Questions and Answers of Modern Principles Of Economics

What is productive efficiency? Allocative efficiency?
Jade has a weekly budget of $24, which she likes to spend on magazines and pies.If the price of a pie is $12, what is the maximum number of pies she could buy in a week?
Jade has a weekly budget of $24, which she likes to spend on magazines and pies.Draw Jade's budget constraint with pies on the horizontal axis and magazines on the vertical axis. What is the slope of
Jade has a weekly budget of $24, which she likes to spend on magazines and pies.What is Jade's opportunity cost of purchasing a pie?
Return to Table 7.12. In the top half of the table, at what point does diminishing marginal productivity kick in? What about in the bottom half of the table? How do you explain this?Table 7.12
What is a long-run average cost curve?
What is cost-plus regulation?
What is command-and-control environmental regulation?
Explain in each of the following situations how market forces might give a business an incentive to act in a less discriminatory fashion.a. A local flower delivery business that had intentionally
How does the U.S. government specifically support elderly people experiencing poverty?
Susan is a single mother with three children. She can earn $8 per hour and works up to 1,800 hours per year. However, if she does not earn any income at all, she will receive government benefits
Calculate the equity each of these people has in their home:a. Eva just bought a house for $200,000 by putting 10% as a down payment and borrowing the rest from the bank.b. Freda bought a house for
Using the above data, what is the unemployment rate? These data are U.S. statistics from 2010. How does it compare to the February 2015 unemployment rate computed earlier?Above data,Suppose the adult
What is the double-coincidence of wants?
Define the velocity of the money supply.
Suppose the Fed conducts an open market purchase by buying $10 million in Treasury bonds from Acme Bank. Sketch out the balance sheet changes that will occur as Acme converts the bond sale proceeds
What is the difference between a budget deficit and the national debt?
What is the difference between expansionary fiscal policy and contractionary fiscal policy?
What is the theory of Ricardian equivalence?
Use the Rule of 72 to estimate how long it will take for India, Spain, and South Africa to double their standards of living.
What is intra-industry trade?
Does intra-industry trade contradict the theory of comparative advantage?
What does the 45-degree line show?
What is an inflationary gap? A recessionary gap?
The state of Colorado requires oil and gas companies who use fracking techniques to return the land to its original condition after the oil and gas extractions. Table 12.9 shows the total cost and
Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, state how the event will
Identify the most accurate statement. A price floor will have the largest effect if it is set:a. Substantially above the equilibrium priceb. Slightly above the equilibrium pricec. Slightly below the
A price ceiling will have the largest effect:a. Substantially below the equilibrium priceb. Slightly below the equilibrium pricec. Substantially above the equilibrium priced. Slightly above the
Based on your answers to the WipeOut Ski Company in Exercise 7.3, now imagine a situation where the firm produces a quantity of 5 units that it sells for a price of $25 each.a. What will be the
Classify the following as a government-enforced barrier to entry, a barrier to entry that is not government-enforced, or a situation that does not involve a barrier to entry.a. A city passes a law on
Consider the curve in the figure below, which shows the market demand, marginal cost, and marginal revenue curve for firms in an oligopolistic industry. In this example, we assume firms have zero
Which of the following goods or services are nonexcludable?a. Police protectionb. Streaming music from satellite transmission programsc. Roadsd. Primary educatione. Cell phone service
A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals to clear some of Sherwood’s forest and grow corn, but obtaining this additional economic output
Edna is living in a retirement home where most of her needs are taken care of, but she has some discretionary spending. Based on the basket of goods in Table 22.5, by what percentage does Edna’s
How to Measure Changes in the Cost of Living introduced a number of different price indices. Which price index would be best to use to adjust your paycheck for inflation?
The Consumer Price Index is subject to the substitution bias and the quality/new goods bias. Are the Producer Price Index and the GDP Deflator also subject to these biases? Why or why not?
Go to this website (http://www.measuringworth.com/ppowerus/) for the Purchasing Power Calculator at MeasuringWorth.com. How much money would it take today to purchase what one dollar would have
Without looking at Table 19.7, return to Figure 19.10. If we define a recession as a significant decline in national output, can you identify any post-1960 recessions in addition to the 2008-2009
According to Table 19.7, how often have recessions occurred since the end of World War II (1945)?Table 19.7 Trough December 1900 August 1904 June 1908 January 1912 December 1914 March 1919 July
Using the above data, what is the unemployment rate? These data are U.S. statistics from 2010. Suppose the in 2010 adult population over the age of 16 is 237.8 million and the labor force is 153.9
A government passes a family-friendly law that no companies can have evening, nighttime, or weekend hours, so that everyone can be home with their families during these times. Analyze the effect of
As the baby boomer generation retires, what should happen to wages and employment? Can you show this graphically?
Table 22.4 shows the fruit prices that the typical college student purchased from 2001 to 2004. What is the amount spent each year on the “basket” of fruit with the quantities shown in column
Construct the price index for a “fruit basket” in each year using 2003 as the base year. 2001 2002 2003 69.71 100.00 2004
Compute the inflation rate for fruit prices from 2001 to 2004. Items Qty Total Table 8.4 (2001) Price Apples 10 $0.50 Bananas 12 $0.20 Grapes 2 $0.65 Raspberries
If inflation rises unexpectedly by 5%, would a state government that had recently borrowed money to pay for a new highway benefit or lose?
How should an increase in inflation affect the interest rate on an adjustable-rate mortgage?
A fixed-rate mortgage has the same interest rate over the life of the loan, whether the mortgage is for 15 or 30 years. By contrast, an adjustable-rate mortgage changes with market interest rates
How do economists use a basket of goods and services to measure the price level?
Using the national savings and investment identity, explain how each of the following changes (ceteris paribus) will increase or decrease the trade balance:a. A lower domestic savings rateb. The
What are the two main sides of the national savings and investment identity?
If the economy is operating in the neoclassical zone of the SRAS curve and aggregate demand falls, what is likely to happen to real GDP?
What is the Keynesian prescription for recession? For inflation?
If aggregate supply is vertical, what role does aggregate demand play in determining output? In determining the price level?
What is the shape of the neoclassical long-run Phillips curve? What assumptions do economists make that lead to this shape?
When the economy is experiencing a recession, why would a neoclassical economist be unlikely to argue for aggressive policy to stimulate aggregate demand and return the economy to full employment?
If the economy is suffering through a rampant inflationary period, would a Keynesian economist advocate for stabilization policy that involves higher taxes and higher interest rates? Explain your
If most people have rational expectations, how long will recessions last?
Explain why the neoclassical economists believe that the government does not need to do much about unemployment. Do you agree or disagree? Explain.
Economists from all theoretical persuasions criticized the American Recovery and Reinvestment Act. The “Stimulus Package” was arguably a Keynesian measure so why would a Keynesian economist be
What is the difference between a floating exchange rate, a soft peg, a hard peg, and dollarization?
List some advantages and disadvantages of the different exchange rate policies.
What is the main reason for employing expansionary fiscal policy during a recession?
Why do economists use index numbers to measure the price level rather than dollar value of goods?
What is the difference between the price level and the rate of inflation?
Why does “substitution bias” arise if we calculate the inflation rate based on a fixed basket of goods?
Why does the “quality/new goods bias” arise if we calculate the inflation rate based on a fixed basket of goods?
What has been a typical range of inflation in the U.S. economy in the last decade or so?
Over the last century, during what periods was the U.S. inflation rate highest and lowest?
Identify several parties likely to be helped and hurt by inflation.
Name several forms of indexing in the private and public sector.
Inflation rates, like most statistics, are imperfect measures. Can you identify some ways that the inflation rate for fruit does not perfectly capture the rising price of fruit?
Given the federal budget deficit in recent years, some economists have argued that by adjusting Social Security payments for inflation using the CPI, Social Security is overpaying recipients. What is
Why is the GDP deflator not an accurate measure of inflation as it impacts a household?
Imagine that the government statisticians who calculate the inflation rate have been updating the basic basket of goods once every 10 years, but now they decide to update it every five years. How
Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the CPI to convert from nominal to real would be more appropriate than
Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the GDP deflator to convert from nominal to real would be more appropriate
Why do you think the U.S. experience with inflation over the last 50 years has been so much milder than in many other countries?
If, over time, wages and salaries on average rise at least as fast as inflation, why do people worry about how inflation affects incomes?
Who in an economy is the big winner from inflation?
If a government gains from unexpected inflation when it borrows, why would it choose to offer indexed bonds?
Do you think perfect indexing is possible? Why or why not?
The index number representing the price level changes from 110 to 115 in one year, and then from 115 to 120 the next year. Since the index number increases by five each year, is five the inflation
The total price of purchasing a basket of goods in the United Kingdom over four years is: year 1=£940, year 2=£970, year 3=£1000, and year 4=£1070. Calculate two price indices, one using year 1
Within 1 or 2 percentage points, what has the U.S. inflation rate been during the last 20 years? Draw a graph to show the data.
If inflation rises unexpectedly by 5%, indicate for each of the following whether the economic actor is helped, hurt, or unaffected:a. A union member with a COLA wage contractb. Someone with a large
Rosalie the Retiree knows that when she retires in 16 years, her company will give her a one-time payment of $20,000. However, if the inflation rate is 6% per year, how much buying power will that
If foreign investors buy more U.S. stocks and bonds, how would that show up in the current account balance?
If the trade deficit of the United States increases, how is the current account balance affected?
State whether each of the following events involves a financial flow to the Mexican economy or a financial flow out of the Mexican economy:a. Mexico imports services from Japanb. Mexico exports goods
In what way does comparing a country’s exports to GDP reflect its degree of globalization?
At one point Canada’s GDP was $1,800 billion and its exports were $542 billion. What was Canada’s export ratio at this time?
The GDP for the United States is $18,036 billion and its current account balance is –$484 billion. What percent of GDP is the current account balance?
Why does the trade balance and the current account balance track so closely together over time?
How does the bottom portion of Figure 23.3, showing the international flow of investments and capital, differ from the upper portion?Figure 23.3 Home Country Exports Payment for
State whether each of the following events involves a financial flow to the U.S. economy or away from the U.S. economy:a. Export sales to Germanyb. Returns paid on past U.S. financial investments in
Explain the relationship between a current account deficit or surplus and the flow of funds.
If a country is running a government budget surplus, why is (T – G) on the left side of the saving-investment identity?
What determines the size of a country’s trade deficit?
If domestic investment increases, and there is no change in the amount of private and public saving, what must happen to the size of the trade deficit?

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