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Macroeconomics 2nd Edition In Modules Paul Krugman, Robin Wells (main Authors), Margaret Ray, David Anderson (auxiliary Authors) - Solutions
Which of the following causes a positive demand shock?a. an increase in wealthb. pessimistic consumer expectationsc. a decrease in government spendingd. an increase in taxese. an increase in the existing stock of capital
Which of the following causes a negative supply shock? I. a technological advance II. increasing productivity III. an increase in oil pricesa. I onlyb. II onlyc. III onlyd. I and III onlye. I, II, and III
A rise in productivity increases potential output, but some worry that demand for the additional output will be insufficient even in the long run. How would you respond?
Describe the short -run effects of each of the following shocks on the aggregate price level and on aggregate output.a. The government sharply increases the minimum wage, raising the wages of many workers.b. Solar energy firms launch a major program of investment spending.c. Congress raises taxes
That employers are reluctant to decrease nominal wages during economic downturns and raise nominal wages during economic expansions leads nominal wages to be described asa. long-run.b. unyielding.c. flexible.d. real.e. sticky.a. Draw a correctly labeled short-run aggregate supply curve.b. On your
A decrease in which of the following will cause the short-run aggregate supply curve to shift to the left?a. commodity pricesb. the cost of health care insurance premiums paid by employersc. nominal wagesd. productivitye. the use of cost-of-living allowances in labor contracts
The horizontal intercept of the long-run aggregate supply curve isa. at the origin.b. negative.c. at potential output.d. equal to the vertical intercept.e. always the same as the horizontal intercept of the short-run aggregate supply curve.
Because changes in the aggregate price level have no effect on aggregate output in the long run, the long-run aggregate supply curve isa. vertical.b. horizontal.c. fixed.d. negatively sloped.e. positively sloped.
Which of the following will shift the short-run aggregate supply curve? A change ina. profit per unit at any given price level.b. commodity prices.c. nominal wages.d. productivity.e. all of the above.
Suppose the economy is initially at potential output and the quantity of aggregate output supplied increases. What information would you need to determine whether this was due to a movement along the SRAS curve or a shift of the LRAS curve?
Determine the effect on short -run aggregate supply of each of the following events. Explain whether it represents a movement along the SRAS curve or a shift of the SRAS curve.a. A rise in the consumer price index (CPI) leads producers to increase output.b. A fall in the price of oil leads
Which of the following government policies will shift the aggregate demand curve to the left?a. a decrease in the quantity of moneyb. an increase in government purchases of goods and servicesc. a decrease in taxesd. a decrease in interest ratese. an increase in government transfers Identify the two
Decreases in the stock market decrease aggregate demand by decreasing which of the following?a. consumer wealthb. the price levelc. the stock of existing physical capitald. interest ratese. tax revenues
The Consumer Confidence Index is used to measure which of the following?a. the level of consumer spendingb. the rate of return on investmentsc. consumer expectationsd. planned investment spendinge. the level of current disposable income
Which of the following will shift the aggregate demand curve to the right?a. a decrease in wealthb. pessimistic consumer expectationsc. a decrease in the existing stock of capitald. contractionary fiscal policye. a decrease in the quantity of money
Which of the following explains the slope of the aggregate demand curve? I. the wealth effect of a change in the aggregate price level II. the interest rate effect of a change in the aggregate price level III. the product-substitution effect of a change in the aggregate price levela. I onlyb. II
Determine the effect on aggregate demand of each of the following events. Explain whether it represents a movement along the aggregate demand curve (up or down) or a shift of the curve (leftward or rightward).a. a rise in the interest rate caused by a change in monetary policyb. a fall in the real
Actual investment spending in any period is equal toa. planned investment spending + unplanned inventory investment.b. planned investment spending − unplanned inventory investment.c. planned investment spending + inventory decreases.d. unplanned inventory investment + inventory increases.e.
The level of planned investment spending is negatively related to thea. rate of return on investment.b. level of consumer spendingc. level of actual investment spending.d. interest rate.e. all of the above.
Given the consumption function c = $16,000 + 0.5 yd, if individual household current disposable income is $20,000, individual household consumer spending will equala. $36,000.b. $26,000.c. $20,000.d. $16,000.e. $6,000.
The slope of a family’s consumption function is equal toa. the real interest rate.b. the inflation rate.c. the marginal propensity to consume.d. the rate of increase in household current disposable income.e. the tax rate.
Changes in which of the following leads to a shift of the aggregate consumption function? I. expected future disposable income II. aggregate wealth III. current disposable incomea. I onlyb. II onlyc. III onlyd. I and II onlye. I, II, and III
For each event, explain whether the initial effect is a change in planned investment spending or a change in unplanned inventory investment, and indicate the direction of the change.a. an unexpected increase in consumer spendingb. a sharp rise in the cost of business borrowingc. a sharp increase in
Suppose a crisis in the capital markets makes consumers unable to borrow and unable to save money. What implication does this have for the effects of expected future disposable income on consumer spending?
What is the multiplier if the marginal propensity to consume is 0.5? What is it if MPC is 0.8?
Explain why a decline in investment spending caused by a change in business expectations leads to a fall in consumer spending.
The accompanying table provides the inflation rate in the year 2000 and the average inflation rate over the period 2000–2007 for eight different countries.a. Given the expected relationship between average inflation and menu costs, rank the countries in descending order of menu costs using
The accompanying diagram shows mortgage interest rates and inflation during 1990–2005 in the economy of Albernia. When would home mortgages have been especially attractive and why? Year Inflation rate, interest rate 12% 10 8 6 4 2 1990 1993 1996 1999 2002 2005 Mortgage interest rate Inflation rate
With its tradition of a job for life for most citizens, Japan once had a much lower unemployment rate than that of the United States; from 1960 to 1995, the unemployment rate in Japan exceeded 3% only once. However, since the crash of its stock market in 1989 and slow economic growth in the
How will the following changes affect the natural rate of unemployment?a. The government reduces the time during which an unemployed worker can receive benefits. b.More teenagers focus on their studies and do not look for jobs until after college.c. Greater access to the Internet leads both
In which of the following cases is it likely for efficiency wages to exist? Why?a. Jane and her boss work as a team selling ice cream. b.Jane sells ice cream without any direct supervision by her boss.c. Jane speaks Korean and sells ice cream in a neighborhood in which Korean is the primary
A country’s labor force is the sum of the number of employed and unemployed workers. The accompanying table provides data on the size of the labor force and the number of unemployed workers for different regions of the United States. S Wage rate $20 10 Quantity of labor (thousands) 50 100 D 0a.
There is only one labor market in Profunctia. All workers have the same skills, and all firms hire workers with these skills. Use the accompanying diagram, which shows the supply of and demand for labor, to answer the following questions. Illustrate each answer with a diagram.a. What is the
In general, how do changes in the unemployment rate vary with changes in real GDP? After several quarters of a severe recession, explain why we might observe a decrease in the official unemployment rate. Could we see an increase in the official unemployment rate after several quarters of a strong
Each month, usually on the first Friday of the month, the Bureau of Labor Statistics releases the Employment Situation Summary for the previous month. Go to www.bls.gov and find the latest report. (On the Bureau of Labor Statistics home page, on the left side of the page, find “Unemployment”
The cost of a college education in the United States is rising at a rate faster than inflation. The table below shows the average cost of a college education in the United States in 2006 and 2007 for public and private colleges. Assume the costs listed in the table are the only costs experienced by
The accompanying table provides the annual real GDP (in billions of 2000 dollars) and nominal GDP (in billions of dollars) for the United States.a. Calculate the GDP deflator for each year.b. Use the GDP deflator to calculate the inflation rate for all years except 2002.
Each month the Bureau of Labor Statistics releases the Consumer Price Index Summary for the previous month. Go to www.bls.gov and find the latest report. (On the Bureau of Labor Statistics home page, click on “News Release” under “Latest Numbers—Consumer Price Index” and then choose
How do your calculations for a CPI for the retired person and the college student compare to the overall CPI?
The consumer price index, or CPI, measures the cost of living for a typical urban household by multiplying the price for each category of expenditure (housing, food, and so on) times a measure of the importance of that expenditure in the average consumer’s market basket and summing over all
Eastland College is concerned about the rising price of textbooks that students must purchase. To better identify the increase in the price of textbooks, the dean asks you, the Economics Department’s star student, to create an index of textbook prices. The average student purchases three
The accompanying table shows data on nominal GDP (in billions of dollars), real GDP (in billions of year 2000 dollars), and population (in thousands) of the United States in 1960, 1970, 1980, 1990, 2000, and 2007, years in which the U.S. price level consistently rose.a. Why is real GDP greater
The economy of Pizzanistan resembles Pizzania (from Problem 4) except that bread and cheese are sold both to a pizza company as inputs in the production of pizzas and to consumers as final goods. The accompanying table summarizes the activities of the three companies.a. Calculate GDP as the value
The small economy of Pizzania produces three goods (bread, cheese, and pizza), each produced by a separate company. The bread and cheese companies produce all the inputs they need to make bread and cheese, respectively. The pizza company uses the bread and cheese from the other companies to make
The components of GDP in the accompanying table were produced by the Bureau of Economic Analysis.a. Calculate consumer spending. b.Calculate private investment spending.c. Calculate net exports. d.Calculate government purchases of goods and services and investment spending.e. Calculate gross
A more complex circular-flow diagram for the economy of Macronia is shown at right.a. What is the value of GDP in Macronia? b.What is the value of net exports?c. What is the value of disposable income? d.Does the total flow of money out of households—the sum of taxes paid, consumer spending,
At right is a simplified circular-flow diagram for the economy of Micronia.a. What is the value of GDP in Micronia? b.What is the value of net exports?c. What is the value of disposable income? d.Does the total flow of money out of households—the sum of taxes paid and consumer spending—equal
If your wage doubles at the same time as the consumer price index goes from 100 to 300, your real wagea. doubles.b. falls.c. increases.d. stays the same.e. cannot be determined.The accompanying table contains the values of two price indexes for the years 2004, 2005, and 2006: the GDP deflator and
d. the inflation rate.e. the average cost of a market basket of goods.
c.
b.
The value of a price index in the base year is a.
Which of the following is true of the CPI? I. It is the most common measure of the price level. II. It measures the price of a typical market basket of goods. III. It currently uses a base period of 1982–1984.a. I onlyb. II onlyc. III onlyd. I and II onlye. I, II, and III
If the consumer price index increases from 80 to 120 from one year to the next, the inflation rate over that time period wasa. 20%b. 40%c. 50%d. 80%e. 120%
If the cost of a market basket of goods increases from $100 in year 1 to $108 in year 2, the consumer price index in year 2 equals if year 1 is the base year.a. 8b. 10c. 100d. 108e. 110
The consumer price index in the United States (base period 1982–1984) was 201.6 in 2006 and 207.3 in 2007. Calculate the inflation rate from 2006 to 2007.
For each of the following events, explain how the use of a 10-year-old market basket would bias measurements of price changes over the past decade.a. A typical family owns more cars than it would have a decade ago. Over that time, the average price of a car has increased more than the average
Consider Table 15.1 but suppose that the market basket is composed of 100 oranges, 50 grapefruit, and 200 lemons. How does this change the pre-frost and post -frost consumer price indexes? Explain. Generalize your answer to explain how the construction of the market basket affects the CPI.
Changing the listed price when inflation leads to a price increase is an example of which type of cost?a. price levelb. shoe-leatherc. menud. unit-of-accounte. monetary You borrow $1,000 for one year at 5% interest to buy a couch. Although you did not anticipate any inflation, there is unexpected
Because dollars are used as the basis for contracts, inflation leads to which type of cost?a. price levelb. shoe-leatherc. menud. unit-of-accounte. monetary
If inflation causes people to frequently convert their dollars into other assets, the economy experiences what type of cost?a. price levelb. shoe-leatherc. menud. unit-of-accounte. monetary
If your nominal wage doubles at the same time as prices double, your real wage willa. increase.b. decreasec. not change.d. double.e. be impossible to determine.
Which of the following is true regarding prices in an economy? I. An increase in the price level is called inflation. II. The level of prices doesn’t matter. III. The rate of change in prices matters.a. I onlyb. II onlyc. III onlyd. II and III onlye. I, II, and III
Most people in the United States have grown accustomed to a modest inflation rate of around 2-3%. Who would gain and who would lose if inflation came to a complete stop for several years? Explain.
The widespread use of technology has revolutionized the banking industry, making it much easier for customers to access and manage their assets. Does this mean that the shoe -leather costs of inflation are higher or lower than they used to be? Explain.
In each of the following situations, what type of unemployment is Melanie facing? Explain.a. After completing a complex programming project, Melanie is laid off. Her prospects for a new job requiring similar skills are good, and she has signed up with a programmer placement service. She has passed
Which of the following can affect the natural rate of unemployment in an economy over time?a. labor force characteristics such as age and work experienceb. the existence of labor unionsc. advances in technologies that help workers find jobsd. government job training programse. all of the above
Which of the following is true of the natural rate of unemployment? I. It includes frictional unemployment. II. It includes structural unemployment. III. It is equal to 0%.a. I onlyb. II onlyc. III onlyd. I and IIe. I, II, and III
A person who is unemployed because of a mismatch between the quantity of labor supplied and the quantity of labor demanded is experiencing what type of unemployment?a. frictionalb. structuralc. cyclicald. naturale. none of the above
What type of unemployment is created by a recession?a. frictionalb. structuralc. cyclicald. naturale. none of the above
A person who moved to a new state and took two months to find a new job experienced which type of unemployment?a. frictionalb. structuralc. cyclicald. naturale. none of the above
Suppose the United States dramatically increases benefits for unemployed workers. Explain what will happen to the natural rate of unemployment.
Why does collective bargaining have the same general effect on unemployment as a minimum wage? Illustrate your answer with a diagram.
Explain the following.a. Frictional unemployment always exists.b. Frictional unemployment accounts for a larger share of total unemployment when the unemployment rate is low.
What is the labor market classification of each of the following individuals? Be as specific as possible, and explain your answer.a. Julie has a graduate degree in mechanical engineering. She works full-time mowing lawns.b. Jeff was laid off from his previous job. He would very much like to work at
The unemployment problem in an economy may be understated by the unemployment rate due toa. people lying about seeking a job.b. discouraged workers.c. job candidates with one offer but waiting for more.d. overemployed workers.e. none of the above.
What is the unemployment rate?a. 70%b. 50%c. 20%d. 10%e. 5%
How many people are unemployed?a. 10,000b. 20,000c. 30,000d. 100,000e. 110,000
What is the labor force participation rate?a. 70%b. 50%c. 20%d. 10%e. 5%
To be considered unemployed, a person must I. not be working. II. be actively seeking a job. III. be available for work.a. I onlyb. II onlyc. III onlyd. II and IIIe. I, II, and III Use the information for a hypothetical economy presented in the following table to answer questions 2, 3, and
Which of the following are consistent with the observed relationship between growth in real GDP and changes in the unemployment rate? Which are not?a. A rise in the unemployment rate accompanies a fall in real GDP.b. An exceptionally strong business recovery is associated with a greater percentage
In which of the following cases would the worker be counted as unemployed? Explain.a. Rosa, an older worker, has been laid off and gave up looking for work months ago.b. Anthony, a schoolteacher, is not working during his three-month summer break.c. Grace, an investment banker, has been laid off
Suppose that employment websites enable job -seekers to find suitable jobs more quickly. What effect will this have on the unemployment rate over time? Also suppose that these websites encourage job -seekers who had given up their searches to begin looking again. What effect will this have on the
Use the information in the table below to answer the following questions.a. Calculate the percent increase in nominal GDP between 2005 and 2010 for each country.b. What happened to the price level in each country between 2005 and 2010?c. Calculate real GDP in each country in 2010, using 2005 as the
Refer to the 2009 data in the table below. Which of the following must be true? I. Residents of Japan were worse off than residents of the United States or the European Union. II. The European Union had a higher nominal GDP per capita than the United States. III. The European Union had a larger
Real GDP per capita is an imperfect measure of the quality of life in part because ita. includes the value of leisure time.b. excludes expenditures on education.c. includes expenditures on natural disasters.d. excludes expenditures on entertainment.e. includes the value of housework.
Use the information provided in the table below for an economy that produces only apples and oranges. Assume year 1 is the base year. Year 1 Year 2 Quantity of apples 3,000 4,000 Price of an apple $0.20 $0.30 Quantity of oranges 2,000 3,000 Price of an orange $0.40 $0.50 What was the value of real
The best measure for comparing a country’s aggregate output over time isa. nominal GDP.b. real GDP.c. nominal GDP per capita.d. real GDP per capita.e. average GDP per capita.
Which of the following is true of real GDP? I. It is adjusted for changes in prices. II. It is always equal to nominal GDP. III. It increases whenever aggregate output increases.a. I onlyb. II onlyc. III onlyd. I and IIIe. I, II, and III
From 1990 to 2000 the price of housing rose dramatically. What are the implications of this in deciding whether to use 1990 or 2000 as the base year in calculating 2010 real GDP?
Assume there are only two goods in the economy, french fries and onion rings. In 2009, 1,000,000 servings of french fries were sold for $0.40 each and 800,000 servings of onion rings were sold for $0.60 each. From 2009 to 2010, the price of french fries rose to $0.50 and the servings sold fell to
Draw a correctly labeled circular-flow diagram showing the flows of funds between the markets for goods and services and the factor markets. Add the government to your diagram, and show how money leaks out of the economy to the government and how money is injected back into the economy by the
Which of the following components makes up the largest percentage of GDP measured by aggregate spending?a. consumer spendingb. investment spendingc. government purchases of goods and servicesd. exportse. imports
Which of the following is not included in GDP?a. capital goods such as machineryb. importsc. the value of domestically produced servicesd. government purchases of goods and servicese. the construction of structures
Which of the following is included in GDP?a. changes to inventoriesb. intermediate goodsc. used goodsd. financial assets (stocks and bonds)e. foreign-produced goods
GDP is equal toa. the total value of all goods and services produced in an economy during a given period.b. C + I + G + IM.c. the total value of intermediate goods plus final goods.d. the total income received by producers of final goods and services.e. none of the above.
Which of the following is true? The simple circular-flow diagram I. includes only the product markets. II. includes only the factor markets. III. is a simplified representation of the macroeconomy.a. I onlyb. II onlyc. III onlyd. I and III onlye. none of the above
Consider Figure 10.3. Explain why it would be incorrect to calculate total value added as $30,500, the sum of the sales price of a car and a car’s worth of steel.
Identify each of the sectors to which firms make sales. What are the various ways in which households are linked with other sectors of the economy?
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