Questions and Answers of The Macro Economy

If it takes 15 farm-workers to harvest 1 ton of strawberries and 3 farmworkers to harvest 1 ton of wheat, what is the opportunity cost of 5 tons of strawberries?
Suppose a country can produce a maximum of 12,000 jumbo airliners or 2,000 aircraft carriers. (a) What is the opportunity cost of an aircraft carrier? (b) If another country offers to
Which countries are (a) the two largest export markets for the United States? (See Table 19.3.) (1) __________ (2) __________(b) The two biggest sources of imports?(1)
Has the tariff on Chinese solar panels (World View) affected you or your family? Who has been affected?
Who gains and who loses from nontariff barriers to Mexican trucks (World View, p.430)? What made President Obama offer renewed negotiations?
According to the U.S. Department of Commerce, three candy-making jobs are lost for every one job protected by import quotas in the raw sugar industry. How does this happen?
On the basis of the News, how do U.S. furniture manufacturers feel about NAFTA? How about farmers?
Domestic producers often base their demands for import protection on the fact that workers in country X are paid substandard wages. Is this a valid argument for protection?
Suppose we refused to sell goods to any country that reduced or halted its exports to us. Who would benefit and who would lose from such retaliation?
How does international trade restrain the price behavior of domestic firms?
What would be the effects of a law requiring bilateral trade balances?
Suppose a lawyer can type faster than any secretary. Should the lawyer do her own typing? Can you demonstrate the validity of your answer?
Complete the following chart by summarizing the policy prescriptions of various economic theories
The following table displays Congressional Budget Office forecasts of federal budget balances for the following fiscal years. Compare these forecasts with actual surplus and deficits for those same
According to the News on page 400, what is the implied value of the multiplier for(a) Increased unemployment benefits?(b) Infrastructure spending?
What MPC for tax cuts is assumed in the News on page 400?
According to the World View on page 395, (a) Which country had the greatest macro misery in the 2000s?(b) Which country had the fastest growth?
In 2013 the unemployment rate was 7.4 percent, far above the full employment threshold(5 percent).(a) How many jobs were lost, as a result, in a labor force of 155 million?(b) If the average worker
If the Congressional Budget Office makes its average error this year, by how much will itunderestimate next year’s budget deficit? Assume a GDP of $15 trillion.
What is the “magic wand” referred to in this chapter’s opening quotation?
What are the pros and cons of tax cuts or increased government spending asstimulative tools?
Suppose the economy is slumping into recession and needs a fiscalpolicy boost. Voters, however, are opposed to larger federal deficits. What should policymakers do?
Suppose the government proposes to cut taxes while maintaining the current level of government expenditures. To finance this deficit, it may either (a) sell bonds to the public or (b) print new money
Why is the multiplier higher for unemployment benefits than for infrastructure spending? Which occurs faster?
If policymakers have instant data on the economy’s performance, should they respond immediately? Why or why not?
Why did Fed Chairman Bernanke expect there would be no recession in 2008? Why was he wrong?
Using data from the endpapers of this book, graph real GDP and population growth since 2000, setting 2000 values to an index base of 100. Population (in thousands) Real GDP Year (in billions) 282,434
Suppose that every additional four percentage points in the investment rate (I ÷ GDP) boost economic growth by one percentage point. Assume also that all investment must be financed with consumer
According to Moore’s Law, the power of computer processing doubles every 18 months. What is the implied annual rate of productivity advance?
The real (inflation-adjusted) value of U.S. manufacturing output and related manufacturing employment was(a) How many manufacturing jobs were lost between 2000 and 2013? (b) How much did output
If output per worker is now $120,000 per year, how much will the average worker produce 5 years from now if productivity improves by(a) 2.0 percent per year? (b) 3.0 percent per year?
In 2013, approximately 59 percent of the adult population (240 million) was employed. If the employment rate increased to 62 percent, (a) How many more people would be working? (b) By how
If the labor force increases by 1.1 percent each year and productivity increases by 3.2 percent, how fast will output grow?
According to Figure 17.3, in how many years since 1990 has GDP grown(a) Faster than the population (1.1 percent growth)? (b) Slower than the population?
How much more output will the average American (U.S. population = 320 million) have a year from now if the $18 trillion GDP grows by (a) 0 percent? (b) 1 percent? (c) 3 percent?
According to the Rule of 72 (Table 17.1) and recent growth rates (World View, p. 373) how long will it be before GDP doubles in (a) The United States? (b) China? (c) Greece?
According to the Rule of 72 (Table 17.1), how many years will it take for GDP to double if the economy is growing at (a) 2 percent a year? (b) 3 percent a year?
Why do some nations grow and prosper while others stagnate?
Fertility rates in the United States have dropped so low that we are approaching zero population growth, a condition that France has maintained for decades. How will this affect our economic growth?
In 1866 Stanley Jevons predicted that economic growth would come to a halt when England ran out of coal, a doomsday that he reckoned would occur in the mid-1970s. How did we avert that projection?
Should fiscal policy encourage more consumption or more saving? Does it matter?
How might economic growth be impeded by (a) high levels of national debt and/or (b) fiscal restraint designed to reduce that national debt?
Should we grant immigration rights based on potential contributions to economic growth as Canada does?
Why don't we consume all of our current output instead of sacrificing some present consumption for investment?
How did output per U.S. worker increase so much in 2007-2011 years (World View, p. 375)? How could German productivity decline?
Suppose an economy is characterized by the AS/AD curves in the accompanying graph. A decision is then made to increase infrastructure spending by $10 billion a year. (a) Illustrate the direct
If the tax elasticity of supply is 0.18, by how much do tax rates have to be reduced to increase the labor supply by 2 percent?
If the tax elasticity of labor supply is 0.20, by what percentage will the quantity of labor supplied increase in response to (a) A $500 per person income tax rebate? (b) A 4 percent
On the following graph, plot the unemployment and inflation rates for the years 2004–2013 using the data from this book’s end covers. Is there any evidence of a Phillips curve trade-off?
According to Figure 16.6, what inflation rate would occur if the unemployment rate rose to 6 percent, with (a) PC1? (b) PC2?
By how much did the disposable income of rich people decrease as a result of the 2012hike in the top marginal tax rate from 35to 39.5 percent? Assume they have $2 trillion of gross income in the
Suppose households supply 560 billion hours of labor per year and have a tax elasticity of supply of 0.15. If the tax rate is increased by 10 percent, by how many hours will the supply of labor
Suppose taxpayers are required to pay a base tax of $50 plus 30 percent of any income over $100, as in the initial tax system B in Table 16.1. Suppose further that the taxing authority wishes to
The Economy Tomorrow section provides estimates of time spent in traffic delays. If the average worker produces $90 of output per hour, what is the opportunity cost of(a) Current traffic
Which AS curve (a, b, or c) in Figure 16.1 causes the least unemployment when fiscal or monetary restraint is pursued?
On the following graph, draw the (A) Keynesian, (B) monetarist, and (C) hybrid AS curves, all intersecting AD at point E. If AD shifts rightward, which AS curve (A,B, orC) generates(a) The biggest
Why would anyone object to President Obama’s proposed infrastructure spending?
How might the inflationary flashpoint affect policy decisions? How would you represent the flashpoint on the Phillips curve?
How would the volume and timing of capital investments be affected by(a) A permanent cut in the capital gains tax(b) A temporary 10percent tax credit?
How does each of the following infrastructure items affect aggregate supply? (a) Highways,(b) Schools,(c) Sewage systems,(d) Courts and prisons.
Ride-sharing services like Uber and Lyft offer cheaper transportation than traditional taxicabs, which are regulated by local governments. How do these services affect the AS curve? Should they be
OSHA predicted that its proposed ergonomics rules (text, p. 357-358) would have cut repetitive stress injuries by 50 percent. Was Congress correct in repealing those rules?
How is the aggregate supply curve affected by(a) Minimum wage laws(b) Social Security payroll taxes(c) Social Security retirement benefits(d) Tighter border security?
Which of the following groups are likely to have the highest tax elasticity of labor supply: (a) college students, (b) single parents, (c) primary earners in two-parent families, and (d) secondary
Why did President Obama raise the top marginal tax rate to 39.6 percent if higher tax rates reduce aggregate supply?
How did the 2011 tsunami affect Japan’s potential output (World View, p. 349)?
Why might prices rise when aggregate demand increases? What factors might influence the extent of price inflation?
Use the data on the end covers of this text to determine for 2007 and 2012(a) The interest rate on 10-year Treasury bonds. (b) The U.S. inflation rate. (c) The real rate of interest.
Use the accompanying graphs to show what happens in the economy when M increases from $300 billion to $400 billion. (a) By how much does PQ change if V is constant? (b) If aggregate supply
The following data describe market conditions:(a) At what rate of interest does the liquidity trap emerge?(b) At what rate of interest does investment demand become totally inelastic? Money supply
According to Bernanke’s rule of thumb, how much fiscal stimulus would be equivalent to a 1-point reduction in long-term interest rates?
Suppose the Fed decided to purchase $100 billion worth of government securities in the open market which are directly deposited into the banking system. What impact would this action have on the
If the nominal rate of interest is 6 percent and the real rate of interest is 3 percent, what rate of inflation is anticipated?
Suppose that an economy is characterized byM = $3 trillionV = 2.5P = 1.0(a) What is the real value of output (Q)?Now assume that the Fed increases the money supply by 10 percent and velocity remains
How much would the Fed have to reduce interest rates to get the same stimulus as President Obama’s $800 billion fiscal stimulus?
Illustrate the effects on investment of (a) An interest rate cut (point A). (b) An interest rate hike accompanied by increased sales expectations (point B).
According to Bernanke’s policy guide, what was the fiscal policy equivalent of a 0.5 percent cut in long-term interest rates?
Suppose home owners owe $6 trillion in mortgage loans. (a) If the mortgage interest rate is 5 percent, approximately how much are home owners paying in annual mortgage interest? (b) If the
In Table 15.1, what is the implied price of holding money in a checking account rather than in Treasury bonds?
What should the Fed do when prices are rising at a 3.5 percent rate and unemployment is at 7 percent?
If mortgage rates fell to 0 percent (“free money”), why might consumers still hesitate to borrow money to buy a home?
Why were banks reluctant to use their lending capacity in 2008? (See News, p. 323) What did they do with their increased reserves?
Why did the stock market “surge” when the Fed announced it intended to buy $1.2 trillion of bonds (see News, p. 321)?
Could long-term interest rates rise when short-term rates are falling? What would cause such a pattern?
When prices started doubling (see News, p. 329), why didn’t the Continental Congress print even more money so Washington’s army could continue to buy supplies? What brings an end to such
Can there be any inflation without an increase in the money supply? How?
If the Federal Reserve banks mailed everyone a brand-new $100 bill, what would happen to prices, output, and income? Illustrate your answer by using the equation of exchange.
Why do high interest rates so adversely affect the demand for housing and yet have so little influence on the demand for pizzas?
How would people “adjust their portfolios” in Figure 15.1?
What proportions of your money balance are held for transactions, precautionary, and speculative purposes? Can you think of any other purposes for holding money?
Suppose a banking system with the following balance sheet has no excess reserves. Assume that banks will make loans in the full amount of any excess reserves that they acquire and will immediately
If the GM bond described on page 304 was resold for $1,200, what would its yield be?
What was the Fed’s target for the fed funds rate in December 2008 (News, page 307)?
Suppose a $1,000 bond pays $60 per year in interest. (a) What is the contractual interest rate (“coupon rate”) on the bond? (b) If market interest rates rise to 8 percent, what price
Assume that a $1,000 bond issued in 2015 pays $100 in interest each year. What is the current yield on the bond if it can be purchased for(a) $1,200?(b) $1,000?(c) $800?
Assume the banking system contains the following amounts: Total reserves......................................$90 billion Transactions deposits......................$900 billion Cash
By how much did the following increase when China cut the reserve requirement (see World View, p. 300):(a) Excess reserves?(b) The lending capacity of the banking system?
According to the “World View” on page 300, what was the money multiplier in China(a) Before the rate cut? (b) After the rate cut?
In Problem 3, suppose the Fed wanted to stop further lending activity. To do this, what reserve requirement should the Fed impose?
Assume that the following data describe the condition of the banking system: Total reserves...............................$100 billion Transactions deposits.................$800

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