Microeconomics 3rd Canadian Edition Hubbard, Glenn & O'Brien, Anthony Patrick & Serletis, Apostolos & Childs, Jason - Solutions

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The “exit strategy” problem In fighting the recession associated with the crisis, taxes were cut and government spending was increased. The result was a large government deficit. To reduce that deficit, taxes must be increased or government spending must be cut. This is the “exit strategy”
Greece: Using fiscal policy to avoid the meltdown and debt crisis of 2009. As a result of the combined effects of the Great Recession and the European sovereign debt crisis, GDP of Greece declined from €281.44 billion in 2008 to €176.5 billion in 2015.a. What is the percentage change in GDP of
The paradox of saving revisited You should be able to complete this question without doing any algebra, although you may find making a diagram helpful for parta. For this problem, you do not need to calculate the magnitudes of changes in economic variables—only the direction of change.a. Consider
Investment and income This problem examines the implications of allowing investment to depend on output. Chapter 5 carries this analysis much further and introduces an essential relation—the effect of the interest rate on investment—not examined in this problem.a. Suppose the economy is
Taxes and transfers Recall that we define taxes, T, as net of transfers. In other words, T = Taxes - Transfer Paymentsa. Suppose that the government increases transfer payments to private households, but these transfer payments are not financed by tax increases. Instead, the government borrows to
Balanced budget versus automatic stabilizers It is often argued that a balanced budget amendment would actually be destabilizing. To understand this argument, consider the economy in Problem 5.a. Solve for equilibrium output.b. Solve for taxes in equilibrium. Suppose that the government starts with
Automatic stabilizers In this chapter we have assumed that the fiscal policy variables G and T are independent of the level of income. In the real world, however, this is not the case. Taxes typically depend on the level of income and so tend to be higher when income is higher. In this problem, we
The balanced budget multiplier For both political and macroeconomic reasons, governments are often reluctant to run budget deficits. Here, we examine whether policy changes in G and T that maintain a balanced budget are macroeconomically neutral. Put another way, we examine whether it is possible
Use the economy described in Problem 2.a. Compute private saving, public saving, and investment spending.b. Solve for equilibrium output. Compute total demand. Explain how it affects production.c. Assume that G is now equal to €300 billion. Solve for equilibrium output, consumption, and
Suppose that an economy is characterized by the following behavioral equations (in billions of euros): C = 480 + 0.5YD I = 110 T = 70 G = 250 Solve for the following variables.a. Equilibrium GDP (Y)b. Disposable income (YD)c. Consumption spending (C)
Using the information in this chapter, 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 in 2018.c. The propensity to consume has to be positive, but
Multiplying this index by nominal GDP in 2012 to derive real GDP in chained (2012) dollars. As the index is 1 in 2012, this implies that real GDP in 2012 equals nominal GDP in 2012. Chained refers to the chaining of rates of change described previously. (2012) refers to the year where, by
The index for 2014 is then obtained by multiplying the index for 2013 by the rate of change from 2013 to 2014, and so on.
Constructing an index for the level of real GDP by linking—or chaining—the constructed rates of change for each year. The index is set equal to 1 in some arbitrary year. At the time this book is being written, the arbitrary year is 2012. Given that the constructed rate of change from 2012 to
Constructing the rate of change of real GDP as the average of these two rates of change.
Constructing the rate of change of real GDP from year t to year t + 1 in two different ways: First using the prices from year t as the set of common prices; second, using the prices from year t + 1 as the set of common prices. For example, the rate of change of GDP from 2017 to 2018 is computed by:
Comparing the Great Recession and the European sovereign debt crisis. Eurostat is the statistical agency of the European Commission that provides data to the institutions of the 27 member countries (The number of member states changed following the Brexit results) of the European Union (EU) and
Measured and true GDP Suppose that instead of cooking dinner for an hour, you decide to work an extra hour, earning an additional $12. You then purchase some (takeout) Chinese food, which costs you $10.a. By how much does measured GDP increase?b. Do you think the increase in measured GDP
Hedonic pricing As the first Focus box in this chapter explains, it is difficult to measure the true increase in prices of goods whose characteristics change over time. For such goods, part of any price increase can be attributed to an increase in quality. Hedonic pricing offers a method to compute
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 year—a year in which output growth is 2% or a year in which it is –2%—will the unemployment rate rise
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 as buying only fresh food and renting property as their basket of goods. Here is a representation of
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 2012 to 2013?c. What is the GDP deflator in 2012 and 2013? Using the GDP deflator, what is the rate of
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 the rate of inflation from 2012 to 2013.b. Use the prices for 2013 as the set of common prices to
An economy produces three goods: cars, computers, and oranges. Quantities and prices per unit for years 2012 and 2013 are as follows: 2012 2013 Quantity Price Quantity Price Cars 10 $2000 12 $3000 Computers 4 $1000 6 $500 Oranges 1,000 $1 1000 $1a. What is nominal GDP in 2012 and in 2013? By what
During a given year, suppose the following activities occur in an economy. i. An automobile manufacturing company pays its workers €10 million to assemble 5,000 cars. The cars are then sold to an automobile store for €12 million. ii. That year, the store pays €1 million in wages to its
Suppose you are measuring annual GDP of a country by adding up the final value of all goods and services produced in the economy. Determine the effect on the country’s GDP for each of the following transactions.a. A seafood restaurant buys €100 worth of fish from a fisherman.b. A family spends
Using the information in this chapter, 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 rate is also likely to be high.c. The rate of unemployment
European unemployment 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 adjusted unemployment rate. Retrieve the monthly data series for the unemployment
US recessions This section looks at US recessions over the past 60 years. To work out this problem, first obtain quarterly data on US output growth for the period 1960 to the most recent data from www.bea. gov. Table 1.1.1 presents the percent change in real gross domestic product (GDP). The data
The rate of growth of output per person was identified as a major issue facing the United States as of the writing of this chapter. Go to the 2018 Economic Report of the President (www.whitehouse. gov/wp-content/uploads/2018/02/ERP_2018_Final-FINAL. pdf) and find a table titled “Productivity and
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. Suppose that from 2017 the output of China grows at an annual rate of 7.9%, whereas the output of the
Macroeconomic policy in Europe Beware of simplistic answers to complicated macroeconomic questions. Consider each of the following statements and comment on whether there is another side to the story.a. There is a simple solution to the problem of high European unemployment: Reduce labor market
Using the information in this chapter and by referring to the IMF data mapper (http://www.imf.org/external/datamapper/datasets/ WEO/3) or the World Bank database (https://data.worldbank. org/) for updated information, label each of the following statements true, false, or uncertain. Explain
Suppose that a country has 20 million households. Ten million are poor households that each have labour market earnings of $20 000 per year, and 10 million are rich households that each have labour market earnings of $80 000 per year. If the government enacted a marginal tax rate of 10 percent on
More and more economists are attributing growing in equality in household incomes to a process called “assortative mating.”a. What is assortative mating? (Google or another search engine will likely be helpful.)b. How can assortative mating contribute to household income inequality?c. If
Suppose that, in Canada, we found a number of households below the low income cut-off that not only owned their own homes, but also had such amenities as air conditioning, cable or satellite television, and high speed Internet, and owned cars. Given that many of these things were rare even for
If everyone had the same income, would everyone have the same level of well-being?
Suppose that Parliament decides on a policy of bringing about a perfectly equal distribution of income. What factors might make this policy difficult to achieve? If it were possible to achieve the goal of this policy, would doing so be desirable?
Why do economists often use a lower poverty threshold for low-income countries than for high-income countries such as Canada? Is there a difference between relative poverty and absolute poverty? Briefly explain.
Draw a Lorenz curve showing the distribution of income for the five people in the following table.Name Annual Earnings Lena $70 000 David 60 000 Steve 50 000 Jerome 40 000 Lori 30 000
Use the following Lorenz curve graph to answer the questions.a. Did the distribution become more equal in 2016 than it was in 2015, or did it become less equal? Briefly explain.b. Estimate the value of the Gini coefficient for 2015 and for 2016.
[Related to Solved Problem 15.2] Evaluate the following statement: “Policies to redistribute income are desperately needed in Canada. Without such policies, the more than 10 percent of the population that is currently poor has no hope of ever climbing out of poverty.”Source:
Describe the trend in the global poverty rate.
What is a Lorenz curve? What is a Gini coefficient? If a country had a Gini coefficient of 0.48 in 1960 and 0.44 in 2018, would income inequality in the country have increased or decreased?
Define low income cut-off and poverty rate. How has the poverty rate changed in Canada since 1990?
Discuss the extent of income inequality in Canada. Has inequality in the distribution of income in Canada increased or decreased over time?
Suppose the government decides to tax sales of pizzas.Use the following graph to answer the questions.a. How much of a per-unit tax does the government impose on pizzas?b. Before the tax, what price do consumers pay for pizza?How does the price consumers pay change after the tax?c. Before the tax,
[Related to Solved Problem 15.1] Use the following graph of the market for cannabis to answer the questions.a. If the government imposes a $1-per-gram tax on cannabis, will the price consumers pay rise more if the demand curve is or if the demand curve is ?Briefly explain.b. If the government
According to an article in the New York Times, when the French government imposed a new tax on sales of beer, it estimated that the retail price of beer would rise by the equivalent of 6 cents per half pint. A spokesman for the beer industry argued that the actual increase in price would be 25
Cecil Bohanon, an economist at Ball State University, and Brian Pizzola, an economist with the accounting firm Ernst &Young, used a proposed tax on income earned by credit card lenders in the US state of Minnesota to explain how tax incidence is determined. The tax, which state lawmakers did not
Governments often have multiple objectives in imposing a tax. In each part of this question, use a demand and supply graph to illustrate your answer.a. If the government wants to minimize the excess burden from excise taxes, should these taxes be imposed on goods whose demand is elastic or goods
[Related to Apply the Concept: Do Corporations Really Bear the Burden of the Federal Corporate Income Tax? ] Use a demand and supply model for the labour market to show the effect of the corporate income tax on workers. What factors would make the deadweight loss or excess burden from the tax
[Related to Solved Problem 15.1] Explain whether you agree with the following statement: “For a given demand curve, the excess burden of a tax will be greater when supply is less price elastic than when it is more elastic.” Illustrate your answer with a demand and supply graph. HINT: This is
Many advocates for lower business taxes argue that only people can pay taxes and that businesses cannot pay taxes. Do you agree that businesses cannot pay taxes? Don’t businesses pay federal and provincial corporate income taxes? Briefly explain.
[Related to Don’t Let This Happen to You ] Many economists have been known to argue that there is a difference between who actually pays a tax and who is responsible for writing the cheque to the government. Briefly explain what they mean and discuss whether or not you agree with it.
Briefly discuss the effect of price elasticity of supply and demand on tax incidence.
What is meant by “tax incidence”?
Almost all provinces levy sales taxes on retail products, but all exempt purchases of food. In addition, some services are exempt from provincial sales taxes. Evaluate these differences using the goals and principles of taxation discussed in the section “Evaluating Taxes.”
An article published by the US central bank (the Federal Reserve) noted that “nearly all taxes create some market inefficiency in the form of deadweight loss.” The article further noted that when something is taxed, the result is “an outcome in which both [buyers and sellers] would gain from
[Related to Apply the Concept: Should the Federal Government Raise Income Taxes or the GST? ] Suppose the government eliminates the income tax and replaces it with an increased GST. Think about the effect of this on the market for automobiles. Can you necessarily tell what will happen to the price
[Related to Apply the Concept: Which Groups Pay the Most in Federal Taxes? ] Statistics Canada calculates the Gini coefficient for market incomes and after-tax incomes. Given the data in the table below, do you think the Canadian system of taxes (and transfers) is becoming more or less progressive
Use the information in Table 15.2 to calculate the total federal income tax paid, the marginal tax rate, and the average tax rate for people with the following incomes. (For simplicity, assume that these people have no exemptions or deductions from their incomes.)a. $25 000b. $125 000c. $300 000
Provincial governments use lotteries to raise revenue. If we think of a lottery as a type of tax, is a lottery likely to be progressive or regressive? What data would you need to determine whether the burden of a lottery is progressive or regressive?
According to a World Bank report on the economics of tobacco, “[t]here is concern that, as taxes are raised, poor consumers will spend more and more of their income on cigarettes” in countries such as Canada, the United States, and the United Kingdom. Assuming that the above is true, are these
Why does the federal government raise more tax revenue from taxes on individuals than from taxes on businesses?
Which type of tax raises the most revenue for the federal government? What is the largest source of revenue for provincial governments? What is the largest source of revenue for municipal/local governments?
Briefly discuss each of the five goals and principles governments consider when deciding which taxes to use.
What is the difference between a marginal tax rate and an average tax rate? Which is more important in determining the effect of a change in taxes on economic behaviour?
What is a progressive tax system? What is a regressive tax system?
An article in the Economist on the work of late Nobel Laureate James Buchanan made the following observation: “It was important . . . to understand the ways that government could fail systematically.”A. What does “government failure” mean in this context?How does public choice theory help
Is the typical person likely to gather more information when buying a new car or when voting for a member of their provincial legislative assembly? Briefly explain.
An article in The Economist magazine made the following observation: “In fact, as public choice theory shows, government has a whole set of special decision-making problems that can make the normal human mistakes of those decision-makers even worse.” What “special decision-making problems”
Briefly explain whether you agree with the following argument.The median voter theorem will be an accurate predictor of the outcomes of elections when a majority of voters have preferences very similar to those of the median voter. When the majority of voters have preferences very different from
Many political observers have noted that, when running for their party’s leadership, Conservative candidates for prime minister tend to emphasize their right-wing positions and Liberal candidates tend to emphasize their left-wing positions.In the general election, however, Conservative candidates
Will the preferences shown in the following table lead to a voting paradox? Briefly explain.Policy Lena David Kathleen Cancer research 1st 2nd 3rd Mass transit 2nd 1st 1st Climate change 3rd 3rd 2nd
What is the relationship between market failure and government failure?
What is rent seeking, and how is it related to regulatory capture?
What is the difference between the voting paradox and the Arrow impossibility theorem?
What is the public choice model?
In a competitive labour market, imposing a minimum wage should reduce the equilibrium level of employment. Will this also be true if the labour market is a monopsony? Briefly explain.
The total amount of oil in the earth is not increasing. Does this mean that in the market for oil, the supply curve is perfectly inelastic? Briefly explain.
In 1879, economist Henry George published Progress and Poverty, which became one of the best-selling books of the nineteenth century. In this book, George argued that all existing taxes should be replaced with a single tax on land. Tax incidence is the actual division of the burden of a tax between
Many people have predicted, using a model like the one in panel (b) of Figure 14.12, that the price of natural resources should rise consistently over time in comparison with the prices of other goods because the demand curve for natural resources is continually shifting to the right, while the
Adam operates a pin factory. Suppose Adam faces the situation shown in the following table and the cost of renting a machine is $550 per week.Number of Machines Output of Pins(boxes per week)Marginal Product of Capital Product Price(dollars per box)Total Revenue Margin Reven Produ of Capit 0 0 —
What is the marginal productivity theory of income distribution?
What is a monopsony?
In equilibrium, what determines the price of capital? What determines the price of natural resources? What is an economic rent?
[Related to Apply the Concept: A Better Way to Sell Contact Lenses ] When the contact lens firm implemented a new compensation plan, who benefited from the change? Is it likely that there were any losers from the change? Briefly explain.
[Related to Apply the Concept: A Better Way to Sell Contact Lenses ] For years, the Goodyear Tire & Rubber Company compensated its sales force by paying a salesperson a salary plus a bonus, based on the number of tires he or she sold. Eventually, Goodyear made two changes to this policy: (1)The
[Related to Apply the Concept: A Better Way to Sell Contact Lenses ] In most jobs, the harder you work, the more you earn. Some workers would rather work harder and earn more; others would rather work less hard, even though as a result they earn less. Suppose, though, that all workers at a company
Many companies that pay workers an hourly wage require some minimum level of acceptable output. Suppose a company that has been using this system decides to switch to a piece-rate system under which workers are compensated on the basis of how much output they produce. Is it likely that workers
A study found that the number of jobs in which firms used bonuses, commissions, or piece rates to tie workers’ pay to their performance increased from an estimated 30 percent of all jobs in the 1970s to 40 percent in the 1990s. Why would systems that tie workers’ pay to how much they produce
What are the two ways in which the productivity of a firm’s employees may increase when a firm moves from straight-time pay to commission or piece-rate pay? If piece-rate or commission systems of compensating workers have important advantages for firms, why don’t more firms use them?
What is personnel economics?
Daniel Hamermesh, an economist at the University of Texas, has done a great deal of research on labour markets.According to an article in Forbes, Hamermesh wrote that“below-average-looking men earn 17% less than those considered good- looking, while below-average-looking females earn 12% less
[Related to Apply the Concept: Does Greg Have an Easier Time Finding a Job than Jamal? ] Why might employers be more likely to interview a job applicant with a white-sounding name than an applicant with an ethnic–minority–sounding name? Leaving aside legal penalties, will employers who follow
[Related to Solved Problem 14.2] In most universities, economics professors receive larger salaries than English professors. Suppose that the government requires that from now on, all universities must pay economics professors the same salaries as English professors. Use demand and supply graphs to
[Related to Solved Problem 14.2] Use the following graphs to answer the questions.a. What is the equilibrium quantity of trash collectors hired, and what is the equilibrium wage?b. What is the equilibrium quantity of receptionists hired, and what is the equilibrium wage?c. Briefly discuss why trash
[Related to Apply the Concept: Technology and the Earnings of “Superstars” ] A business columnist for the New York Times estimated that the wealth of J. K. Rowling, author of the Harry Potter novels, at $1.2 billion. The columnist observed,“Along with other famous authors, entertainers and
Through the 2016 season, Nick Saban’s record as the head football coach at the University of Alabama was 119 wins and 19 losses. The $11.125 million salary the university paid him in 2017 was the highest received by any university football coach.Yet ESPN commentator Scott Van Pelt argued,

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Microeconomics 3rd Canadian Edition Hubbard, Glenn & O'Brien, Anthony Patrick & Serletis, Apostolos & Childs, Jason - Solutions

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