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macroeconomics principles
Macroeconomics 9th Edition Stephen Slavin - Solutions
The federal government’s fi scal year begins on . (LO1 )a) January 1c) October 1b) July 1d) November 1
Which is the most accurate statement? (LO5 )a) The rich pay most of the federal personal income tax.b) President George W. Bush raised taxes that the poor must pay.c) As a result of the events of 9/11, Americans are very supportive of tax cuts.d) Government spending on defense declined between 2001
Which couple pays the most in federal taxes? (LO5 )a) Todd Lhuillier and Stacey Lhuillier derive their entire $100,000 income from dividends and have two young children, Chloe Lhuillier and Taylor Lhuillier.b) Eric Church and Kim Swanson Church each have jobs that pay $50,000; they have no
The seeds of the expansion of the federal government’s economic role were sown during the administration of . ( LO1 )a) Franklin Rooseveltc) Richard Nixonb) Dwight Eisenhowerd) Ronald Reagan
The role of government grew most rapidly during the period . ( LO1 )a) 1920–1933c) 1945–1960b) 1933–1945d) 1960–1975
Practical application: If you could order a cut of $100 billion in federal spending, which programs would you cut and why would you cut them?
Give two examples of public goods or services that you use.
Explain the difference between government spending and government purchases of goods and services.
Describe the growth of the economic role of the federal government since the 1930s.
Some politicians say that Americans pay too much in taxes. Explain why you agree or disagree with them.
What additional goods and services do we expect from government today as opposed to 60 years ago?
If Adam Smith were alive today, to what degree would he approve of the present economic role of the American government?
Make up a numerical example to show why the Social Security tax is regressive.
Discuss the pros and cons of having a high cigarette excise tax.
If a political candidate said that if she were elected to Congress, she would work toward cutting federal government spending by one-third over the next four years, would she stand much chance of fulfi lling her promise? Why or why not?
Art Levine, Phyllis Levine, Leah Levine, and Suzannah Levine would like to gain control of the Sports Trading Card Corporation of America. If that corporation has $200 million in common stock, $300 million in preferred stock, and $500 million in bonds:a) Theoretically, how much would they need to
Suppose Colin Noel could borrow $200,000 for one year at an interest rate of 10 percent. He is virtually certain that he can invest this money in inventory that he could sell over a year for $300,000. If his selling costs were $50,000 and he were to pay his interest out of his profi ts, how much
Given the information in Table 3 , fi nd inventory investment in 2006. (LO5) TABLE 3 Colin Noel Manufacturing Corp. Date January 1, 2006 Level of Inventory $2.0 billion May 1, 2006 Sept. 1, 2006 2.1 billion 1.8 billion Dec. 31, 2006 2.3 billion
If net investment is 400 and depreciation is 175, how much is gross investment? (LO4)
If a corporation has $2 billion in common stock, $1 billion in preferred stock, and $4 billion in bonds: a)How much is its capitalization?b) Theoretically, how much would it take to control it?c) Practically speaking, it may take only about how much to control it? (LO1)
Use the information in Figure A to fi ll in Table 2 : (LO6) Expenditures ($) 3,000 2,000 C+1 1,000 Figure A 45 1,000 2,000 3,000 Disposable income ($) TABLE 2 Disposable Income Consumption* Savings* (a) 1,000 (b) 2,000 (c) 3,000 Investment *If you don't remember how to find consumption and
Given the information in Table 1 , fi nd inventory investment in 2005. (LO1) TABLE 1 Date January 1, 2005 July 1, 2005 December 31, 2005 Level of Inventory $500 million 530 million 485 million
If a corporation has gross investment of $150 million and depreciation of $40 million, how much is its net investment? (LO1)
If a corporation has $100 million in preferred stock,$150 million in common stock, and $250 million in bonds: (LO1)a) How much is its capitalization?b) Theoretically, how much would it take to control it?c) Practically speaking, it may take only about how much to control it?
Which is the most accurate statement? (LO1)a) In Middle-Eastern Islamic countries, the typical partnership consisted of just two members, who pooled their resources for perhaps a single trade mission.b) In virtually all countries, partnerships dissolve with the death of a member.c) Inheritance laws
Statement I. Inventory computerization has tended to reduce inventory levels.Statement II. Inventory investment tends to rise during recessions. (LO5)a) Statement I is true and statement II is false.b) Statement II is true and statement I is false.c) Both statements are true.d) Both statements are
Which statement is the most accurate? (LO1)a) Almost all corporations are very large.b) If you want to be your own boss and don’t want to share any of the decision making, the business form that would best suit you is a proprietorship.c) It is very expensive to form a corporation.d) Most business
Firms will most likely borrow money for investment when . (LO5)a) interest rates are lowb) interest rates are highc) the interest rate is higher than the expected profi t rated) the expected profi t rate is higher than the interest rate
Our capacity utilization rate is usually between. (LO5)a) 10 and 30c) 50 and 70b) 30 and 50d) 70 and 90
Investment will be high when the capacity utilization rate is and the interest rate is . (LO5)a) high, highc) high, lowb) low, lowd) low, high
Each of the following is business investment except. (LO5)a) inventory investmentb) investment in new plantc) investment in new equipmentd) investment in new residential housing
During bad recessions, investment in plant and equipment will . (LO5)a) be negativec) fall somewhatb) fall by around 15–20 percentd) rise
Business fi rms invest in plant and equipment during recession years for each of these reasons except (LO5)a) interest rates are lower.b) it has been planned years ahead.c) it replaces worn-out plant and equipment.d) it is needed because capacity may be fully utilized.
Which is the least stable? (LO5)a) investment in plant and equipmentb) investment in residential housingc) investment in inventoryd) overall investment
Karl Marx said that capital is produced by. (LO4)a) the workerc) the governmentb) the capitalistd) money
Each of the following might be used to acquire capital except . (LO4)a) working morec) borrowingb) consuming lessd) consuming more
Gross investment . (LO3)a) plus depreciation equals net investmentb) minus depreciation equals net investmentc) plus net investment equals depreciationd) equals net investment minus depreciation
During severe recessions, inventory investment is. (LO2)a) negativec) fairly highb) stabled) very high
Inventory investment is . (LO2)a) very stablec) fairly unstableb) fairly stabled) very unstable
Inventory investment is . (LO2)a) always positiveb) always negativec) can be either positive or negatived) can be neither positive nor negative
Which is not investment? (LO2)a) the purchase of 100 shares of IBMb) the construction of a new factoryc) the purchase of a new delivery truckd) the purchase of inventory
A corporation’s capitalization is based on all of the following except . (LO1)a) preferred stockc) bondsb) common stockd) sales
Ownership of a corporation is based on . (LO1)a) whether you work for the companyb) whether you buy from the companyc) whether you hold the bonds of the companyd) whether you hold stock in the company
The last to be paid off, whether the corporation does well or goes bankrupt, are the . (LO1)a) employeesc) common stockholdersb) bondholdersd) preferred stockholders
Corporations are controlled by the. (LO1)a) employeesc) common stockholdersb) bondholdersd) preferred stockholders
A key disadvantage of incorporating is that. (LO1)a) you will have to pay corporate income taxb) you will have to charge sales taxc) you will have to sell stockd) you will have to reorganize the corporation whenever an offi cer resigns or dies
Corporations collect about percent of all business receipts. (LO1)a) 10c) 61b) 32d) 84
Most corporations are . (LO1)a) publicly heldc) very smallb) very larged) none of these
A is a legal person. (LO1)a) proprietorshipc) corporationb) partnershipd) business fi rm
A key advantage of a partnership over a proprietorship is . (LO1)a) limited liabilityb) division of responsibilityc) perpetual life of the business fi rmd) none of these
A partnership . (LO1)a) must have exactly two ownersb) must have more than two ownersc) must have more than one ownerd) may have more than one owner
A business fi rm with one owner is. (LO1)a) a proprietorshipc) a corporationb) a partnershipd) none of these
Which one of these statements is false ? (LO2)a) Education spending is not offi cially classifi ed as investment spending.b) Education spending is offi cially classifi ed as investment spending.c) Education spending is classifi ed as a form of consumption spending.d) A case could be made to
Which of these is not investment? (LO2)a) additional inventoryb) the building of a county courthousec) the building of a shopping malld) the building of an automobile assembly line
In the United States, investment is done. (LO2)a) entirely by the governmentb) mostly by the governmentc) about half by the government and half by private enterprised) mainly by private enterprise
Practical Application: You and three friends have saved $100,000 and decided to form a computer repair business. Would you form a partnership or a corporation?Explain why you made this choice.
The Swanson Company, a partnership, was formed in 1999 by Jill Swanson, Jenne Swanson, Duke Swanson, Gage Swanson, and Maggie Swanson. In 2000 Holly Swanson and Missy Swanson were taken into the partnership. In 2001 Duke Swanson left the partnership and Brenda Swanson and Jerry Swanson joined it.
Why are virtually all large business fi rms corporations?
If you owned a business and were considering increasing your level of investment, what would be the most important factor you would consider in determining how much you planned to invest? Explain why you chose that factor.
What has happened to our personal savings rate in recent years, and how has that affected our level of investment?
The Carolina Textile Corporation is capitalized at $200 million. If you wanted to buy control of this company, how much money would you have to spend? Since you don’t have nearly enough information to make this decision, just make some reasonable assumption about its bonds, preferred stock, and
Explain how the capacity utilization rate and the interest rate affect the level of investment.
What are the advantages and disadvantages of the corporation as a form of business organization?
Which statement is true? ( LO2 , 10 )a) Americans save much more of their incomes than they did 20 years ago.b) In 2007 our disposable income was about equal to our consumption spending.c) Although the U.S. does not have the highest saving rate in the world, Americans save more money than the
Which one of the following statements is the most accurate? ( LO7 , 10 )a) The American consumer was largely responsible for Japan’s economic resurgence since World War II.b) China, as the world’s most populous country, has the world’s largest consumer market.c) Although there are some who
Twenty years from now our disposable income will rise from $30 trillion to $31 trillion. What would your best guess be as to how much consumption will rise? ( LO10 )a) $50 billionc) $950 billionb) $500 billiond) $1.05 trillion
As a nation’s income falls, induced consumption. ( LO9 )a) risesb) fallsc) remains the same
Boyd and Dianne Call earn $100,000 a year. They went deeply into debt after paying $75,000 for their daughter Chelsea’s wedding and $50,000 for their daughter Kaylynne’s sweet sixteen party. Their behavior might best be described by. ( LO10)a) Milton Friedmanb) John Maynard Keynesc) Bruce
Our consumption spending tends to rise as the stock of liquid assets in the hands of consumers and credit availability. ( LO7 )a) rises, risesb) falls, fallsc) rises, fallsd) falls, rises
Which is the most accurate statement? ( LO10 )a) The American personal savings rate would be higher if we counted capital gains as income which is not spent.b) An average propensity to save of .02 means that only 2 percent of the population is saving any of their income.c) Our low savings rate is
When disposable income is $2,000 billion, consumption is . ( LO5 )a) 2$3,500 billiond) $3,500 billionb) 0e) $4,000 billionc) $2,000 billion
Consumption is equal to 5,000 at a disposable income of . ( LO5 )a) $2,000 billiond) $8,000 billionb) $4,000 billione) $10,000 billionc) $6,000 billion
Savings is equal to zero at a disposable income of. ( LO6 )a) 0d) $6,000 billionb) $2,000 billione) $8,000 billionc) $4,000 billion
The average propensity to save . ( LO2 )a) is disposable income divided by savingsb) is a measure of the additional saving generated by additional incomec) is negative at very high income levelsd) varies directly with income; as income rises, the APS rises
Autonomous consumption expenditures are. ( LO9 )a) equal to induced consumption expendituresb) proportional to disposable incomec) not infl uenced by incomed) infl uenced primarily by the saving function
Induced consumption expenditures. ( LO9 )a) fall as income risesb) are always equal to autonomous consumption expendituresc) plus saving equals total consumption expendituresd) represent consumption that is independent of incomee) are infl uenced mainly by income
Which of the following relations is not correct? ( LO1 , 3 )a) MPC 1 MPS 5 1d) 1 2 APS 5 APCb) APC 1 APS 5 1e) 1 2 MPC 5 MPSc) MPS 5 MPC 1 1
When income is equal to consumption, saving is. ( LO5 , 6 )a) negativeb) zeroc) positived) impossible to calculate because there is insuffi cient information
When income levels are very low, C is. ( LO5 )a) zerob) lower than incomec) higher than income
The consumption function tells us that, as income rises, consumption . ( LO5 )a) declinesb) remains the samec) rises more slowly than incomed) rises more quickly than income
The largest component of C is . ( LO5 )a) durable goodsb) servicesc) nondurable goods
The largest component of GDP is . ( LO5)a) net exportsc) consumptionb) investmentd) government purchases
As disposable income rises, . ( LO5 , 9 )a) autonomous C risesc) induced C risesb) autonomous C fallsd) induced C falls
According to the permanent income hypothesis, if a person received a windfall of $100,000, he would spend that year. ( LO8 )a) some of itc) nearly all of itb) most of itd) all of it
The minimum amount that people will spend even if disposable income is zero is called consumption. ( LO9 )a) autonomousb) inducedc) total
When disposable income is zero, . ( LO 9)a) autonomous consumption is equal to induced consumptionb) autonomous consumption is equal to total consumptionc) induced consumption is equal to total consumption
When the C line crosses the 45-degree line, saving is. ( LO5 , 6 )a) positiveb) negativec) zerod) impossible to calculate because there is not enough information to know
Since 1955 Americans have been spending. ( LO5 )a) a larger percentage of their incomes on servicesb) a smaller percentage of their incomes on servicesc) about the same percentage of their incomes on services
Practical Application: If you had the power to write laws, how would you provide incentives to encourage Americans to save more?
How much was our APC and APS in 2007? (Hint: Look at Figure 1 near the beginning of this chapter.)
The marginal propensity to consume (MPC) for a nation is .85. Explain what this means.
Since the 1950s a massive shift in consumption patterns with respect to nondurable goods and services has taken place. What is this shift and how can it be explained?
Explain how the stock of consumer durables in the hands of consumers and credit availability each affect the level of consumption.
Explain the relationship between consumption and saving.
Given the information in Figure 9 :a) Is $16 a price ceiling or a price fl oor?b) Is there a shortage or a surplus?c) How much is it (in units of quantity)? ( LO5 , 6 ) 56 -S- 52 48 44 Price ($) 40 36 32 28 24 16 12 22222222 20 8 84 Figure 9 10 20 20 30 40 Quantity 50 D 60 60
Given the information in Figure 8 :a) Is $12 a price ceiling or a price fl oor?b) Is there a shortage or a surplus?c) How much is it (in units of quantity)? ( LO5 , 6 ) Price ($) 4 2 Figure 8 14 12 10 6 8 5 10 15 20 25 Quantity D .S.
a) In Figure 7 , if the supply curve is S 1 , how much are equilibrium price and quantity?b) If the supply changes from S 1 to S 2 , does that represent an increase or decrease in supply?c) How much are the new equilibrium price and quantity? ( LO3 , 4 ) Price $16 15 14 13 12 11 10 9 8 Figure 7 52
a) In Figure 6 , if the demand curve is D 1 , how much are equilibrium price and quantity?b) If demand changes from D 1 to D 2 , does that represent an increase or decrease in demand?c) How much are the new equilibrium price and quantity? ( LO3 , 4 ) Price 26 24 S. $28 20 18 16 + 14 12 10
Draw in a new supply curve, S 1 , on Figure 5 , showing a decrease in supply. What happens to equilibrium price and quantity? ( LO4 ) Price $6 5 4 3 2 S 1 Figure 5 4 8 12 16 20 24 28 Quantity D
In Figure 5 , fi nd equilibrium price and quantity (in dollars and units, respectively). ( LO3 )
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