Questions and Answers of The Macro Economy

If an inflationary gap exists, what will happen to business inventories? How will producers respond?
Why wouldn’t market participants always want to buy all the output produced?
Why are declining housing permits considered a negative leading indicator?
Why did New York Governor Cuomo cut state spending in 2011–2012? How did that affect AD? (See News, p. 190)
According to the World View, why did Panasonic cut investment spending in 2009? What this a rational response?
Why would an employed consumer cut spending when other workers were being laid off?
How do households dissave? Where do they get the money to finance their extra consumption? Can everyone dissave at the same time?
Why do rich people have a higher marginal propensity to save than poor people?
What percentage of last month’s income did you spend? How much more would you spend if you won a $1,000 lottery prize? Why might your average and marginal propensities to consume differ?
Assume that the accompanying graph depicts aggregate supply and demand conditions in an economy. Full employment occurs when $5 trillion of real output is produced.(a) What is the equilibrium rate of
If the AD curve shifts to the right, what happens (“increases” or “decreases”) to(a) The equilibrium rate of output?(b) The equilibrium price level?
If the AS curve shifts to the right, what happens (“increases” or “decreases”) to(a) The equilibrium rate of output?(b) The equilibrium price level?
According to Table 8.1 (a) What was the largest percentage GDP decline since the Great Depression?(b) What was (i) The longest post-World War II recession?(ii) The shortest post-World War
According to the News on page 160,(a) By what annual rate did GDP decline in the 4th quarter of 2008?(b) At that rate, how much output would have been lost in the $14 trillion economy of 2008?(c) How
Use the following information to draw aggregate demand (AD) and aggregate supply (AS) curves on the following graph. Both curves are assumed to be straight lines.(a) At what rate of real output does
In Figure 8.8, what price level will induce people to buy all the output produced at full employment? Aggregate supply PE P* Aggregate demand Equilibrium output Full-employment output QE QF REAL
(a) How much output is unsold at the price level P1 in Figure 8.7? (b) At what price level is all output produced sold?
Recovery from the 2008-2009 recession was agonizingly slow. What factors might have constrained faster growth?
Why might rising prices stimulate short-run production but have no effect on long-run production?
How would a sudden jump in U.S. prices affect (a) imports from Mexico, (b) exports to Mexico, and (c) U.S. aggregate demand?
What might have caused real GDP to decline so dramatically in (a) 1929 and (b) 1946 (see Figure 8.3)? What caused output to increase again in each case?
What’s wrong with the classical theory of self-adjustment? Why didn’t sales and employment increase in 1929–1933 in response to declining prices and wages?
What exactly did Say mean when he said that “supply creates its own demand”?
How did the decline in U.S. home prices in 2006–2008 affect aggregate demand?
What events might prompt consumers to demand fewer goods at current prices?
If business cycles were really inevitable, what purpose would macro policy serve?
(a) What was the unemployment rate in 2013?(b) How many jobs were needed to bring the unemployment rate down to the 5 percent full-employment threshold?(c) Using Okun’s Law, how more much would
For each situation described here determine the type of unemployment:(a) Steelworkers losing their jobs due to outsourcing.(b) A college graduate waiting to accept a job that allows her to utilize
On the accompanying graph, illustrate both the unemployment rate and the real GDP growth rate for each year. (The data required for this exercise are on the inside cover of this book.)(a) In how many
In 2013, how many of the 800,000 black teenagers who participated in the labor market (a) Were unemployed?(b) Were employed?(c) Would have been employed if they had the same unemployment rate as
According to the News on page 125, in October 2009(a) How many people were in the labor force?(b) How many people were employed?
Based on the data in the previous problem, what happens (“up” or “down”) to each of the following numbers in Year 2 when 1 million jobseekers become “discouraged workers”?(a) Number of
Suppose the following data describe a nation€™s population:(a) How many people are unemployed in each year?(b) How many people are employed in each year?(c) Compute the employment rate
According to Okun’s Law, how much output (real GDP) was lost in 2009 when the nation’s unemployment rate increased from 5.8percent to 9.3 percent?Real GDP in 2009 was 14,419 billion
Between 1990 and 2000, by how much did the labor force participation rate (Figure 6.2) of(a) Men fall?(b) Women rise?
If the labor force of 155 million people is growing by 1.2 percent per year, how many new jobs have to be created each month to keep unemployment from increasing?
Between 2000 and 2013, by how much did(a) The labor force increase?(b) Total employment increase?(c) Total unemployment increase?(d) Total output (real GDP) increase?
If the unemployment rate in 2013 had been 5 percent instead of 7.4 percent, (a) how many more workers would have been employed? (b) how many fewer would have been unemployed?
According to Figure 6.1,(a) What percentage of the civilian labor force was employed?(b) What percentage of the civilian labor force was unemployed?(c) What percentage of the population was employed
How can the outsourcing of U.S. computer jobs generate new U.S. jobs in construction or retail trade?
Identify(a) Two jobs at your school that could be outsourced(b) Two jobs that would be hard to outsource.
Why do people expect inflation to heat up when the unemployment rate approaches 4 percent?
Why is frictional unemployment deemed desirable?
When the GE light-bulb plant in Virginia closed, how was the local economy affected?
Should the government replace the wages of anyone who is unemployed? How might this affect output and unemployment?
Why might job market(re)entrants have a harder time finding a job than job losers?
When the housing industry implodes, what do construction workers do?
If more teenagers stay in school longer, what happens to(a) Production possibilities?(b) Unemployment rates?
Is it possible for unemployment rates to increase at the same time that the number of employed persons is increasing? How?
According to the News on page 109, do per capita GDP data(A) Overstate or(B) Understate the rise in the U.S. well-being since 1990? (Enter A or B.)
On the accompanying graph, illustrate (A) nominal per capita GDP and (B) real per capita GDP for each year. (The necessary data appear on the endpapers of this book.)(a) By what percentage did
According to the data in Table 5.3, what is(a) Real GDP in 2008, at prices of 2007?(b) Real GDP in 2007, at prices of 2008?
Suppose all the dollar values in Problem 4 were in 2000 dollars. Use the Consumer Price Index shown on the end cover of this book to convert Problem 4’s GDP to 2013 dollars. What is the value of
(a) Compute real GDP for 2013 using average prices of 2000 as the base year. (On the insidecovers of this book you’ll find data for GDP and the GDP “price deflator” used to measure
What share of U.S. total income in 2013 consisted of(a) Wages and salaries?(b) Corporate profits?
Based on the following figures,Consumption $200
What was real per capita GDP in 1933 measured in 2013 prices?
If real GDP increases by 1 percent next year and the price level goes up by 3 percent, by how much will nominal GDP increase?
Suppose that furniture production encompasses the following stages:Stage 1: Trees are sold to lumber company.............................................$ 6,000Stage 2: Lumber is sold to furniture
Why must the value of total expenditure equal the value of total income?
Are you better off today than a year ago? How do you measure the change?
More than 4 million websites sell a combined $100 billion of pornography a year. Should these sales be included in(a) GDP(b) An index of social welfare?
Is the Index of Social Health, discussed in the Newson a better barometer of well-being than GDP? What are its relative advantages or disadvantages?
Clear-cutting a forest adds to GDP the value of the timber,but it also destroys the forest. How should we value that loss?
What jobs are likely part of the underground economy?
Why is it important to know how much output is being produced? Who uses such information?
Can we increase consumption in a given year without cutting back on either investment or government services? Under what conditions?
If gross investment is not large enough to replace the capital that depreciates in a particular year, is net investment greater or less than zero? What happens to our production possibilities?
GDP in 1981 was $2.96 trillion. It grew to $3.07 trillion in 1982, yet the quantity of output actually decreased.How is this possible?
The manuscript for this book was typed for free by a friend. Had I hired a secretary to do the same job, GDP would have been higher, even though the amount of outputwould have been identical. Why is
(a) Between 2000 and 2013, by what percentage did federal spending increase in (i) innominal terms?(ii) inreal (inflation-adjusted terms)?(b) What percentage of nominal total output (GDP) came
According to the News on page 82, what percentage of income is spent on lottery tickets by(a) A poor family with income of $16,000 per year?(b) An affluent family with income of $35,000 per
Assume the market demand for cigarettes is(a) If cigarettes are priced at $6 a pack, how many packs will smokers buy? (b) If secondhand smoke creates $2 of harm per pack, what is the optimal
Suppose the following data represent the market demand for college education:(a) If tuition is set at $3,000, how many students will enroll? Now suppose that society gets an external benefit of
If a new home can be constructed for $150,000, what is the opportunity cost of federal defense spending, measured in terms of private housing? (Assume a defense budget of $700 billion.)
(a) Assuming an 8 percent sales tax levied on all consumption, complete the following table:(b) Is the sales tax (A) progressive or (B) regressive? Percentage of Income Paid in Taxes
U.S. real gross domestic product increased from $10 trillion in 2000 to $15 trillion in 2010. During that same decade the share of manufactured goods (e.g., cars, appliances) fell from 16 percent to
If the average adult produces $20,000 of output per year, how much global output is lost as a result of adult deaths from secondhand smoke, according to the News on page 75?
Assume that the product depicted below generates external costs in consumption of $3 per unit.(a) What is the market price (market value) of the product? (b) Draw
Assume that the product depicted below generates external costs in consumption of $3 per unit.(a) What is the market price (market value) of the product?(b) Draw the social demand curve.(c) What is
Use Figure 4.3 to illustrate on the accompanying production possibilities curve the optimal mix of output (X).Does the optimal mix include (A) more or (B) fewer €œother
In Figure 4.2, by how much is the market(a) Overproducing private goods?(b) Underproducing public goods? B (Market mix) A (Optimal mix) Production possibilities PUBLIC GOODS (units per time
Which taxes hit the poor hardest—those of local, state, or federal governments?
Should the government be downsized? Which functions should be cut back? Which ones should be expanded?
How does XM Satellite deter non subscribers from listening to its transmissions? Does this make radio programming a private good or a public good?
What government actions might cause failures like points G1, G2, and G3 in Figure 4.6? Can you give examples? Production possibilities G2 X (Optimal mix) G4 M (Market mix) G3 G, ALL OTHER GOODS
What is the specific market failure justification for government spending on (a) public universities, (b) health care, (c) trash pickup,(d) highways, (e) police, and (f)
Why might Fourth of July fireworks be considered a public good? Who should pay for them? What about airport security?
Should the firefighters have saved the house in the News? What was the justification for their belated intervention?
If Israel's “Iron Dome” (World View) is so effective, why doesn't a private company produce it and sell its services directly to consumers?
Use the following data to draw supply and demand curves on the accompanying graph.(a) What is the equilibrium price?(b) If a minimum price (price floor) of $6 is set, (i) What kind of
In Figure 3.8, when a price ceiling of zero is imposed on the organ market, by how much does(a) The quantity of organs demanded increase?(b) The demand increase?(c) The quantity of organs supplied
The goal of the price cut described in the News on page 51 was to (select one– enter letter)(A) Increase supply.(B) Increase quantity supplied.(C) Increase demand.(D) Increase quantity demanded.
According to Figure 3.8,(a) How many organs are supplied at zero price?(b) How many people die in the government-regulated economy?(c) How many people die in the market driven economy?
Illustrate what’s happening to oil prices in the World View. (a) Which curve shifted?(b) Which direction did that curve shift (left or right)?(c) Did price (A) increase or (B) decrease?
As a result of the BP oil spill (News, p. 58),which of the following changed in the shrimp market (answer yes or no):(a) Demand?(b) Supply?(c) Price?
Given the following data on gasoline supply and demand,(a) What is the equilibrium price?(b) How large of a market shortage would exist if the government set a price ceiling of $1 per gallon? Price
According to the News(a) What was the initial price of a ticket to the NCAA finals?(b) At that price was there (A) an equilibrium, (B) a shortage, or (C) a surplus?
According to Figures 3.5 and 3.6, what would the new equilibrium price of tutoring services be if Carlos decided to stop tutoring? $50 45 40 35 30 25 20 15 10 0 10 20 30 40 50 60 70 80 90 100 O 10 20
According to Figure 3.3, at what price would Tom buy 12 hours of web tutoring?(a) Without a lottery win.(b) With a lottery win. $50 Demand shifts when tastes, income, other goods, or expectations

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