Questions and Answers of Principles Of Macroeconomics

Since 2014, a number of economies have experienced negative interest rates. This was not even considered possible by most economists before the 2008/2009 Great Recession, but negative rates have
Explain the effect, if any, that each of the following occurrences should have on the aggregate demand curve.a. The government decreases income tax to encourage consumer spending.b. The central bank
Economists and politicians have long debated the extent to which unemployment benefits affect the duration of unemployment. The table on the following page represents unemployment and unemployment
It should be clear to you from the text the important role the assumption of sticky wages plays in helping to explain both unemployment and the ability of fiscal stimulus in a period of unemployment
In 2019, the country of Cheeseling was suffering from a period of high unemployment. The new president, Chad Cheddar, appointed Merry Parmesan as his chief economist.Ms. Parmesan and her staff
In March 2018, the unemployment rate in the Czech Republic was at 3.7 percent, the third lowest in the European Union. At the same time, the country experienced an average inflation rate of 2.45
Obtain data on average hourly wages of production workers and the unemployment rate for the manufacturing sector in your country. How have these two sets of data evolved recently? To what extent do
The last few decades have witnessed prolonged levels of high unemployment across the world. As much as technological advancement has been blamed for many job losses, recent research suggests1 that it
When an unemployed individual gives up looking for work and leaves the labor force, she is no longer considered unemployed. What happens to the unemployment rate as a result? Does this mean that the
How will the following affect labor force participation rates, labor supply, and unemployment in your country?a. The government steps up public funding for nurseries.b. A growing majority of the
Country X came out of a prolonged recessional period a few years ago, thanks to a vigorous fiscal stimulus by the government. The country’s economy had resumed growing two years ago, reaching a
As indicated in Figure 14.3, housing prices have risen substantially over the past few years. The composition of buyers (based on credit scores and median household incomes), however, is different
According to the Efficiency Wage Theory, employers occasionally pay workers more than the equilibrium wage in the market in order to increase productivity. Explain how this would lead to reduced
Policymakers and economists depend on economic forecasting models to predict the duration and magnitude of changes in the business cycle. These models rely on a large set of measurable economics
Suppose the relationship between the inflation rate and the unemployment rate, depicted by the Phillips Curve, was stable. Does this mean that neighboring countries such as Germany and France are
In July 2009, the S&P 500 index was at 1,000.a. What is the S&P 500 index?b. Where is the S&P today?c. If you had invested $10,000 in July2009 and your investments had increased in value by the same
The Economics in Practice discusses data gathered from 1996– 2010, a period of low unemployment and high growth. The years 2016–2018 have also been described as a period of low unemployment and
You are given the following information about the economy in 2019 (all in billions of dollars):a. Find equilibrium income. Show that the government budget deficit (the difference between government
In January 2013, the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG), also referred to as the Fiscal Stability Treaty, came into effect in the European
Deficit targeting could lead to the wrong type of fiscal policies being enacted during a recession. How is this so?
In the wake of the 2007–2008 crisis, and especially in 2010–2012, the eurozone underwent severe strains on its government bond markets. Although no European country has defaulted (yet) on its
The Economics in Practice states that since recessions can be hard to forecast, the recognition lag can be long, as was the case with the recession of 2008–2009. Assuming that the recognition lag
Suppose the government decides to decrease spending and increase taxes to reduce public deficit. Is it possible for the central bank to adopt measures that will offset the impact of the new fiscal
We have suggested in the text that the rapid rise in housing prices in the period from 2000 to 2006 and the subsequent rapid fall of those prices after 2006 may have played a role in the 2008–2009
In the United Kingdom, the Office for Budget Responsibility (OBR) is in charge of, among other things, the publications of economic forecast concerning the country’s fiscal deficits. In November
In June 2018, the Federal Reserve Bank raised interest rates for the seventh time in three years, and signaled that two additional rate hikes would take place by the end of the year.a. What direct
How do expectations influence investment demand Describe the reasons for volatility of investment demand. In this context, explain the accelerator effect of expectations on output.
Between June 2017 and June 2018, the employment rate in the United Kingdom increased by 5.73 percent, whereas GDP increased by 1.2 percent. How is it possible for output to increase at a lower rate
According to Statista, in 2013, the unemployment rate in Spain was 26.09 percent. In 2017, Statista reported that Spain’s unemployment rate was 17.35 percent.
According to the Life-Cycle Theory of Consumption, an increase in income would shift the blue Income curve in Figure 15.1 upward. Would you expect this to eliminate the two periods of
Explain the effect that each of the following situations will have on the size of the multiplier:a. An increase in personal income tax across all income brackets.b. An expansionary monetary policy
Estimating the size of the multiplier is difficult because it is hard to sort out the many things that are likely to be changing when a government decides to increase its spending. However, a recent
The personal income tax rate in Spain stands at 45 percent as of 2018. The tax rate averaged a 47.92 percent from 1995 until 2018, reaching an all-time high of 56 percent in 1996 and a record low of
Since 1995, Transparency International has published its annual Corruptions Perceptions Index, which ranks countries by their perceived level of corruption, with corruption defined as the misuse of
Figure 16.1 shows how a country’s production possibility frontier shifts out with technology. Another characteristic of a country that you might want to think about is how far an individual country
Households are able to delay purchases of durable goods during bad economic times, which leads to spending on durable goods to be more volatile than spending on nondurable goods. Identify an example
From March 2012 to May 2017, the price of houses increased dramatically in many parts of the country.a. What impact would you expect increases and decreases in home values to have on the consumption
Eastern European countries, like Hungary and Poland, experienced real wage growth in 2017 and 2018, partially due to low unemployment. At the same time, chronic shortage of trained workers caused
In June 2013, President Obama’s Climate Action Plan was announced. One the main aims of this plan was to reduce carbon dioxide emissions in the United States by 17 percent from 2005 levels by
How can one country’s political crisis impact another’s economy? Between 2015 and 2018, more than a million refugees sought asylum in Europe to escape the atrocities of war and turbulence in the
The data in the following table represents real GDP from 2013–2016 for five countries.a. Calculate the growth rate in real GDP for all five countries from 2013–2014. Which country experienced the
Many international nongovernmental organizations (NGOs) work on improving health and educational outcomes for people living in developing countries. How would you expect these efforts to affect
The data in the following table represents real GDP per capita in 1980 and 2016 for five countries. Fill in the table by calculating the annual growth rate in real GDP per capita from 1980 to 2016.
When gauging consumer expectations, economists divide consumers by income, gender, and age group. With regard to the Brexit referendum of June 23, 2016, where the United Kingdom voted to leave the
The enforcement of legal contracts and property rights is essential for supporting long-run growth. Based on what you learned in this chapter, why is this so?
In July 2018, President Trump was considering cutting taxes on capital gains amounting to approximately $100 billion and allowing taxpayers to account for inflation when calculating tax dues on
The tiny island of Ditto contains two identical towns, East Doppelganger and West Doppelganger. Each year, the 100 citizens of each town compete in their annual New Year’s resolution challenge. In
Human capital has often been cited as one of the driving forces of economic growth. Go to http://ec.europa.eu/eurostat and look up the current unemployment rate. Compare this to the unemployment
When tax rates are higher, national income falls. Is this true along the entire Laffer curve or only the downward-sloping portion?
The following data is for the small, recently independent island nation of Hibiscus: Tax rate: 10% flat tax on all citizens since its independence in 2015 Labor supply: 200 workers in 2015, and has
The table gives estimates of the rate of the M2 money supply growth and the rate of real GDP growth for five countries in 2016:a. If you were a monetarist, what would you predict about the rate of
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act. According to this Act, corporate tax rate has been reduced from 35 percent to 21 percent, while the highest individual tax rate
Earlier in the chapter we described the way in which free trade allows countries to make the most of what they do well. Recent work in the trade area has also described the way in which free trade
The following is data from 2018 for the tiny island nation of Coco Loco: money supply = $800 million; price level = 3.2; velocity of money = 3. Use the quantity theory of money to answer the
Assume people and firms have rational expectations. Explain how each of the following events will affect aggregate output and the price level.a. The Reserve Bank of India announces it will decrease
According to the Real Business Cycle Theory, the Short-Run Aggregate Supply curve is vertical, and fluctuations in Real GDP arise due to shocks that shift this curve around. Would a negative shock
In 2003, the government under George W. Bush implemented the Jobs and Growth Tax Relief Reconciliation Act, which lowered the rates on a number of taxes, including those on income from dividends and
India’s top five trading partners are China, United States, Saudi Arabia, United Arab Emirates (UAE), and the Republic of Korea. Go to www.infodriveindia.com and look up “India’s Trading
The following table shows imports and exports of goods during the 2014–2015 period for India:What, if anything, can you conclude about India’s comparative advantage? What stories can you tell
The China–Australia Free Trade Agreement (ChAFTA) is a bilateral Free Trade Agreement (FTA) between the Governments of Australia and China. It is strongly opposed by Australian trade unions and
Prior to 2005, textiles and clothing from China and much of the emerging world, heading for the United States, Canada, and the European Union, were subject to quotas. In an interesting new paper,
The Theory of Comparative Advantage and the Heckscher-Ohlin Theorem both treat the factors of production as being immobile between economies. Why is this a crucial assumption in explaining
India and Pakistan each produce only wheat and rice. Domestic prices are given in the following table:If 1 Indian Rupee (INR) = 1 Pakistani Rupee (PKR),a. Which country has an absolute advantage in
The twenty-first century has witnessed several global economic and geopolitical changes that have impacted the global trade order. The recent volatility in global politics has caused many developed
You can think of the United States as a set of 50 separate economies with no trade barriers. In such an open environment, each state specializes in the products that it produces best.a. What product
The following table gives recent figures for yield per hectare (in kg/ha) in India and China:a. If we assume that farmers in India and China use the same amount of labor, capital and fertilizer,
Reducing imports through protectionist policies leads the prices of imported goods paid by domestic consumers to rise. Economists have tried to quantify these price increases and compare them to the
Some empirical trade economists have noted that many countries are both importers and exporters of the same products. For example, India both imports and exports sports goods. How do you explain this?
The exchange rate between the U.S. dollar and the euro is floating freely—both governments do not intervene in the market for each currency. Suppose the president of the United States decides to
On January 3, 2014, the euro was trading at $1.36658, while on August 20, 2018, the euro was worth $1.15. What reasons can you give for the dollar strengthening vis-á-vis the euro?
Tania is a Costa Rican graduate student at the University of Florida. She earns a small salary as a graduate student, and she sends a portion of that income to her family in Costa Rica as a
Since their independence, developing nations have been net recipients of foreign debt from developed nations to finance their development plans. Many of the poorest countries of the world are
Suppose the following graph shows what prevailed on the foreign exchange market in 2018 with floating exchange rates.a. Name three phenomena that might shift the demand curve to the right.b. Which,
The currency of Atlantis is the wimp. In 2018, Atlantis developed a balance-of-payments deficit with the United States as a result of an unanticipated decrease in exports; U.S. citizens cut back on
During 2015 and 2016, the Mexican Peso depreciated substantially in value, and many Mexican commentators lamented a tragic occurrence and blamed then- President Enrique Peña Nieto. Why might this
What effect will each of the following events have on the current account balance if the exchange rate is fixed? If the exchange rate is floating?a. The Indian government raises taxes and income
The United States is the second largest oil importer in the world, importing 7.2 million barrels of crude oil per day as in April 2015. Go to www.inflationdata.com and look up crude oil prices for
Canada is the second-largest trading partner for the United States (just recently surpassed by China). In 2017, U.S. exports to Canada were more than $340 billion and imports from Canada totaled more
Do an Internet search and look up historical exchange rates. Find the recent exchange rates between the Indian rupee and the Chinese yuan and between the U.S. dollar and the Emirati dirham. Compare
Corruption is one of the biggest barriers to economic development. Development specialists argue that, fueled by low levels of economic development, poverty and illiteracy are the main culprits
The first of the Millennium Development Goals is to substantially cut the number of households who experience extreme hunger. One of four children younger than five years of age in the world are
As the text states, investment in human capital is an important ingredient for a nation’s economic growth. The data in the following table shows the net enrollment rates in primary school as a
Property Rights and the Rule of Law are considered essential for promoting economic growth in developing countries. How do these two features promote economic growth?
In Bangladesh, as in many other low-lying countries, river flooding often leaves large swaths of land under water for substantial portions of the year. By building embankments on the side of the
The small West African nation of Equatorial Guinea is designated as an upper middle-income country by the World Bank, with a GNI per capita of more than $7,000 when measured in U.S. dollars.
The text mentions that in the developing world, teacher absenteeism is a serious problem, averaging 19 percent across six poor countries. An article in the Journal of Economic Perspectives states
A commonly discussed problem among the global poor is the lack of a credit history. How would this hold poorer households back in terms of increasing their income and wealth?
Poverty in India is a major issue, especially in rural areas, where around two-thirds of the country’s population lives. Around half of India’s population is employed in the agriculture sector,
As we indicated in the text, the idea of opportunity cost is one of the fundamental concepts in economics. When we look at the choices people make in the area of employment and education, the role of
The following table shows the relationship between the price of airline tickets from London to New York and the number of passengers on the flight.a. Is the relationship between the price of tickets
Before we attempt to explain the workings of an economy, it is worthwhile to see the impact of the decisions and operations of individual firms. We need to understand why some companies elect to move
For each of the following situations, identify the opportunity cost involved:a. Julia decides to volunteer at Amnesty International while she is searching for a job.b. Victor decides to invest €1
Andrew “Jack” Whittaker won a $315 million Powerball jackpot in 2002. Do you think he faced any issue of scarcity?
In 2012, Colorado and Washington became the first states to legalize marijuana for recreational use, and have since been joined by a number of other states. In 2017, Colorado is reported to have
In 2016, $53 billion of frozen foods were sold in U.S. grocery stores, one quarter of it in the form of frozen dinners and entrées. In the mid-1950s, sales of frozen foods amounted to only $1
Economic growth leads the PPF to shift outward. Explain whether a decrease in the unemployment rate would similarly lead the PPF to shift outward.
In all societies, for all people, resources are limited relative to people’s demands. Scarcity of resources is the primary reason we face trade-offs. However, as an economy grows, more resources
As all of you know full well, college textbooks are expensive. At first, it may seem as though there are few substitutes available for the cash-strapped undergraduate.After all, if your professor
Tea is a popular beverage in many parts of the world, especially during rainy seasons. This is because tea, having curative properties like flavonoids and polyphenols for typical ailments like
Those of you who follow a vegetarian diet, or even those of you who are foodies, likely have had quinoa sometime within the last few months. Once eaten mostly by people in Peru and Bolivia, and a

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