Questions and Answers of Modern Principles Of Economics

During the most recent recession, some economists argued that the change in the interest rates that comes about due to deficit spending implied in the demand and supply of financial capital graph
What are the drawbacks to analyzing the global economy on a regional basis?
Create a table that identifies the macroeconomic policies for a high-income country, a middle-income country, and a low-income country.
Use the data in the text to contrast the policy prescriptions of the high-income, middle-income, and low-income countries.
What are the different policy tools for dealing with cyclical unemployment?
Explain how the natural rate of unemployment may be higher in low-income countries.
How does indexing wage contracts to inflation help workers?
Use the AD/AS model to show how increases in government spending can lead to more inflation.
Show, using the AD/AS model, how governments can use monetary policy to decrease the price level.
What do international flows of capital have to do with trade imbalances?
In a recession, does the actual budget surplus or deficit fall above or below the standardized employment budget?
What is the main advantage of automatic stabilizers over discretionary fiscal policy?
Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where
What would happen if expansionary fiscal policy was implemented in a recession but, due to lag, did not actually take effect until after the economy was back to potential GDP?
What would happen if contractionary fiscal policy were implemented during an economic boom but, due to lag, it did not take effect until the economy slipped into recession?
Do you think the typical time lag for fiscal policy is likely to be longer or shorter than the time lag for monetary policy? Explain your answer?
How would a balanced budget amendment affect a decision by Congress to grant a tax cut during a recession?
How would a balanced budget amendment change the effect of automatic stabilizer programs?
Give some examples of changes in federal spending and taxes by the government that would be fiscal policy and some that would not.
Have the spending and taxes of the U.S. federal government generally had an upward or a downward trend in the last few decades?
What are the main categories of U.S. federal government spending?
What is the difference between a budget deficit, a balanced budget, and a budget surplus?
Have spending and taxes by state and local governments in the United States had a generally upward or downward trend in the last few decades?
What are the main categories of U.S. federal government taxes?
What is the difference between a progressive tax, a proportional tax, and a regressive tax?
What has been the general pattern of U.S. budget deficits in recent decades?
Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?
What is the difference between discretionary fiscal policy and automatic stabilizers?
Why do automatic stabilizers function “automatically?”
Use the demand-and-supply of foreign currency graph to determine what would happen to a small, open economy that experienced capital outflows.
What are some of the other ways of comparing the standard of living in countries around the world?
What is the primary way in which economists measure standards of living?
What are the four other factors that determine the economic standard of living around the world?
What other factors, aside from labor productivity, capital investment, and technology, impact the economic growth of a country? How?
What strategies did the East Asian Tigers employ to stimulate economic growth?
What are the two types of unemployment problems?
In low-income countries, does it make sense to argue that most of the people without long-term jobs are unemployed?
Is inflation likely to be a severe problem for at least some high-income economies in the near future?
What are the major issues with regard to trade imbalances for the U.S. economy?
Is inflation likely to be a problem for at least some low- and middle-income economies in the near future?
What are the major issues with regard to trade imbalances for low-and middle-income countries?
Demography can have important economic effects. The United States has an aging population. Explain one economic benefit and one economic cost of an aging population as well as of a population that is
Explain why is it difficult to set aside funds for investment when you are in poverty.
Is it possible to protect workers from losing their jobs without distorting the labor market?
Why do you think it is difficult for high-income countries to achieve high growth rates?
Explain what will happen in a nation that tries to solve a structural unemployment problem using expansionary monetary and fiscal policy. Draw one AD/AS diagram, based on the Keynesian model, for
Explain why converging economies may present a strong argument for limiting flows of capital but not for limiting trade.
Why are inflationary dangers lower in the high-income economies than in low-income and middle-income economies?
Retrieve the following data from The World Bank database (http://databank.worldbank.org/data/home.aspx) for India, Spain, and South Africa for the most recent year available:• GDP in constant
Prepare a chart that compares India, Spain, and South Africa based on the data you find. Describe the key differences between the countries. Rank these as high-, medium-, and low-income countries,
Use the Rule of 72 to estimate how long it will take for India, Spain, and South Africa to double their standards of living.Rule of 72It is worth pausing a moment to marvel at the East Asian Tigers'
Using the research skills you have acquired, retrieve the following data from The World Bank database (http://databank.worldbank.org/data/home.aspx) for India, Spain, and South Africa for
Retrieve the unemployment data from The World Bank database (http://databank.worldbank.org/data/home.aspx) for India, Spain, and South Africa for 2011-2015. Prepare a chart that compares India,
Retrieve inflation data from The World Bank data base (http://databank.worldbank.org/data/home.aspx) for India, Spain, and South Africa for 2011–2015. Prepare a chart that compares India, Spain,
True or False: The source of comparative advantage must be natural elements like climate and mineral deposits. Explain.
Brazil can produce 100 pounds of beef or 10 autos. In contrast the United States can produce 40 pounds of beef or 30 autos. Which country has the absolute advantage in beef? Which country has the
In France it takes one worker to produce one sweater, and one worker to produce one bottle of wine. In Tunisia it takes two workers to produce one sweater, and three workers to produce one bottle of
In Germany it takes three workers to make one television and four workers to make one video camera. In Poland it takes six workers to make one television and 12 workers to make one video camera.a.
Table 33.15 shows how the average costs of production for semiconductors (the “chips” in computer memories) change as the quantity of semiconductors built at that factory increases.a. Based on
How can there be any economic gains for a country from both importing and exporting the same good, like cars?
If the removal of trade barriers is so beneficial to international economic growth, why would a nation continue to restrict trade on some imported or exported products?
Under what conditions does comparative advantage lead to gains from trade?
What factors does Paul Krugman identify that supported expanding international trade in the 1800s?
Is it possible to have a comparative advantage in the production of a good but not to have an absolute advantage? Explain.
How does comparative advantage lead to gains from trade?
What are the two main sources of economic gains from intra-industry trade?
What is splitting up the value chain?
Are the gains from international trade more likely to be relatively more important to large or small countries?
Are differences in geography behind the differences in absolute advantages?
Why does the United States not have an absolute advantage in coffee?
Look at Exercise 33.2. Compute the opportunity costs of producing sweaters and wine in both France and Tunisia. Who has the lowest opportunity cost of producing sweaters and who has the lowest
Look at Table 33.9. Is there a range of trades for which there will be no gains?Table 33.9 Country United States Mexico Total Current Shoe Production 5,000 4,000 9,000 Current Refrigerator
You just overheard your friend say the following: “Poor countries like Malawi have no absolute advantages. They have poor soil, low investments in formal education and hence low-skill workers, no
You just got a job in Washington, D.C. You move into an apartment with some acquaintances. All your roommates, however, are slackers and do not clean up after themselves. You, on the other hand, can
Do consumers benefit from intra-industry trade?
Why might intra-industry trade seem surprising from the point of view of comparative advantage?
In World Trade Organization meetings, what do you think low-income countries lobby for?
Why might a low-income country put up barriers to trade, such as tariffs on imports?
Can a nation’s comparative advantage change over time? What factors would make it change?
France and Tunisia both have Mediterranean climates that are excellent for producing/harvesting green beans and tomatoes. In France it takes two hours for each worker to harvest green beans and two
Review the numbers for Canada and Venezuela from Table 33.12 which describes how many barrels of oil and tons of lumber the workers can produce. Use these numbers to answer the rest of this
In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios.a. Who has the absolute advantage in the production of rubber or radios?
In Exercise 33.31, is there an “ask” where Venezuelans may say “no thank you” to trading with Canada?Exercise 33.31 Review the numbers for Canada and Venezuela from Table 33.12 which
From earlier chapters you will recall that technological change shifts the average cost curves. Draw a graph showing how technological change could influence intra-industry trade.
Consider two countries: South Korea and Taiwan. Taiwan can produce one million mobile phones per day at the cost of $10 per phone and South Korea can produce 50 million mobile phones at $5 per phone.
If trade increases world GDP by 1% per year, what is the global impact of this increase over 10 years? How does this increase compare to the annual GDP of a country like Sri Lanka? Discuss. Hint: To
Explain how a tariff reduction causes an increase in the equilibrium quantity of imports and a decrease in the equilibrium price.
Explain how a subsidy on agricultural goods like sugar adversely affects the income of foreign producers of imported sugar.
Explain how trade barriers save jobs in protected industries, but only by costing jobs in other industries.
Explain how trade barriers raise wages in protected industries by reducing average wages economy-wide.
How does international trade affect working conditions of low-income countries?
Do the jobs for workers in low-income countries that involve making products for export to high-income countries typically pay these workers more or less than their next-best alternative?
How do trade barriers affect the average income level in an economy?
How does the cost of “saving” jobs in protected industries compare to the workers’ wages and salaries?
Explain how predatory pricing could be a motivation for dumping.
Why do low-income countries like Brazil, Egypt, or Vietnam have lower environmental standards than high-income countries like the Germany, Japan, or the United States?
Explain the logic behind the “race to the bottom” argument and the likely reason it has not occurred.
What are the conditions under which a country may use the unsafe products argument to block imports?
Why is the national security argument not convincing?
Assume a perfectly competitive market and the exporting country is small. Using a demand and supply diagram, show the impact of increasing standards on a low-income exporter of toys. Show the

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