumer surplus when the price of lattes is $4 each.b.
Many public pools charge a single daily admission fee for an unlimited number of visits. Why do most people visit a pool only once in a day anyway? What does that indicate about consumers’ daily
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