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microeconomics principles

Questions and Answers of Microeconomics Principles

How does financial regulation in Canada help minimize the cost of bank failure? Does it bring more stability to the banking system?
Explain the distinction between a central bank and a chartered bank.
What limits the quantity of money that the banking system can create?
The U.S. Federal Reserve discussed “a new largescale asset purchase program” commonly called “QE3.” Some members said such a program could help the economy by lowering long-term interest
Explain the change in the nominal interest rate in the short run if:a. Real GDP increases.b. The Bank of Canada increases the quantity of money.c. The price level rises.
After you have studied Economics in the News on pp. 584 – 585 , answer the following questions.a. What changes in the interest rate and the quantity of M2 occurred between 2007 and 2014?b. When the
Did the U.S. dollar appreciate or depreciate against the Canadian dollar? Did the U.S. dollar appreciate or depreciate against the yen?The U.S. dollar exchange rate increased from $0.96 Canadian in
What was the value of the Canadian dollar in terms of U.S. dollars in June 2011 and June 2012? Did the Canadian dollar appreciate or depreciate against the U.S. dollar over the year June 2011 to June
What was the value of 100 yen in terms of U.S. dollars in June 2011 and June 2012? Did the yen appreciate or depreciate against the U.S. dollar over the year June 2011 to June 2012?The U.S. dollar
On March 30, 2012, the U.S. dollar was trading at 82 yen per U.S. dollar on the foreign exchange market. On August 30, 2012, the U.S. dollar was trading at 79 yen per U.S. dollar.a. What events in
What makes the demand for Canadian dollars change?
What makes the supply of Canadian dollars change?
What is arbitrage and what are its effects in the foreign exchange market?
With the strengthening of the yen against other currencies in 2012, Japan’s central bank did not take any action. A Japanese politician called on the central bank to take actions to weaken the yen,
The table gives some information about Canada’s international transactions in 2010.a. Calculate the balance on the three balance of payments accounts.b. Was Canada a net borrower or a net lender in
What makes an exchange rate hard to predict?
Suppose that yesterday the Canadian dollar was trading on the foreign exchange market at 0.75 euros per Canadian dollar and today the Canadian dollar is trading at 0.80 euros per Canadian dollar.
Suppose that the exchange rate fell from 80 yen per Canadian dollar to 70 yen per Canadian dollar. What is the effect of this change on the quantity of Canadian dollars that people plan to buy in the
Suppose that the exchange rate rose from 80 yen per Canadian dollar to 90 yen per Canadian dollar. What is the effect of this change on the quantity of Canadian dollars that people plan to sell in
Today’s exchange rate between the yuan and the U.S. dollar is 6.40 yuan per dollar, and the central bank of China is buying U.S. dollars in the foreign exchange market. If the central bank of China
What is a fixed exchange rate and how is its value fixed?
In 2011, the exchange rate changed from 94 yen per U.S. dollar in January to 84 yen per U.S. dollar in June, and back to 94 yen per dollar in December. What information would you need to determine
Canada produces natural resources (coal, natural gas, and others), the demand for which has increased rapidly as China and other emerging economies expand.a. Explain how growth in the demand for
Explain why Mr. Reddy is investing in the U.S. real estate market.Rahul Reddy, an Indian real estate entrepreneur, believes that “The United States is good for speculative higher-risk
Explain what would happen if the speculation made by Mr. Reddy became widespread. Would expectations become self-fulfilling?Rahul Reddy, an Indian real estate entrepreneur, believes that “The
What was the exchange rate policy adopted by China until July 2005? Explain how it worked. Draw a graph to illustrate your answer.In 2007, the U.S. trade deficit with China hit $256.3 billion, the
Is Canada a net borrower or a net lender? Is it a debtor or a creditor nation?
Calculate autonomous expenditure. Calculate the marginal propensity to consume.The spreadsheet lists real GDP (Y) and the components of aggregate planned expenditure in billions of dollars.
Labour productivity is rising at a rapid rate in China and wages are rising at a similar rate.Explain how a rise in labour productivity and wages in China will influence the quantity of real GDP
The increase in real GDP in the second quarter primarily reflected increases in personal consumption expenditure (0.9%), exports (4.2%), and investment (0.8%)—the largest quarterly gain since 2011,
Describe the policy change that a classical macroeconomist, a Keynesian, and a monetarist would recommend for Canadian policymakers to adopt in response to each of the following events:a. Growth in
Explain for each event whether it changes the quantity of real GDP demanded or aggregate demand in Canada.■ Canada’s exports to the European Union boom.■ Canadian firms build new pipelines
When real GDP increased in the second quarter of 2014, consumption expenditure, exports, and fixed investment increased, but business inventory investment fell from $14.5 billion to $7.0
Real exports of goods and services increased 4.2 percent in the second quarter, after falling 0.2 percent in the first quarter. Real imports of goods and services increased 2.7 percent, after falling
a. What is aggregate planned expenditure when real GDP is $6 billion?b. If real GDP is $4 billion, what is happening to inventories?c. If real GDP is $6 billion, what is happening to inventories?The
Greg Mankiw wrote in 2007 on the eve of the global financial crisis, “Congress made its most important contribution to taming the business cycle back in 1913, when it created the Federal Reserve
This headline expresses three views about what to do to get an economy growing more rapidly and contribute to closing the recessionary gap. Economists from which macroeconomic school of thought would
A decade ago, Brazil had rapid growth but now its economy is experiencing a slowdown with investment falling and inventories increasing. Potential GDP growth rate has slowed. Business and consumer
Which components of aggregate expenditure are influenced by real GDP?
In an economy, when income increases from $400 billion to $500 billion, consumption expenditure increases from $420 billion to $500 billion. Calculate the marginal propensity to consume, the change
What is the relationship between aggregate planned expenditure and real GDP at equilibrium expenditure?
Explain how an increase in business investment at a constant price level changes equilibrium expenditure.
Calculate the marginal propensity to save.You are given the following information about the economy of Australia: Saving (billions of dollars per year) Disposable
What is the multiplier? What does it determine? Why does it matter?
An economy has a fixed price level, no imports, and no income taxes. An increase in autonomous expenditure of $200 billion increases equilibrium expenditure by $800 billion. Calculate the multiplier
Explain the link between equilibrium expenditure and the quantity of real GDP demanded.
Calculate consumption at each level of disposable income. Calculate the marginal propensity to consume.You are given the following information about the economy of Australia: Saving (billions of
How does a change in the price level influence the AE curve and the AD curve?
In the short run, does the price level remain at 100? Explain why or why not.Suppose that the economy is at full employment, the price level is 100, and the multiplier is 2. Investment increases by
a. Compare the change in real GDP in the long run with the increase in investment.b. Explain how the price level changes in the long run.Suppose that the economy is at full employment, the price
Are the values of the multipliers in the short run and the long run larger or smaller than 2?Suppose that the economy is at full employment, the price level is 100, and the multiplier is 2.
Explain why higher share prices and house prices are equivalent to saving.Gains in stock markets and increased house prices boosted Canadians’ wealth in the first quarter of 2014. On a per capita
Explain how a rise in household wealth would be expected to influence consumption expenditure and saving and how the consumption function and the saving function would change.Gains in stock markets
Draw a graph to illustrate how a rise in household wealth would change the consumption function and the saving function.Gains in stock markets and increased house prices boosted Canadians’ wealth
The U.S. Commerce Department reported that wholesale inventories fell 1.3 percent in August for a record 12th consecutive month, evidence that companies are trimming orders to factories, which helped
On January 27, 2009, the government announced a stimulus package, which included $12 billion earmarked for infrastructure—the construction of roads, bridges, public transit, broadband Internet
President Obama’s proposal to jolt a listless economic recovery with $180 billion worth of tax breaks and transportation projects left economists largely unimpressed Tuesday. If taxes fall by $90
Compare the multiplier in the short run and the long run and explain why they are not identical.Statistics Canada reported that in the second quarter of 2014 Canadian exports increased by $24 billion.
For each of the expenditures listed in the news clip, say which is part of induced expenditure and which is part of autonomous expenditure.Consumer sentiment was up in August, helped by merchant
Which of the events reported in the news clip would change aggregate demand and which would change the quantity of real GDP demanded? Provide a graphical illustration of the distinction.Consumer
Explain and draw a graph to illustrate how increasing consumer confidence influences aggregate expenditure and aggregate demand.Consumer sentiment was up in August, helped by merchant discounts,
In Japan, consumer prices slid at a faster pace in July and industrial production unexpectedly slumped.Contrast what the news clip says is happening in Japan with what is happening in Canada in
How does a nonrival good differ from a nonexclusive good?
The accompanying figure illustrates the change in consumer surplus, given by area ABEC, when the price decreases from P1 to P2. This area can be divided into the rectangle ABDC and the triangle BDE.
Gina lives in Chicago and very much enjoys traveling by air to see her mother in Italy. On the accompanying graph, x denotes her number of round trips to Italy each year. The composite good y
Emily purchases food (measured by x) and clothing (measured by y). Her preferences are described by the quasilinear utility function U(x, y) 32 √x 2y, withMUx = 16 / √x and MUy = 2.
Catrina buys two goods, food F and clothing C, with the utility function U = FC + F. Her marginal utility of food is MUF = C + 1 and her marginal utility of 213 clothing is MUC = F. She has an income
Raymond consumes leisure (L hours per day) and other goods (Y units per day), with preferences described by U(L,Y ) L + 2 √Y . The associated marginal utilities are MUY = 1 and MUL = 1/L. The
Julie buys food and other goods. She has an income of $400 per month. The price of food is initially $1.00 per unit. It then rises to $1.20 per unit. The prices of other goods do not change. To help
A firm has a production function Q = 10L + 30K. Suppose the price of labor services w is $5 per unit, and the price of capital services r is also $5 per unit. Using the method of Lagrange, find the
Suppose that in the twenty-first century the production of semiconductors requires two inputs: capital (denoted by K) and labor (denoted by L). The production function takes the form Q = √KL.
A researcher claims to have estimated input demand curves in an industry in which the production technology involves two inputs, capital and labor. The input demand curves he claims to have estimated
A firm uses two inputs, labor services whose quantity is denoted by L and capital services whose quantity is denoted by K. The production function is given by Q = 100LK, and the price of labor w is
The Thai food restaurant business in Evanston, Illinois, is monopolistically competitive. Suppose that each existing and potential restaurant has a total cost function given by TC = 10Q + 40,000,
What is economic rent? How does it differ from economic profit?
What is the Nash equilibrium in the following game? Player I Up Down Player 2 Left 2,6 0,9 Right 8,-5 12,3
What is the size of the deadweight loss in a competitive market with no government intervention?
In the competitive market for hard liquor, the demand is relatively inelastic and the supply is relatively elastic. Will the incidence of an excise tax of $T be greater for consumers or producers?
If an import tariff and an import quota lead to the same price in a competitive market, which one will lead to a larger domestic deadweight loss?
Under which of the programs listed above will the market clear? Briefly explain.
The demand curve for a certain good is P = 100 − Q. The marginal cost for a monopolist is MC(Q) = Q, for Q ⩽ 30. The maximum that can be supplied in this market is Q = 30, that is, the marginal
In the late 1970s, Sony, a manufacturer of video cassette players, and Columbia Pictures, a movie studio, played a game involving the choice of technology. Each firm had to decide whether to use the
Does a firm need to be a monopolist to price discriminate?
In a World Series game, Jacob deGrom is pitching and Mike Trout is batting. The count on Trout is three balls and two strikes. deGrom has to decide whether to throw a fastball or a curveball. Trout
What is the expected value of a lottery? What is the variance?
What is Walras’ Law? What is its significance?
What happens in the graph in Problem 21 if the price rises and rainfall is constant?Data from in Problem 21The table gives data about umbrellas: price, the number purchased, and rainfall in
Draw a graph to show the relationship between the price and the number of umbrellas purchased, holding the amount of rainfall constant at 200 mm. Describe this relationship.The table gives data about
What feature of a PPF illustrates increasing opportunity cost? Explain why Yucatan’s opportunity cost does or does not increase.Suppose that Yucatan’s production possibilities are:
Explain why Hong Kong has experienced faster economic growth than Canada.
Tim Hortons has exploded to become a dominant player among quick-serve restaurants. In 2001, it took the risk by switching to centralized production of baked goods, which lowered its labour costs and
What is the equilibrium price of a good or service?
Explain the approach (expenditure or income) that you used to calculate GDP.The table lists some data for Canada in 2008. Item Wages paid to labour Consumption expenditure Net domestic income at
An island economy produces only fish and crabs.Calculate the island’s chained-dollar real GDP in 2014 expressed in 2013 dollars. Quantities Fish Crabs Prices Fish Crabs 2013 1,000 tonnes 500
Calculate real GDP in 2014 in base-year prices.Tropical Republic produces only bananas and coconuts. The base year is 2013. Quantities Bananas Coconuts Prices Bananas Coconuts 2013 800 bunches 400
Explain in which of the years Canada’s standard of living (i) Increased and(ii) Decreased. Year 2007 2008 2009 2010 Real GDP $1,311 billion $1,320 billion $1,284 billion $1,325
In 2014, flow D was $2 trillion, flow E was –$1 trillion, flow A was $10 trillion, and flow C was $4 trillion. Calculate consumption expenditure.
Explain the approach (expenditure or income) that you used to calculate GDP.The table lists some data for Xanadu in 2014. Item Wages paid to labour Consumption expenditure Profit, interest, and
Describe the alternative measures of unemployment.
If the labour market is working properly, why would there be any unemployment at all?Matching people with available jobs is always difficult after a recession as the economy remakes itself. But

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