Questions and Answers of The Macro Economy

In Table 14.1, what would the following values be if the required reserve ratio fell from 0.20 to 0.10? (a) Total deposits(b) Total reserves(c) Required reserves(d) Excess reserves(e) Money
What is the money multiplier when the reserve requirement is:(a) 0.05?(b) 0.10?(a) 0.125?(b) 0.111?
What are the economic risks of aggressive Fed open market purchases?
If bondholders expect the Fed to raise interest rates, what action might they take? How would this affect the Fed’s goal?
In 2008 the Fed reduced both the discount and federal fund rates dramatically. But bank loan volume didn’t increase. What considerations might have constrained the market’s response to Fed policy?
In early 2009, short-term bond yields in the United States fell to less than 0.5 percent. Yet relatively few people moved their assets out of bonds into banks. How might this failure of openmarket
Why did bond prices decline at the February 2009 auction?
Why might the Fed want to decrease the money supply?
Why did China raise reserve requirements in 2014? How did they expect consumers and businesses to respond?
What are the current price and yield of 10-year U.S. Treasury bonds? Of General Motors bonds? (Check the financial section of your daily newspaper.) What accounts for the difference?
Suppose that a lottery winner deposits $12 million in cash into her transactions account at the Bank of America (B of A). Assume a reserve requirement of 20 percent, no loans, and no excess reserves
In Table 13.2, how much unused lending capacity does Eternal Savings have at step 4?
(a) When the reserve requirement changes, which of the following will change for an individual bank? (A = change, B = no change.)Transactions depositsTotal reservesRequired reservesExcess
In December 1994 a man in Ohio decided to deposit all of the 8 million pennies he’d been saving for nearly 65 years. (His deposit weighed over 48,000 pounds!) With a reserve requirement of 5
What is the value of the money multiplier when the required reserve ratio is(a) 5 percent? (b) 10 percent?
Suppose a bank€™s balance sheet looks like this:(a) What is the required reserve ratio?(b) How much money can this bank still lend? Assets Liabilities Reserves Deposits $600 $ 40 Excess
Suppose a bank€™s balance sheet looks as follows:and banks are required to hold reserves equal to 10 percent of deposits. (a) How much excess reserves does the bank hold?(b) How much
If a bank has total deposits of $7,000 and reserves of $1,400.(a) What is its current reserve ratio?(b) How large is its loan portfolio (outstanding loans)?
If you cash a $100 traveler’s check at a bank, by how much do(es)(a) M1 change?(b) M2 change?(c) bank reserves change?If you deposit the traveler’s check in your bank account, by how much
What makes bitcoins an unlikely form of money?
If all banks heeded Shakespeare's admonition "Neither a borrower nor a lender be,” what would happen to the circular flow?
If people never withdrew cash from banks, how much money could the banking system potentially create? Could this really happen? What might limit deposit creation in this case?
Does the fact that your bank keeps only a fraction of your account balance in reserve make you uncomfortable? Why don’t people rush to the bank and retrieve their money? What would happen if they
Why must a bank’s assets always equal its liabilities?
What percentage of your monthly bills do you pay with (a) cash, (b) check, (c) credit card, and (d) automatic transfers? How do you pay off the credit card balance? How does your use of cash compare
How are an economy’s production possibilities affected when workers are paid in goods rather than in cash? (World View, p. 277, about bartering in Russia.)
In what respects are modern forms of money superior to the colonial use of wampum as money?
Why are checking account balances, but not credit cards, regarded as “money”?
Use the accompanying graph to illustrate changes in the structural and total deficits for fiscal years 2007–2013.(a) In how many years do the two deficits change in different directions?(b) In how
(a) What percentage of U.S. debt do foreigners hold? (See Figure 12.4.)(b) If the interest rate on U.S. Treasury debt is 4 percent, how much interest do foreigners collect each year from the U.S.
In Figure 12.5, what is the opportunity cost of increasing government spending from g1to g2if(a) No external financing is available? (b) Complete external financing is available?
(a) According to the News on page 258, how much fiscal restraint occurred between 1931 and 1933?(b) By how much did this policy reduce aggregate demand if the MPC was 0.80?
Suppose a government has no debt and a balanced budget. Suddenly it decides to spend $4 trillion while raising only $3 trillion worth of taxes.(a) What will be the government’s deficit?(b) If the
According to Table 12.3, the federal deficit fell from $1,300 billion in 2011 to $845 billion in 2013. How much of this $455 billion deficit reduction was due to (a) The growing economy?(b)
Use Table 12.3 to determine how much fiscal stimulus or restraint occurred between (a) 2007 and 2008. (b) 2012 and 2013.
Between 2000 and 2013, in how many years was fiscal restraint initiated?
What would happen to the budget deficit if the(a) GDP growth rate jumped from 2 percent to 4 percent?(b) Inflation rate increased by two percentage points?
What country had the largest budget deficit (as a percentage of GDP) in 2013?
Since 1980, in how many years has the federal budget had a surplus?
From 2008 to 2010, by how much did each of the following change? (a) Tax revenue.(b) Government spending.(c) Budget deficit.
Which of the following options do you favor for resolving future Social Security deficits? What are the advantages and disadvantages of each option? (a) cutting Social Security benefits, (b) raising
By how much did defense spending increase in 1940 to 1944 crowd out?
A constitutional amendment has been proposed that would require Congress to balance the budget each year. Is it possible to balance the budget every year? Is it desirable?
Can you forecast next year’s deficit without knowing how fast GDP will grow?
When are larger deficits desirable?
Who paid for the Revolutionary War? Did the deficit financing initiated by the Continental Congress pass the cost of the war on to future generations?
Why are people worried more about federal budget deficits than climate change?
Use the following data to answer the following questions:(a) What is equilibrium GDP?(b) If full employment occurs at a real output level of $910, how large is the real GDP gap?(c) If AD increases
If the marginal propensity to consume was 0.8, how large would each of the following need to be in order to restore a full-employment equilibrium in Figure 11.7?(a) A tax increase.(b) A government
Suppose that an increase in income transfers rather than government spending was the preferred policy for stimulating the economy depicted in Figure 11.5. By how much would transfers have to increase
According to the News on page 234, how much of a cumulative impact on spending could be expected from President Obama’s(a) Increase in government spending?(b) Tax cuts?Assume an MPC of 0.8. (Please
According to the CBO’s low estimates (Table 11.2), how many jobs were created by the 2009 fiscal stimulus package in(a) 2009?(b) 2010?(c) 2011?(d) 2012?(e) 2013?
(a) According to the News on page 237, how much more did the average household spend on appliances, electronics, and furniture when it received the 2008 tax rebate?(b) If all 110 million households
If the AD shortfall is $600 billion and the MPC is 0.8,(a) How large is the desired fiscal stimulus?(b) How largean income tax cut is needed?(c) Alternatively, how much more government spending would
On the accompanying graph, identify and label(a) Macro equilibrium.(b) The real GDP gap.(c) The AD excess or AD shortfall.(d) The new equilibrium that would occur with appropriate fiscal policy.
Suppose the consumption function isC = $500 billion + 0.9Yand the government wants to stimulate the economy. By how much will aggregate demand at current prices shift initially (before multiplier
In the tax cut example on pages 235–37,(a) How big is the tax cut?(b) By how much does consumer saving increase initially?(c) How large is the initial spending injection?(d) By how much does
If fiscal stimulus can close a GDP gap, why not do so immediately
How did the 2009 fiscal stimulus create more jobs in 2013?
When Barack Obama was campaigning for president in 2008, he proposed more government spending paid for with higher taxes on “the rich.” What impact would those options have on macro equilibrium?
Why do critics charge that fiscal policy has a “big-government bias”?
How quickly should Congress act to remedy an AD excess or AD shortfall? What are the risks of quick fiscal policy responses?
In Figure 11.4, why did inflation accelerate when the economy was still so far short of full employment? 9.8 9.0 Feb Nov Dec Jan Mar 2010 2011 1.0 INFLATION RATE UNEMPLOYMENT RATE
How does the slope of the AS curve affect the size of the AD shortfall? If the AS curve were horizontal, how large would the AD shortfall be in Figure 11.3?
Will consumers always spend the same percentage of any tax cut? Why might they spend more or less than usual?
Why are the AD shortfall and AD excess larger than their respective GDP gaps? Are they ever the same size as the GDP gap?
What happens to aggregate demand when transfer payments and the taxes to pay them both rise by the same amount?
How did consumers spend their 2008 tax cut (News, p. 237)? Does it matter what they spend it on? Explain.
How can you tell if the economy is in equilibrium? How could you estimate the GDP gap?
The accompanying graph depicts a macro equilibrium. Answer the questions based on the information in the graph.(a) What is the equilibrium rate of GDP?(b) If full-employment real GDP is
How large is the inflationary GDP gap in Figure 10.9?
According to World Bank estimates (see p. 221), by how much did consumer spending decline as a result of the 40 percent drop in the index of consumer confidence between 2007 and 2009 (Figure 10.10)?
If Korean exports to the United States decline by $15 billion (World View, p. 216) by how much will cumulative Korean spending drop if their MPC is 0.75?
By how much did annualized consumption decline in November 2008 when GDP was $14 trillion?
Illustrate in the following graph the impact of a sudden decline in consumer confidence that reduces autonomous consumption by $100 billion at the price level PF. Assume MPC = 0.5. (a) What is
Suppose that investment demand increases by $300 billion in a closed and private economy (no government or foreign trade). Assume further that households have a marginal propensity to consume of 75
If the marginal propensity to consume is 0.9, (a) What is the value of the multiplier?(b) What is the marginal propensity to save?
If the consumption function is C = $400 billion + 0.8Y,(a) What is the MPC?(b) How large is autonomous C?(c) How much do consumers spend with incomes of $4 trillion? (d) How much do they save?
From 1990 to 2013, in how many years did(a) Real consumption decline?(b) Real investment decline?(c) Real government spending increase at least $100 billion?
What causes consumer confidence to change?
Will the price level always rise when AD increases? Why or why not?
What is the “ripple effect” in the News on page 215?
Why might “belt-tightening” by consumers in a recession be unwelcome?
How high did economists expect the unemployment rate to rise in 2009?How far did it rise (see Figure 6.6 or Table 8.1)? What explains the difference?
What forces might turn an economic bust into an economic boom? What forces might put an end to the boom?
How might construction industry job losses affect incomes in the clothing and travel industries?
How can equilibrium output exceed full-employment output (as in Figure 10.9)? AS AC = $300 billion AI = $100 billion New spending causes sequential AD shifts and inflationary pressure. Po ADE - AD5
When unwanted inventories pile up in retail stores, how is production affected? What are the steps in this process?
Why wouldn’t investment and saving flows at full employment always be equal?
How might declining prices affect a firm’s decision to borrow and invest?
On the following graph, draw the AD and AS curves with these data:What is the equilibrium(i) Real output level?(ii) Price level?Suppose net exports decline by $100 at all price levels, but
Complete the following table: (aggregate demand calculations appear in red) (a) What is the level of equilibrium GDP?(b) What is the equilibrium price level?(c) If full employment occurs at real
What was the range, in absolute percentage points, of the variation in quarterly growth rates between 2005 and 2008 of(a) Consumer spending?(b) Investment spending?
Illustrate on the following graphs the impact of Panasonic’s changed investment plans.
If every $1,000 increase in the real price of homes adds 7 cents to annual consumer spending (the “wealth effect”), by how much did consumption decline when home prices fell by $2 trillion in
Illustrate on the following two graphs the impact of increased consumer confidence.What direction did(a) The consumption function shift?(b) AD shift? C = a + bY 45° DISPOSABLE INCOME (OUTPUT)
On the accompanying graph, draw the consumption function C = $300 + 0.50YD.(a) At what level of income do households begin to save? Designate that point on the graph with the letter A. (b) By
According to the News on page 184, by how much did (a) Disposable income increase?(b) Consumption increase?(c) Savings increase?(d) What is the MPC?(e) What is the MPS?(f) What is the APC?
From the information on pages 179 –181, in 2013 what was(a) The APC?(b) The APS?(c) The MPC?(d) The MPS?
How might a “perfect” macro equilibrium (Figure 9.10a) be affected by(a) A stock market crash,(b) Rising home prices,(c) A recession in Canada,(d) A spike in oil prices?

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