Questions and Answers of Principles Of Macroeconomics

During festive seasons, such as Christmas, food prices usually rise. The 2017 Christmas was particularly expensive for Britons. The British Retail Consortium reported that Christmas dinner was 16
Suppose the demand and supply curves for rice in Japan are given by the following equations:Qd = 120 - 30 PQs = 40 + 10 Pwhere Qd = millions of tons of rice the Japanese would like to buy each year;
In the last decade, the member states of the European Union (EU) agreed to reduce tobacco consumption in their countries. This agreement was followed by a steady increase in the taxes on tobacco and,
Education policy analysts debate the best way to support low-income households to afford quality education. One strategy—the demand-side strategy—is to provide people with education vouchers,
Every year West African and Asian-Australian monsoons hit countries like Malaysia, India, Africa, and Australia, resulting in severe floods with a devastating economic impact. In the aftermath of
Illustrate the following with supply and demand curves:a. In November 2018, Edward Hopper’s iconic painting Chop Suey was sold for $91.9 million at the British auction house Christie’s.b. In
The State of Florida has a price gouging law that prohibits raising prices after a hurricane or other natural disaster. When hurricanes pass, the supply chains for many goods are disrupted. Explain
Every summer, New York City puts on free performances of Shakespeare in the Park. Tickets are distributed on a firstcome- first-serve basis at the Delacorte Theater in the park beginning at 1:00 pm
Suppose that you got up early this morning to buy a concert ticket for your favorite band. You had to log in to their website and wait in a queue for 20 minutes to access the online sale, but you
In September 2017, Uber lost its license to operate in London on grounds of lack of corporate responsibility, disregard for local rules, and noncompliance to tax laws. In 2018, the company began its
In an effort to “support” the price of raw milk and dairy products, some dairy farmers advocate a cash subsidy for every cow that is left unused. They argue that the subsidy increases the cost of
Between 2015 and 2018, the average monthly rent doubled in Budapest. On average, the real estate rent increased from 130 thousand Hungarian forint or Ft (€420) per month in 2017 to 140 thousand Ft
Illustrate the following with supply or demand curves:a. In 2017, the Motiva refinery at Port Arthur, Texas, was forced to shut down due to Hurricane Harvey. It was the largest refinery in the United
Illustrate the following with supply or demand curves:a. A situation of excess demand for medicine in China before June 1, 2015, caused by a price cap on most drugs.b. The effect of a sharp decrease
As you know, the language of economics includes a heavy dose of graphs and equations. But the underlying phenomena that economist's study are the stuff of novels as well as graphs and equations. The
Uber, the peer-to-peer ridesharing and transportation company, has a price hike mechanism called “surge pricing,” which causes the minimum fare and per-kilometer fare to increase above the normal
In 2008, an ounce of gold was worth about $750, while as of September 2011 it was around $1,800. What are the causes for such a rise in price? How has the price of gold changed since then?
Define inflation. Assume that you live in a simple economy in which only three goods are produced and traded: cashews, pecans, and almonds. Suppose that on January 1, 2018, cashews sold for $12.50
Since 2009–2010, several member states of the European Union (EU) have adopted contractionary fiscal policy measures consisting of cuts in government spending and increases in taxation. These
The Economics in Practice describes prosperity and recession as they are depicted in literature. Looking at data on GDP growth released by the Organization for Economic Cooperation and Development
Economic policies are often designed to “soften” the business cycle. These policies are meant to raise toughs and reduce the peaks. Why might economic policy be designed to reduce peaks in
Figure 5.5 shows that unemployment rate often continues to rise even after a recession has ended. Why might this occur?Figure 5.5 12 H 1970 I -Recessionary period (1974 I- 1975 I) 1975 I 1980
In which of the three market arenas is each of the following traded?a. A government bond.b. A haircut from Hershesons hair salon, London.c. The skills and expertise of an economist like Paul
According to Eurostat, a Directorate-General of the European Commission, the unemployment rate in Spain stood at 9.1 percent at the beginning of 2008, when the Great Recession began and hit its peak
Describe the state of the economy in your country, both in dynamic terms (comparing this year with the last few years) and comparative terms (with other countries of a similar income category). Is
According to a 2001 study by Berndt and Rappaport, the average price of desktop computers in the United States declined such that the 1999 price was only 0.069 percent of the 1976 price—a
Christie’s is the world’s oldest and largest auction house, dealing in fine art, antiques, jewelry, and real estate with 85 offices in over 43 countries. In 2017, seven out of the top-notch ten
The following table shows World Bank estimates for world GDP from 2005 to 2014, both in nominal and real terms (real GDP is calculated using a fixed weights method, using 2005 as a base year). How do
Which of the following transactions or activities would be counted in your country’s GDP? Explain your answers.a. A transportation company acquires a fleet of second-hand vehicles.b. The same
Goods and services that are produced and consumed within the same household are not included in GDP calculations. Economists refer to the production of these goods and services as “household
As we suggest in the text, in order to estimate GDP the government needs to know how much of the economy’s new investment is really incremental and how much just replaces worn out stock. But how
Which of the following transactions or activities would be counted in your country’s GDP? Explain your answers.a. A transportation company acquires a fleet of second-hand vehicles.b. The same
As the 20th century drew to a close, the U.S. Department of Commerce embarked on a review of its achievements. At the conclusion of this review, the Department named the development of the national
In 2014, New Zealand changed its method of calculating real GDP growth rate, substituting fixed weights with chain weights. What might explain such a change in method? Are the differences between the
GDP calculations do not include the production of illegal drugs. Why is their production not included?
The following table gives some figures from forecasts of real GDP (in 2009 dollars) and population done in 2018 According to the forecasts, approximately how much real growth will there be between
Jacques, a resident of France, goes to Germany to buy a brand new car for €15,600. He then brings the car back to France and sells it to another resident for €17,500. Which parts of this
From July 2017 to July 2018, real GDP in Germany rose about 2.1 percent. During the same period, retail sales in Germany fell 1.6 percent in real terms.
GDP and GNI are often used as indicators of economic welfare. However, there is some dissatisfaction with both as measures of a nation’s overall well-being. During the second half of the 20th
In 2017, the average real GDP growth rate of the European Union was 2.4 percent. Apart from a few outliers, the Western European member states achieved lower growth rates compared to members states
Gorgonzola is a small island nation with a simple economy that produces only six goods: sugar cane, yo-yos, rum, peanuts, harmonicas, and peanut butter. Assume that one-quarter of all the sugar cane
Go to www.bea.gov/national and look at the GDP-byindustry data for the United States, which assesses added value. Between 2005 and 2017, what are the sectors in which you can see the impact of the
The following table contains nominal per capita GDP data, in US dollars, and implicit price deflator from the years between the years 2000 and 2016 for India from the United Nations. Fill in the
Depreciation, or the amount by which an asset’s value falls in a given period, is a term primarily used for tangible assets, such as computers. For intangible assets, the term amortization is used.
During a recession, many workers with part-time jobs want full-time jobs, but cannot find them. These workers are referred to as “underemployed.” Does the existence of underemployment lead the
During the recession of 2008–2009, aggregate market work hours in the United States decreased substantially. A recent paper uses interesting new survey data to explore what the unemployed
According to the World Bank, unemployment in Australia in 2008 was at an all-time low at 4.23 percent. However, unemployment picked up after 2008, reaching 6.07 percent in 2014, while GDP growth
Throughout the recession of 2008–2009 and the slow recovery afterward, many young college graduates found themselves unemployed, many for a number of months. As painful as that experience was,
The CPI is a fixed-weight index. It compares the price of a fixed bundle of goods in one year with the price of the same bundle of goods in a base year. Calculate the price of a bundle containing 100
Suppose that you purchased a new car last year, and that you took out a five-year car loan to pay for it. Would unexpected inflation this year lead you to repay less or more for your car loan?
The calculations described in Chapter 6 on how to construct a chain-linked price index may seem complicated and a bit arcane to you. But throughout the last months of 2012 and into early 2016, as
What is the unemployment rate in your country today? Compare the national GDP to global GDP during the 2008 financial crisis. Was unemployment in your country significantly affected by the global
Since 2009, the federal minimum wage has been set at $7.25 per hour. In 2018, 29 states and Washington, DC had higher minimum wages than the federal minimum wage, the highest being $12.50 per hour in
Many European countries, such as Germany, underwent a recession after 2008. Go to the website of the Federal Reserve Bank of St. Louis (www.research.stlouisfed.org) and look up employment data for
In each of the following cases, classify the person as cyclically unemployed, structurally unemployed, frictionally unemployed, or not in the labor force. Explain your answers.a. Carl just graduated
Go to http://data.worldbank.org/ and look at the data available. What is the female labor force participation rate in your country? How does it compare to the male and female labor force
This chapter has described how saving is related to income. Economists have generally assumed that people make their saving decisions rationally, just as they make other decisions about choices in
The following data are estimates for the nation of Teleria. Real GNP = 700,000 telers Investment = 150,000 telers Savings are 20 percent of income because Telerians like to enjoy life and consume
As we will see, an unplanned increase in inventory is likely to reduce output by a larger proportion than the reduction in investment expenditure. This can have pronounced effects on the overall
The marginal propensity to consume is not equal across all members of society. The marginal propensity to consume for individuals in the lowest quintile of the U.S. income distribution is markedly
Suppose that AhoySales, Inc., a large multinational shipping company, has decided to spend €10 million on a new storage space in Munich, €45 million on new aircraft, and €5 million on
Go to www.oecd.org and look through their report on the latest GDP release. What are the main components of Australia’s GDP for the last quarter for which data is available? How does it compare to
When homeowners watch the values of their homes rise quickly in a booming real estate market, they often choose to save a smaller fraction of their income. How would this behavior affect the marginal
An interesting paradox can arise when households attempt to increase their saving. What happens if households become concerned about the future and want to save more today to be prepared for hard
Assume in country X the average marginal propensity to save is 0.2 when the aggregate income equals zero and consumption is 50. Derive the saving function and consumption function. What happens to
This chapter argues that saving and spending behavior depend in part on wealth (accumulated savings and inheritance), but our simple model does not incorporate this effect. Consider the following
According to OECD data, in 2015, household saving as a fraction of disposable income in Germany was 10.1 percent, while in Brazil it was 14.2 percent. All else equal, what does this difference tell
You are given the following data concerning Kadwan, a country located in the mountains.(1) Consumption function: C = 150 + 0.7Y (2) Investment function: I = 75 (3) AE ≡ C + I (4) AE = Ya. What is
Suppose the economy enters an unexpected recession. What would happen to the unplanned inventory of a company like General Motors? What will happen to the unplanned inventory if the economy
Households in the lowest quintile of the U.S. income distribution have larger marginal propensities to consume than households in the highest quintile. If the government wishes to reduce taxes to
Assume the following for the economy of a country:a. Consumption function: C = 50 + 0.85Ydb. Investment: I = 80c. Government spending: G = 50d. Disposable income: Yd = Y - Te. Net taxes: T = –10 +
To avoid cessation aspirations by Catalonia and the Basque, Spain has undergone massive political and fiscal decentralization over the last three decades. However, the Catalonian independence
Define saving and investment. Data for the simple economy of Newt show that in 2018, saving exceeded investment and the government is running a balanced budget. What is likely to happen? What would
You are appointed secretary of the treasury of Redana, a newly independent country. Its currency is the oban. The new nation began fiscal operations this year, and as of now has no debt. The king
An equal-sized increase in government spending and taxes may be considered expansionary or contractionary fiscal policy. What information would you need in order to make this distinction?
Suppose that in your country the marginal propensity to save equals 15 percent of disposable income. When income is null, consumption is C = 150. Further assume fixed government expenditure of G =
Excessive and cumulative public deficits might lead to an increase in the debt-to-GDP ratio, often used to measure the “weight” of public debt on the economy. In 2014, the average debt-to-GDP
Assume that in 2019, the following prevails in the Republic of Nurd:Y = 200 G = 0 C = 160 T = 0 S = 40 I (planned) =
Complete the following:a. If the tax multiplier is -1, then the marginal propensity to save is _________ the marginal propensity to consume.b. If the government spending multiplier is 8, then the
There has been considerable debate on the impact of high public debt on economic growth. The authors of This Time Is Different, economists Carmen Reinhart and Ken Rogoff claim that there exists a
In most countries commodity monies were abandoned many years ago. At one point, sea shells and other artifacts from nature were commonly used. One of the more interesting examples of a commodity
For each of the following sets of data, determine if output will need to increase, decrease, or remain the same to move the economy to equilibrium:a. Y = 1,000; C = 150 + 0.5(Y - T); I = 100; G =
Paul Krugman, a recipient of the Bank of Sweden Nobel Memorial Prize in Economics, famously depicted the economic situation in Japan in the 1990s as a “liquidity trap”, whereby interest rates
In the Republic of Doppelganger, the currency is the ditto. During 2018, the Treasury of Doppelganger sold bonds to finance the Doppelganger budget deficit. In all, the Treasury sold 80,000 ten-year
Money serves three common functions: a means of payment, a store of value, and a unit of account. How well do cryptocurrencies, such as Bitcoin, provide these functions?
Frank Capra’s 1946 classic film, It’s a Wonderful Life, stars Jimmy Stewart as George Bailey, the-salt-of-the earth head of a small town building and loan bank. At one point late in the movie, as
In the spring of 2018, China’s central bank, People’s Bank of China, announced that it would cut the reserve requirement ratio from 17 percent to 16 percent. This was expected to release ¥1,300
The Federal Reserve stopped increasing its stockpile of bonds in 2014, a policy called quantitative easing, and by 2018 it had started to let around $40 billion worth of bonds mature without
In Chekhov’s play Uncle Vanya, Alexander Vladimirovitch Serebryakov, a retired professor, but apparently not of economics, calls his household together to make an announcement.He has retired to his
In this chapter, you learned that the money multiplier is calculated as one divided by the required reserve ratio. This definition implicitly assumes that banks are not holding excess reserves. Would
Why aren’t money market accounts included in M1 alongside demand deposits? Explain in your own words using the definitions of M1 and M2.
In 2018, several European countries were faced with the problem of increasing inflation. At the same time, unemployment was low, which led to an increase in real wages. If the European Central Bank
Suppose that as a result of a grave economic crisis, a country’s citizens’ trust in the financial system in general and the central bank in particular rapidly deteriorates.Consequently, more and
Suppose in the Republic of Sasquatch that the regulation of banking rested with the Sasquatchian Congress, including the determination of the reserve ratio. The Central Bank of Sasquatch is charged
In March 2018, the word “cryptocurrency” was added to the Merriam-Webster dictionary, defined as “any form of currency that only exists digitally, that usually has no central issuing or
What are the three traditional tools central banks can use to control the interest rate via changing the money supply? Briefly describe how the central bank can use each of these tools to either
Suppose you’re studying abroad for a year and your parents have sent a lump sum payment of $12,000 to your savings account in your new country of residence. They want you to transfer equal sums
In the digital age, customer preference for conducting business online versus patronizing a traditional brick-and-mortar location has grown rapidly in many industries, including banking. According to
Do you agree or disagree with each of the following statements? Briefly explain your answers and illustrate each with supply and demand curves.a. The price of coffee rises, causing the demand for
Illustrate the following with supply and demand curves:a. With increased access to wireless technology and lighter weight, the demand for 2-in-1 laptop computers has increased substantially. 2-in-1

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