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Contemporary Economics 2nd Edition William A. McEachern - Solutions
Why do many consumers use cash to make small purchases and credit for larger ones?
Home and Family Explain why a couple expecting their first child will need to revise their budget.
When is a choice to buy a product a rational decision?
What are examples of several goods or services you need? What makes them different from things you only want?
Why is it important to consider your life goals when you decide how to use your current income?
Would you pay a premium for fashionable clothing without shopping around for it?
If an offer seems too good to be true, is it?
How do you decide when a sales clerk asks, “Will that be cash or charge?”
Where can you turn for information about things you want to buy before you buy them?
What’s the downside to buying an expensive sports car you can’t really afford?
How does it feel when your wallet is empty on Wednesday and you don't get paid until Friday?
Access EconNews Online at thomsonedu.com/school/econxtra. Read the article entitled “Grading the IMF and World Bank.” According to the article, the IMF and the World Bank are being pushed to provide grants instead of loans. What arguments are made for this position?
Sharpen Your Skills: Analyze Visuals Study the graph below and evaluate the information it provides about newspaper sales. How does it show which countries are still developing and which are established industrial market economies? 600 500 400- 300- 200- Daily Newspaper Circulation Per 1,000
Encourage Foreign Investment Imagine you have been put in charge of a developing country’s Office of Economic Growth. Your job includes setting policies intended to encourage foreign businesses to invest in your country and provide jobs to your people.Which of the following policies would you
Determine the Best Type of Aid Imagine that you have been given control of the USAID program. You have the power to decide how to use the funds provided to this organization by the U.S. government. Unfortunately, there is a limit to what you can spend, and there are many nations that need
Explain why it would be difficult for many of these children to be educated and become productive members of a growing economy.
Evaluate the Cost of Education In many of the world’s poorest countries, nearly 50 percent of the population is under 15 years of age. If these people are to help improve the productivity of their economies, they must be trained in modern methods of production. In 2000, just over 4 million of the
In the past decade, there has beena. a steady convergence of the world’s economies.b. little evidence that the world’s economies are converging.c. a narrowing of gaps in productivity among all the world’s countries.d. no growth in productivity by any of the world’s developing countries.
__?__ in command economies allows inefficient producers to continue to operate over long periods of time, even when their costs were greater than the income they received from products they sold.
True or False For rules to be effective in regulating production, they must be written into laws.
Which of the following is an example of physical infrastructure?a. savings used to purchase machineryb. land upon which crops are grownc. roads upon which products are movedd. good weather that helps crops to grow
Most U.S. assistance provided to developing countries in the past 40 years has been coordinated by the __?__.
Foreign assistance extended by one nation to another nation is calleda. bilateral aid.b. unilateral aid.c. multilateral aid.d. quadrilateral aid.
When skilled workers leave developing countries to find employment in industrial market countries, there is a(n) __?__.
Farms in developing countries are often inefficient for each of the following reasons excepta. they are too small to be efficient.b. they lack tools and fertilizer that could make them more efficient.c. the farmers do not work hard enough to be efficient.d. the farmers do not employ the latest
True or False Like all protection measures, export promotion reduces the gains from specialization and comparative advantage.
Countries that use tariffs or quotas to encourage the production of products that were formerly imported are following a policy of __?__.
People in developing countriesa. are all equally poor.b. vary in their degree of poverty.c. are able to support their families because their prices are low.d. are provided with free medical care by their governments.
True or False Countries with low life expectancies also have high child mortality rates.
A country’s __?__ is the average number of children born during each woman’s lifetime.
Developing countries are likely to have each of the following excepta. a limited physical infrastructure.b. few educational opportunities for students.c. easy access to high-quality medical care.d. a low savings rate.
True or False Developing countries typically have low GDP per capita, high rates of illiteracy, high unemployment rates, and rapid population growth.
Sociology You have learned that poverty in the United States is frequently found in households led by single parents. These households often include many young children. In what ways are the problems of these households in the United States similar to those faced by people who live in developing
U.S. businesses invest billions of dollars every year in developing countries.Draw a line graph showing the total accumulated value of U.S. investments in Latin America in the years from 1999 through 2004. Why do businesses make these investments? How do such investments benefit people in Latin
Some people think that investments made in developing countries by businesses from industrial market economies help the developing nations improve in terms of their production and standards of living. Others think that this investment will not lead to a material improvement in the lives of these
Will giving individuals the right to own and operate businesses without government interference guarantee a nation’s smooth transition from a command economy to a free market economy? Why or why not? What other conditions need to be created for this to take place?
Why do people who live in nations that once had government ownership and control of businesses often find it difficult to operate in a competitive market economic system?
Many developing countries have created laws to regulate the production of goods and services. Regardless of this fact, many businesses in these nations largely ignore these laws and carry out production as they choose. What do these nations need in addition to their laws? Explain your answer.
Choose a business in your community that employs many workers. How would this business be affected if suddenly there were no local roads and bridges, electric power, telephone service, water supplies, and waste removal services?Why is a country that lacks basic physical infrastructure unlikely to
History After World War II, the United States provided about $80 billion worth of assistance (in 2006 dollars) through the Marshall Plan to help the nations of Western Europe rebuild from the war. This effort was a great success. Between 1948 and the end of 1952, the nations of Western Europe
The United States provides foreign aid through grants and loans to many developing countries. The amount given, however, is not constant or equally distributed among nations or regions. Construct a multiple bar graph using data in the table to show how U.S. foreign assistance was provided between
Why do some leaders in developing countries argue that the most effective aid they could receive would be a guarantee from industrial market economies that they will purchase imports from these countries at prices that allow their producers to earn a profit?
If the United States sent every person in a developing country enough food to eat for free, what would happen to farmers in that country? Why can foreign aid be a mixed blessing?
How may developing countries be both harmed and helped when their people migrate to industrial market economies to obtain employment? Does this depend on whether a migrant is a skilled professional or an unskilled worker?
In the 1980s, many U.S. automobile manufacturers introduced smaller, more fuel-efficient cars to compete with the flood of small Japanese cars that many consumers were buying. Was this an example of import substitution? Explain your answer.
Management Assume that you own a small business in a developing country that produces aluminum cooking pots. Through hard work and thrift, you have been able to save enough money to purchase a machine that can produce cooking pots twice as fast as your business has in the past. In order to use this
There are many indicators of a nation’s economic wealth and development.One of these is the number of personal computers per 1,000 residents. In 2003, residents of the United States owned more computers than people in any other nation. In the same year, this rate was 20 computers per 1,000 people
Why are 2 percent of the U.S. work force able to produce more food than our nation needs while many developing nations cannot grow enough food for themselves even with more than half their population working in agriculture?
Many developing countries rely on parents to teach their children how to produce goods and services. How does this limit their ability to increase production?
Why is labor productivity likely to be low in nations that have rapid population growth?
Why don’t reductions in child mortality rates necessarily cause an improvement in the standard of living in developing countries?
Do you think it was easier for the United States to become an industrialized market economy in the nineteenth century than it is for developing countries today? Why or why not?
Are poorer countries catching up with the rest of the world?
Why are birth rates higher in poorer countries?
What’s the “brain drain,” and how does it affect poorer countries?
How does terrorism affect economic development?
How much does foreign aid help poorer countries?
Why are some countries poor while others are rich?
Access EconDebate Online at thomsonedu.com/school/econxtra. Read the policy debate entitled “Does the U.S. economy benefit from foreign trade?” Choose one side of this issue(for or against foreign trade) and write a paragraph arguing for that point of view.
Sharpen Your Skills: Critical Thinking Because of fears of terrorism and a general decline in economic activity in 2001, many airlines and hotels suffered from a reduced demand for their services. U.S. consumers were able to take discounted vacations either in the United States or in foreign
Impose a Barrier to Trade? Assume you are the prime minister of a poor nation that is located in another part of the world. Your government has been working to encourage economic growth by investing in new technology and training in modern skills for its workers. Although some progress has been
Determine Comparative Advantage In the table above, countries A and B are able to produce similar chairs from the resources shown. Determine which nation has a comparative advantage in this type of production. What should the other nation do to maximize the value of its production?
Determine the Price of an Imported Good You have decided to buy a new camera while traveling in Germany. The price is 275 euros. If the exchange rate for euros is 0.91 per one U.S. dollar, how many dollars will the camera cost? What other costs should you consider?
A __?__ exchange rate system was created in 1971 under which exchange rates for major currencies are determined by demand and supply.
Before 1971, many nations fixed exchange rates for their currenciesa. according to the value of crude oil.b. according to the value of a group of European currencies.c. according to the value of the Japanese yen.d. according to the value of gold.
True or False The exchange rate for the U.S.dollar relative to other currencies is set and controlled by the U.S. government.
When the unilateral transfers are combined with the balance of goods and services, the result is the __?__.
Which of the following would appear as a credit in a nation’s balance of payments?a. Businesses in that country purchase resources from other nations.b. Banks in that country lend money to people in other nations.c. Farmers in that country sell grain to firms in other countries.d. Residents of
True or False The current account keeps track of trade in goods and services, the flow of interest and profits across international borders, and the flow of foreign aid and cash gifts.
Trade of goods is measured by the merchandise trade balance that is equal toa. the value of a nation’s exports plus the value of its imports.b. the value of a nation’s imports less the value of its exports.c. the value of a nation’s exports less the value of its imports.d. the value of a
True or False When one nation sets trade restrictions, other nations are unlikely to respond with their own restrictions.
The __?__ provides the legal and institutional foundation for the world’s multilateral trading system.
Trade restrictions causea. the value of international trade to grow.b. the price of products consumers purchase to decline.c. the selection of products from which consumers may choose to grow.d. the number of people employed in export industries to decline.
A(n) __?__ is a legal limit on the amount of a product that may be imported into a nation.
True or False A tariff on imported goods will have no affect on the price of products made in that country.
A tariff that is placed on an imported good will __?__ of the taxed product.a. harm consumers and producersb. harm consumers and benefit producersc. benefit consumers and producersd. benefit consumers and harm producers
The category of U.S. imports with the greatest value isa. capital goods.b. consumer goods.c. industrial supplies.d. services.
The __?__ for a good or service is determined by world supply and world demand for the product.
The category of exports from the United States that has the greatest value isa. capital goods.b. consumer goods.c. industrial supplies.d. services.
True or False Without comparative advantage, international trade has no point.
Countries can gain from specialization and trade if that trade results in __?__ for producers in that country. That is, the producers’average costs of output decline as they expand their scale of production to meet the increased demand.
A nation could enjoy a comparative advantage as a result of possessing each of the following excepta. superior labor.b. superior resources.c. superior capital.d. superior consumers.
True or False The law of comparative advantage states that the individual or firm with the lowest opportunity cost of producing a particular good should specialize in that good.
Math Toward the end of 2000, the exchange rate was 1.10 euros to the U.S.dollar. By the summer of 2006, the euro became more valuable at 0.80 euros per dollar. Thus it took fewer euros to buy a dollar. What percentage increase was this in the value of the euro? How did this euro appreciation affect
In July 2006, exchange rates for the U.S. dollar in terms of other currencies varied widely. Suppose you were considering taking a package vacation in one of the nations listed below. Divide each price by the appropriate exchange rate to calculate the number of U.S. dollars you would have to pay
Why did the fixed exchange rate system often result in imbalances in trade among nations?
How are arbitrageurs able to change the exchange rates for different currencies?
How may the conversion by many European nations to the euro have helped U.S. firms that trade with these nations?
Why didn’t the conversion by many European nations to the euro at the start of 2002 eliminate all trade problems between nations in the euro area?
What effect would each of the following events have on the exchange rate for the U.S. dollar relative to other currencies? Explain each of your answers.• A new sports car is produced in Japan that many U.S. consumers choose to purchase.• U.S. banks offer depositors higher interest rates. This
Accounting Keeping track of a nation’s balance of payments is a major accounting problem that is never totally accurate. Determine whether each of the following would be a credit or a debit for America’s balance of payments and how each would affect the nation’s economy. Why is it difficult
When foreigners purchase or build businesses in the United States, their payments for these investments flow into this country. Construct a line graph from the data in the table that shows the growth in foreign investment in U.S.businesses from 2000 through 2004.What does your graph tell you about
Suppose the value of stocks in the United States increased, causing many foreigners to sell their U.S. stock to earn a profit. They then have their funds sent to them in their own nations. What would this do to the U.S. financial account?
If you received a gift of 100 euros from a relative who lives in Germany, how would this gift affect the U.S. balance of payments?
Why must the total value of all nations’ trade surpluses and deficits be balanced?
Would the merchandise trade balance be affected by millions of people in foreign nations choosing to pay to see a recent Hollywood action movie? Why or why not? If not, what measure of trade would this affect?
A large part of the U.S. national debt is owned by people who live in other nations. How is the U.S. current account affected by interest payments made by the federal government on its debt?
Government The creation of a free-trade organization requires a formal international treaty. Approval of such treaties often involves political issues that go beyond economic considerations. The treaty that created the European Union, for example, was debated by governments in Europe for many
Nations are most likely to impose either tariffs or quotas on trade for products for which they do not have a comparative advantage. Study the data in the table, and use it to construct a double bar graph that shows the value of U.S. imports and exports for these classifications of goods in 2004.
What problems and benefits that might result from the creation of a free-trade organization can be seen within the U.S. economy?
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