Questions and Answers of Modern Principles Of Economics

What tradeoff does a Phillips curve show?
Would you expect to see long-run data trace out a stable downward-sloping Phillips curve?
How did the Keynesian perspective address the economic market failure of the Great Depression?
In its recent report, The Conference Board’s Global Economic Outlook 2015, updated November 2014 (http://www.conference-board.org/data/globaloutlook.cfm), projects China’s growth between 2015 and
What may happen if growth in China continues or contracts?
Does it make sense that wages would be sticky downwards but not upwards? Why or why not?
Suppose the economy is operating at potential GDP when it experiences an increase in export demand. How might the economy increase production of exports to meet this demand, given that the economy is
Do you think the Phillips curve is a useful tool for analyzing the economy today? Why or why not?
Return to the table from the Economic Report of the President in the earlier Work It Out feature titled “The Phillips Curve for the United States.” How would you expect government spending to
Explain what types of policies the federal government may have implemented to restore aggregate demand and the potential obstacles policymakers may have encountered.
Legislation proposes that the government should use macroeconomic policy to achieve an unemployment rate of zero percent, by increasing aggregate demand for as much and as long as necessary to
Do rational expectations tend to look back at past experience while adaptive expectations look ahead to the future? Explain your answer.
Would it make sense to argue that rational expectations economics is an extreme version of neoclassical economics? Explain.
Summarize the Keynesian and Neoclassical models.
Does neoclassical economics focus on the long term or the short term? Explain your answer.
Does neoclassical economics view prices and wages as sticky or flexible? Why?
What shape is the long-run aggregate supply curve? Why does it have this shape?
What is the difference between rational expectations and adaptive expectations?
A neoclassical economist and a Keynesian economist are studying the economy of Vineland. It appears that Vineland is beginning to experience a mild recession with a decrease in aggregate demand.
Do neoclassical economists tend to focus more on long term economic growth or on recessions? Explain briefly.
Do neoclassical economists tend to focus more on cyclical unemployment or on inflation? Explain briefly.
Do neoclassical economists see a value in tolerating a little more inflation if it brings additional economic output? Explain your answer.
What would the gasoline price elasticity of supply mean to UPS or FedEx?
What is a long-run average cost curve?
When do firms receive money from a stock sale in their firm and when do they not receive money?
Why do you think that GDP does not grow at a steady rate, but rather speeds up and slows down?
How do you think the problem of moral hazard might have affected the safety of sports such as football and boxing when safety regulations started requiring that players wear more padding?
The Darkroom Window shade Company has 100,000 shares of stock outstanding. The investors in the firm own the following numbers of shares: investor 1 has 20,000 shares; investor 2 has 18,000 shares;
True or false: Majority rule can fail to produce a single preferred outcome when there are more than two choices.
Given that rational ignorance discourages some people from becoming informed about elections, is it necessarily a good idea to encourage greater voter turnout? Why or why not?
Why do you suppose that U.S. GDP is so much higher today than 50 or 100 years ago?
An economy starts off with a GDP per capita of $5,000. How large will the GDP per capita be if it grows at an annual rate of 2% for 20 years? 2% for 40 years? 4% for 40 years? 6% for 40 years?
Under what condition would an increase in the unemployment rate be a positive sign?
As the baby boom generation retires, the ratio of retirees to workers will increase noticeably. How will this affect the Social Security program? How will this affect the standard of living of the
Unemployment rates have been higher in many European countries in recent decades than in the United States. Is the main reason for this long-term difference in unemployment rates more likely to be
Is it desirable to pursue a goal of zero unemployment? Why or why not?
Is it desirable to eliminate natural unemployment? Why or why not? Hint: Think about what our economy would look like today and what assumptions would have to be met to have a zero rate of natural
The U.S. unemployment rate increased from 4.6% in July 2001 to 5.9% by June 2002. Without studying the subject in any detail, would you expect that a change of this kind is more likely to be due to
A country with a population of eight million adults has five million employed, 500,000 unemployed, and the rest of the adult population is out of the labor force. What’s the unemployment rate? What
Imagine that the government reworks the welfare policy that was affecting Jonathan in question 1, so that for each dollar someone like Jonathan earns at work, his government benefits diminish by only
Consider the case of global environmental problems that spill across international borders as a prisoner’s dilemma of the sort studied in Monopolistic Competition and Oligopoly. Say that there are
Explain why you think the Federal Reserve Bank tracks M1 and M2.
Explain the difference between how you would characterize bank deposits and loans as assets and liabilities on your own personal balance sheet and how a bank would characterize deposits and loans as
Is it a logical contradiction to be a neoclassical Keynesian? Explain.
Use Table 26.3 to answer the following questions.Table 26.3a. Sketch an aggregate supply and aggregate demand diagram.b. What is the equilibrium output and price level?c. If aggregate demand shifts
In many casinos, a person buys chips to use for gambling. Within the casino's walls, customers often can use these chips to buy food and drink or even a hotel room. Do chips in a gambling casino
Can you name some item that is a store of value, but does not serve the other functions of money?
If you are out shopping for clothes and books, what is easiest and most convenient for you to spend: M1 or M2? Explain your answer.
For the following list of items, indicate if they are in M1, M2, or neither:a. Your $5,000 line of credit on your Bank of America cardb. $50 dollars’ worth of traveler’s checks you have not used
Explain why the money listed under assets on a bank balance sheet may not actually be in the bank?
Imagine that you are in the position of buying loans in the secondary market (that is, buying the right to collect the payments on loans) for a bank or other financial services company. Explain why
What are the four functions that money serves?
How does the existence of money simplify the process of buying and selling?
What is the double-coincidence of wants?
What components of money do we count as part of M1?
What components of money do we count in M2?
Why do we call a bank a financial intermediary?
What does a balance sheet show?
What are a bank's assets? What are its liabilities?
How do you calculate a bank's net worth?
How can a bank end up with negative net worth?
What is the asset-liability time mismatch that all banks face?
What is the risk if a bank does not diversify its loans?
The Bring it Home Feature discusses the use of cowrie shells as money. Although we no longer use cowrie shells as money, do you think other forms of commodity monies are possible? What role might
Imagine that you are a barber in a world without money. Explain why it would be tricky to obtain groceries, clothing, and a place to live.
The total amount of U.S. currency in circulation divided by the U.S. population comes out to about $3,500 per person. That is more than most of us carry. Where is all the cash?
Should banks have to hold 100% of their deposits? Why or why not?
Explain what will happen to the money multiplier process if there is an increase in the reserve requirement?
What do you think the Federal Reserve Bank did to the reserve requirement during the 2008–2009 Great Recession?
If you take $100 out of your piggy bank and deposit it in your checking account, how did M1 change? Did M2 change?
A bank has deposits of $400. It holds reserves of $50. It has purchased government bonds worth $70. It has made loans of $500. Set up a T-account balance sheet for the bank, with assets and
Humongous Bank is the only bank in the economy. The people in this economy have $20 million in money, and they deposit all their money in Humongous Bank.a. Humongous Bank decides on a policy of
Why is it important for the members of the Board of Governors of the Federal Reserve to have longer terms in office than elected officials, like the President?
Given the danger of bank runs, why do banks not keep the majority of deposits on hand to meet the demands of depositors?
Bank runs are often described as “self-fulfilling prophecies.” Why is this phrase appropriate to bank runs?
If the central bank sells $500 in bonds to a bank that has issued $10,000 in loans and is exactly meeting the reserve requirement of 10%, what will happen to the amount of loans and to the money
What would be the effect of increasing the banks' reserve requirements on the money supply?
Why does contractionary monetary policy cause interest rates to rise?
Why does expansionary monetary policy causes interest rates to drop?
Why might banks want to hold excess reserves in time of recession?
Why might the velocity of money change unexpectedly?
How is a central bank different from a typical commercial bank?
List the three traditional tools that a central bank has for controlling the money supply.
How is bank regulation linked to the conduct of monetary policy?
In a program of deposit insurance as it is operated in the United States, what is being insured and who pays the insurance premiums?
In government programs of bank supervision, what is being supervised?
What is the lender of last resort?
Name and briefly describe the responsibilities of each of the following agencies: FDIC, NCUA, and OCC.
Explain how to use an open market operation to expand the money supply.
Explain how to use the reserve requirement to expand the money supply.
Explain how to use the discount rate to expand the money supply.
How do the expansionary and contractionary monetary policy affect the quantity of money?
How do tight and loose monetary policy affect interest rates?
How do expansionary, tight, contractionary, and loose monetary policy affect aggregate demand?
Which kind of monetary policy would you expect in response to high inflation: expansionary or contractionary? Why?
Explain how to use quantitative easing to stimulate aggregate demand.
Which kind of monetary policy would you expect in response to recession: expansionary or contractionary? Why?
How might each of the following factors complicate the implementation of monetary policy: long and variable lags, excess reserves, and movements in velocity?
What is the basic quantity equation of money?
How does a monetary policy of inflation target work?

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