Economics For Today 5th Edition Irvin B. Tucker - Solutions

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How is price established in a pure competition?
What are the best examples of monopolistic competition in the real world?
Is it true that a monopoly firm will always make a profit? Explain why or why not.
Explain what will happen in the long run in a competitive market when some of the firms are not covering their average total costs.
Suppose you are the manager of NavGas, a major FBO, exclusively serving general aviation aircraft. Based on the estimates provided by a consultant, you know that the relevant demand and cost functions for your product are: Q = 25– 0.5P TC = 50+ 2Q a What is the FBO’s inverse demand function? b
General Engine (GE) is the only producer of new jet engines for general aviation aircraft. Demand for a single engine is P = 2,000,000 – Q, while the MCs of producing an engine are MC = 1,999Q. a What would be the monopoly price and quantity of these engines? b What economic profit would GE earn
Assume a firm is operating under perfect competition with the following total cost and demand curves: TC =100 + 0.50 × Q2 P = 50 a Find equilibrium price and quantity. b Is the firm making a profit or loss? c Is this a long-run or short-run equilibrium?
Explain how the price set by a perfectly competitive firm compares with the price under monopoly competition.
You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm’s cost function is TC = 40+ 5Q2 . a Calculate the profit-maximizing output. b Calculate the total profit.
Is it true that a monopoly can charge any price and that customers will still have to buy the product? Do you agree or disagree. Why?
Suppose the total cost function is given by: C = 50+ 4Q + 2Q2 c What is the AFC of producing five units of output? d What is the AVC of producing five units of output? e What is the ATC of producing five units of output? f What is the MC of producing five units of output? g What is AFC function? h
Consider the following demand curve: Q 0.00 12.50 25.00 37.50 50.00 62.50 P $20.0 $17.5 $15.0 $12.5 $10.0 $7.5 and the following supply curve: OP Q 62.50 50.00 37.50 25.00 12.50 0.00 20 17.5 15 12.5 10 7.5 a What is the equation of demand curve? b What is the equation of the supply curve? c Solve
Consider the market for jet fuel in a remote regional airport. The domestic demand and supply curves are given as (QS are gallons in thousands): P = 55– 3QD P = 5+ 7 QS . a What is the market equilibrium price and quantity? b If the government imposes a price ceiling of $28, what will be the
Given the following supply and demand functions, calculate consumer surplus. P = 600− Qd
Suppose an airline increases its average ticket price from JFK to CDG from $435 to $515, and consequently, the number of seats sold drops from 800 to 735: a What is the price elasticity of demand for this market? b Is the demand elastic, unitary elastic, or inelastic in this price range? c What is
Find the unemployment rate for the following employees with each level of education. Total Population In Labor Force Employed High School 35,450,000 23,042,500 21,199,100 Bachelor’s Degree 45,233,000 29,401,450 27,343,349 Post Graduate 41,150,000 26,747,500 25,945,075
Suppose there are only three goods that households consume: clothes, food, and weapon. Given the information below, find the CPI in the base year and the current year using a 100-point scale. Year Weapon Food Clothes Price Quantity Price Quantity Price Quantity Base Year $10,000 1$10 2,000 $5 1,500
If the Soviet Union was foolish to run its economy on five-year plans, why do universities, businesses, and governments in a capitalistic economy plan?
What did Adam Smith mean when he said that an “invisible hand” promotes the public interest?
Why did drivers in the former Soviet Union remove the windshield wipers and side mirrors whenever they parked their cars?
According to the theory of comparative advantage, a country should produce anda. import goods in which it has an absolute advantage.b. export goods in which it has an absolute advantage.c. import goods in which it has a comparative advantage.d. export goods in which it has a comparative
T F Other things being equal, an increase in U.S.interest rates would be likely to cause an increase in the capital account surplus or a decrease in the capital account deficit.
The value of the U.S. dollar in terms of Japanese yen has declined substantially since the mid-1980s.Which of the following would be consistent with that fact?a. The supply of yen generated by Japanese buying U.S. goods is low, while the demand for yen generated by U.S. consumers buying Japanese
A (an) prohibits the import or export of particular goods and a (an) ____________ discourages imports by making them more expensive. These trade barriers often result primarily from domestic groups that exert political pressure to gain from these barriers.
The following table summarizes the supply and the demand for euros:Using the above table:a. Graph the supply and demand curves for euros.b. Determine the equilibrium exchange rate.c. Determine what the effect of a fixed exchange rate at $.10 per euro would be.
For each of the following situations, indicate the direction of the shift in the supply curve or the demand curve for dollars, the factor causing the change, and the resulting movement of the equilibrium exchange rate for the dollar in terms of foreign currency:a. American-made cars become more
Should the United States return to the gold standard?
Is there a valid argument for trade protectionism?
How does Babe Ruth’s decision not to remain a pitcher illustrate an important principle in international trade?
Which of the following government policies is an incomes policy?a. A reduction in welfare expendituresb. The publication of a list of guidelines suggesting maximum wage and price increasesc. An increase in the money supplyd. All of the above EXHIBIT 11 AGGREGATE DEMAND AND AGGREGATE SUPPLY CURVES
Rational expectations theorists advise the federal government toa. change policy often.b. pursue stable policies.c. do the opposite of what the public expects.d. ignore future economic predictions.EXHIBIT 10 SHORT-RUN AND LONG-RUN PHILLIPS CURVES
T F The “WIN” button approach to breaking a wage-price spiral was proposed by President Ford to a joint session of Congress.
According to rational expectations theory, systematic and predictable expansionary monetary and fiscal policies used to reduce unemployment are ___________ and ______________.a. useful; can permanently reduce both unemployment and inflationb. useless; in fact are harmful because the only result is
According to adaptive expectations theory and the short-run Phillips curve, which of the following is true?a. People persistently underestimate inflation when it is both accelerating and slowing down.b. People persistently underestimate inflation when it is accelerating and overestimate inflation
“Preannounced, stable policies to achieve a low and constant money supply growth and a balanced federal budget are therefore the best way to lower the inflation rate.” This statement best illustrates thea. Keynesian theory.b. rational expectations theory.c. adaptive expectations theory.d.
Assume that people use all available information to predict the future, including future monetary and fiscal policies. Systematic and predictable macroeconomic policies can therefore be negated when businesses and workers anticipate the effects of these policies on the economy. This theory is
Based on rational expectations theory, what happens to the inflation rate and the unemployment rate in the following situations?a. Initially, the economy is operating at the natural unemployment rate of 4 percent, and the inflation rate is also 4 percent. People correctly anticipate that an
Use Exhibit 8 to answer the questions below.EXHIBIT 8a. Which points represent the natural unemployment rate?b. Which points represent an unemployment rate below the natural unemployment rate?c. Which points represent an unemployment rate above the natural unemployment rate?d. Explain points A and
Can wearing a button reduce inflation?
Can economic theory explain pop quizzes?
If the Fed is independent, why would the money supply increase before a presidential election?
Why might expansionary fiscal and monetary policies be useless in the long run?
Assume the economy is in short-run equilibrium at a real GDP above its potential real GDP. According to Keynesian theory, which of the following policies should be followed?a. The Federal Reserve should use open market operations and buy U.S. government securities.b. The Federal Reserve should
Assume the economy is operating at a real GDP above full-employment real GDP. Keynesian economists would prescribe which of the following policies?a. Noninterventionb. Fixed rulec. Contractionaryd. Expansionary
Assuming the economy is experiencing a recessionary gap, classical economists predict that:a. wages will remain fixed.b. monetary policy will sell government securities.c. higher wages will shift the short-run aggregate supply curve leftward.d. lower wages will shift the short-run aggregate supply
Classical theory advocates ___________ policy and Keynesian theory advocates __________ policy.a. nonintervention; interventionb. active; nonstabilizationc. stabilization; fixed waged. fixed rule; passive
The Monetarist transmission mechanism through which monetary policy affects the price level, real GDP, and employment depends on thea. indirect impact of changes on the interest rate.b. indirect impact of changes on profit expectations.c. direct impact of changes in fiscal policy on aggregate
In Exhibit 13, if the Fed believes the economy is at AD3, how might it engineer a decline in the price level?a. By decreasing the money supply, the interest rate falls, investment rises, and aggregate demand falls, causing the price level to fall.b. By decreasing the money supply, the interest rate
Beginning from an equilibrium at E2 in Exhibit 12, a decrease in the money supply from $600 billion to$400 billion causes people toa. sell bonds and drive the price of bonds down.b. buy bonds and drive the price of bonds up.c. buy bonds and drive the price of bonds down.d. sell bonds and drive the
Starting from an equilibrium at E1 in Exhibit 12, a rightward shift of the money supply curve from MS1 to MS2 would cause an excessa. demand for money, leading people to sell bonds.b. supply of money, leading people to buy bonds.c. supply of money, leading people to sell bonds.d. demand for money,
Which of the following is not an issue in the Keynesian-monetarist debate?a. The importance of monetary versus fiscal policyb. The importance of a change in the money supplyc. The importance of the crowding-out effectd. All of the above
Using the aggregate supply and demand model, assume the economy is in equilibrium on the intermediate portion of the aggregate supply curve. A decrease in the money supply will decrease the price level anda. lower both the interest rate and real GDP.b. raise both the interest rate and real GDP.c.
Assume the demand for money curve is stationary and the Fed increases the money supply. The result is that peoplea. increase the supply of bonds, thus driving up the interest rate.b. increase the supply of bonds, thus driving down the interest rate.c. increase the demand for bonds, thus driving up
A decrease in the interest rate, other things being equal, causes a (an)a. upward movement along the demand curve for money.b. downward movement along the demand curve for money.c. rightward shift of the demand curve for money.d. leftward shift of the demand curve for money.
T F If the planned-investment curve is relatively flat, the Keynesian conclusion is that the transmission mechanism has little effect on the economy.
Assume the demand for money curve is stationary and the Fed decreases the money supply. The result is that peoplea. increase the supply of bonds, thus driving up the interest rate.b. increase the supply of bonds, thus driving down the interest rate.c. increase the demand for bonds, thus driving up
How is modern monetarism different from Keynesianism?a. Monetarists believe that inflation is caused by excessive growth in the money supply, based on the equation of exchange, while Keynesians believe that inflation is caused by excessive growth in aggregate demand.b. Monetarists believe that the
Which of the following statements is true?a. The speculative demand for money at possible interest rates gives the demand for money curve its upward slope.b. There is an inverse relationship between the quantity of money demanded and the interest rate.c. According to the quantity theory of money,
The ___________ is an accounting identity which is the foundation of Monetarism. The equation MV PQ states that the money supply times the velocity of money is equal to the price level times real output.
“A monetarist investigator might say that the sewer flow of 6,000 gallons an hour consisted of an average of 200 gallons in the sewer at any one time with a complete turnover of the water 30 times every hour.”1 Interpret this statement using the equation of exchange.
Assume you are a Keynesian, and start at point E1 in the money market and the product market. State the likely direction of change in the price level, real GDP, and employment caused by each of the following monetary policies:a. The Fed makes an open market sale of government bonds.b. The Fed
Using the demand and supply schedule for money shown in Exhibit 10, do the following:a. Graph the demand for and the supply of money curves.b. Determine the equilibrium interest rate.c. Suppose the Fed increases the money supply by$100 billion. Show the effect in your graph, and describe the money
Suppose a bond pays annual interest of $80. Compute the interest rate per year that a bondholder can earn if the bond has a face value of $800, $1,000, and $2,000. State the conclusion drawn from your calculations.EXHIBIT 10 MONEY MARKET
What are the basic motives for the transactions demand, precautionary demand, and speculative demand? Explain how these three demands are combined in a graph to show the total demand for money.
How much money do you keep in cash or checkable deposits on a typical day? Under the following conditions, would you increase or decrease your demand for money? Also, identify whether the condition affects your transactions demand, precautionary demand, or speculative demand.a. Your salary
The Keynesians challenge the Friedman-Schwartz monetarists’ monetary policy cure for the Great Depression. Use the AD–AS model to explain the Keynesian view. (Hint: Your answer must include the investment demand curve.)
Why would a Nobel Laureate economist suggest replacing the Federal Reserve with an intelligent horse?
What is a monetary policy transmission mechanism?
Why do people wish to hold money balances?
Assume all banks in the system are identical to Best National Bank in Exhib 5.A $1,000 open market sale by the Fed woulda. expand the money supply by $1,000.b. expand the money supply by $15,000.c. contract the money supply by $1,000.d. contract the money supply by $5,000.EXHIBIT 6 BALANCE SHEET OF
The cost to a member bank of borrowing from the Federal Reserve is measured by thea. reserve requirement.b. price of securities in the open market.c. discount rate.d. yield on government bonds.EXHIBIT 5 BALANCE SHEET OF BEST NATIONAL BANK
In a simplified banking system in which all banks are subject to a 20 percent required reserve ratio, a$1,000 open market purchase by the Fed would cause the money supply toa. increase by $100.b. decrease by $200.c. decrease by $5,000.d. increase by $5,000.
In a simplified banking system in which all banks are subject to a 25 percent required reserve ratio, a$1,000 open market sale by the Fed would cause the money supply toa. increase by $1,000.b. decrease by $1,000.c. decrease by $4,000.d. increase by $4,000.
If an increase of $100 in excess reserves in a simplified banking system can lead to a total expansion in bank deposits of $400, the required reserve ratio must bea. 40 percent.b. 400 percent.c. 25 percent.d. 4 percent.e. 2.5 percent.
Assume a simplified banking system in which all banks are subject to a uniform required reserve ratio of 30 percent and checkable deposits are the only form of money. A bank that receives a new deposit of $10,000 is able to extend new loans up to a maximum ofa. $3,000.b. $7,000.c. $10,000.d.
If a bank has total deposits of $100,000, with$10,000 set aside to meet reserve requirements of the Fed, its required reserve ratio isa. $10,000.b. 10 percent.c. 0.1 percent.d. 1 percent.
T F An open market purchase by the Federal Reserve injects excess reserves into the banking system and allows the money supply to expand.
Assume all banks in the system started with balance sheets as shown in Exhibit 1 and the Fed made a$20,000 open market purchase. The result would be a (an)a. $200,000 expansion of the money supply.b. $20,000 expansion of the money supply.c. $20,000 contraction of the money supply.d. infinite
Decisions regarding purchases and sales of government securities by the Fed are made by thea. Federal Funds Committee (FFC).b. Discount Committee (DC).c. Federal Open Market Committee (FOMC).d. Federal Deposit Insurance Commission (FDIC).
Tucker National Bank operates with a 20 percent required reserve ratio. One day a depositor withdraws $500 from his or her checking account at this bank. As a result, the bank’s excess reserves:a. fall by $500.b. fall by $400.c. rise by $100.d. rise by $500.
The ____________ is the maximum change (positive or negative) in checkable deposits (money supply)due to a change in excess reserves.
Assume the required reserve ratio is 10 percent and a bank’s excess reserves are $50 million. Explain why checkable deposits resulting from new loans based on excess reserves are not likely to generate the maximum of $500 million.
Suppose the Federal Reserve’s trading desk buys$500,000 in T-bills from a securities dealer, who then deposits the Fed’s check in Best National Bank.Use a balance sheet to show the impact on the bank’s loans. Consider the money multiplier and assume the required reserve ratio is 10 percent.
Suppose it is the holiday season and you withdraw$1,000 from your account at First National Bank to purchase presents. Using a balance sheet, show the impact on this bank’s assets and liabilities. If the required reserve ratio is 20 percent, what is the impact on the bank’s loans?
Suppose you remove $1,000 from under your mattress and deposit it in First National Bank. Using a balance sheet, show the impact of your deposit on the bank’s assets and liabilities. If the required reserve ratio is 10 percent, what is the maximum amount the bank can loan from this deposit?
In what form does a bank hold its required reserves?Assume the Fed has a 20 percent required reserve ratio. What amount of checkable deposits can be supported by $10 million in required reserves?
Why is there nothing “federal”about the federal funds rate?
What are the major tools the Federal Reserve uses to control the supply of money?
Exactly how is money created in the economy? That is, how does the money supply increase?
Which of the following is in charge of the buying and selling of government securities by the Fed?a. The presidentb. Federal Open Market Committee (FOMC)c. Congressd. None of the above
Which definition of the money supply includes credit cards, or “plastic money”?a. M1b. M2c. M3d. All of the abovee. None of the above
Which of the following is not part of M1?a. Checking accountsb. Coinsc. Credit cardsd. Traveler’s checkse. Paper currency
Which of the following is part of the M2 definition of the money supply, but not part of M1?a. Traveler’s checksb. Currency held in banksc. Currency in circulationd. Money market mutual fund shares
Which of the following is a not a store of value?a. Dollarb. Money market mutual fund sharec. Checking account balanced. Credit card
Which of the following is not a characteristic of money?a. It provides a way to measure the relative value of goods and services.b. It is always backed by something of high intrinsic value, such as gold or silver.c. It is generally acceptable as a medium of exchange.d. It allows for saving and
Which of the following is a problem with barter?a. Individuals will not exchange goods.b. Individuals’ wants must coincide in order for there to be exchange.c. Goods can be exchanged, but services cannot.d. None of the above is a problem.
T F The Federal Reserve System was created by act of Congress in 1931 in an effort to end a wave of bank failures brought on by the Great Depression.
The difference between M1 and M2 is given by which of the following?a. M1 includes paper currency, coins, gold, and silver, whereas M2 does not contain gold and silver.b. M1 is made up of currency, traveler’s checks, and money in checkable accounts, whereas M2 contains M1 plus savings deposits
Decisions regarding purchases and sales of government securities by the Fed are made bya. FDIC.b. Discount Committee.c. Council of Economic Advisors.d. Federal Funds Committee.e. None of the above.
Which of the following is not an example of money used as a unit of account?a. A British pound is worth $3.00.b. Auto repairs for a small business were $3,000, and business travel was $8,000.c. A housewife has a $5,000 credit card limit.d. Gasoline sells for $1.20 per gallon, and oil is$5.00 per

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Economics For Today 5th Edition Irvin B. Tucker - Solutions

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