The Micro Economy Today 15th Edition Bradley R. Schiller, Karen Gebhardt - Solutions

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Why do low-income and high-risk borrowers receive subsidies from Fannie, Freddie, Ginnie, and FHA? Make sure you address the question of why doesn’t the government simply hand them cash every year, rather than subsidizing their purchases of houses.
What characteristics of the people in a congressional district would help explain whether the member of Congress representing that district favored or opposed the actions of Fannie Mae and Freddie Mac? Explain.
How does the FHA requirement of a low down payment affect the incentive of the borrower to default on his or her mortgage, that is, stop making the payments? What impact does this have on taxpayer liability for these loans? Explain.
There are approximately 220 million taxpayers in the United States, at least as measured by the number of tax returns filed with the IRS. But only about half of these “taxpayers” end up paying income taxes. (Some of the others pay only Social Security or Medicare taxes, while some actually
Who benefits from the actions of Fannie and Freddie?
What is special about health care that justifies so much government intervention? In other words, what problems would arise if the health care sector were completely unregulated and unsubsidized?
Currently, most U.S. residents cannot buy health care insurance coverage from a company based in another state. The new legislation leaves this restriction in place. Who benefits from this situation?Who loses?
Why don’t most current health care insurance plans cover preexisting illnesses? Who benefits from this current general rule? When health care reform legislation abolishes this rule, who will be hurt?
If the government attempts to reduce health care expenditures by lowering the fees that physicians can charge for certain procedures, what might be the result in the short run? In the long run?
What are some of the ways in which government could force individuals to undertake their own illness-preventing activities?
Is it correct to apply standard economic analysis to something as important as medical care? Why or why not?
Who is more likely to think of a cut in current taxes as being a true reduction in taxes: a young worker with several young children or an older retiree with no children? Explain.
If current taxes are reduced by way of a lump sum rebate, does the consumer response likely depend on how long it will be before taxes are actually raised to pay off the debt incurred by the government?In answering, be sure to account for the fact that the longer the delay in raising taxes, the
Some people argue that unemployment benefits (i.e., cash payments by the government to people who are unemployed) help stimulate the economy. The reasoning is that without the benefits the incomes of unemployed people would be lower, and thus their spending on goods and services would be lower.
During World War II, federal spending rose to roughly 50 percent of total spending in the economy, from its prewar level of just under 10 percent. How was this possible—that is, what spending had to decline to make it feasible for the federal share of spending to rise by a factor of five?
If the unemployment rate can be reduced by cutting taxes, why don’t we cut taxes to zero, at least during recessions?
Why is it in the interest of politicians to promote the notion that unemployment can be lowered if federal spending is increased?
The law of demand also implies that the pleasure that comes from a fall in the price of a good is always more than implied by simply multiplying the price cut by the amount of the good consumed before the change. Explain why.
One implication of the law of demand is that the pain to a consumer of a price increase is always less than suggested by multiplying the price increase by the amount of the product consumed before the price increase. Explain why.
When the price of gasoline rose to $4 from $2 per gallon, media commentators spoke as though people were headed to the poor house as a result. But here are some other facts: The average car is driven about 12,000 miles per year and gets about 24 miles per gallon. Even if people did not drive less
Explain why you will make more accurate predictions if you focus on the changing incentives people face rather than listening to what they say they are going to do.
The demand for small-engine motor scooters jumped when the price of gasoline started moving up in the summer of 2008. Make a prediction about the demand for this form of transportation in, say, two years from today. Explain your answer.
Create a list of goods (or services) whose quality has improved over time in such a way that the current prices of these commodities do not accurately reflect their real prices, even after adjusting for inflation.Now see if you can come up with a list of items whose quality has systematically
During 2009 the Fed started paying interest to banks on the reserves they held. The Fed also seemed surprised that the banks then held on to their reserves rather than lending them out. Can you suggest a policy change that would induce the banks to lend out more of their reserves? What would you do
Between 2008 and 2010 the Federal Reserve doubled the monetary base, which is enough, in the long run, to double the money supply.Given the observed long-run relationship between the money supply and the price level, how much can we expect the price level to rise, ceteris paribus?
Throughout much of 2010, the talk of deflation persisted, even though the price level was rising. It was as though people preferred to live in a world of rising, rather than falling (or even stable), prices.Can you suggest an explanation for people’s preferences that there be inflation rather
Who are the people who are most affected by unanticipated inflation?Why?
If the inflation rate is fully anticipated, what are the ways in which consumers and businesses can protect against the resulting loss of purchasing power?
When the price of a barrel of petroleum increased greatly in 2008, every news article about rising oil prices had a negative slant. When the price of petroleum dropped by more than 50 percent later in the year, the press said little, and much of what the press said was negative. Those negative
One effect of the minimum wage is to reduce employment opportunities for minority teenagers. What effect do you think this has on the long-run poverty rate among minorities? Explain.
How do government programs that provide benefits for the poor(such as food stamps and subsidized housing) change the incentives of people to be classified as “poor”? Explain.
Consider three alternative ways of helping poor people obtain better housing: (a) government-subsidized housing that costs $6,000 per year,(b) a housing voucher worth $6,000 per year toward rent on an apartment or a house, or (c) $6,000 per year in cash. Which would you prefer if you were poor? On
Which of the following possible in-kind transfers do you think raises the “true” incomes of recipients the most: (a) free golf lessons, (b) free transportation on public buses, or (c) free food? Why?
How do the “rules of the game” help determine who will be poor and who will not? ( Hint: How did the Civil Rights Act of 1964, which forbade discrimination on the basis of race, likely affect the incomes of African Americans compared to the incomes of white Americans?) Explain your answer.
Why do most modern societies try to reduce poverty? Why don’t they do so by simply passing a law that requires that everybody have the same income?
Imagine that at two different times—late 1933 (when the economy was struggling out of the depths of the Depression) and late 1939(when the economy was expanding rapidly)—there were a million people on make-work government jobs who were officially classified as “unemployed.” In which year
During the latest recession Congress increased the length of time people could receive unemployment benefits to 99 weeks(almost two years) from its previous level of 26 weeks (about six months). What impact do you think this change had on (i)the unemployment rate and (ii) the average duration of
What would happen to the number of disabled people if Social Security disability payments were made subject to income taxes?Explain.
It is believed that much of the increase in the number of people collecting SSDI has resulted from decisions by workers at the Social Security Administration (SSA) to make it easier to qualify for benefits. How are the disability rules set by SSA workers likely to change depending on (a) whether
Is it possible for the unemployment rate to be “too low”? In other words, can you conceive of a situation in which the economy would be worse off in the long run because there is not enough unemployment?
To what extent do you believe that the existence of unemployment benefits increases the duration of unemployment and consequently the unemployment rate? ( Hint: Use demand analysis and opportunity cost. )
In general, should policy makers be more concerned with high inflation or high unemployment? As you saw in Chapter 1 , the inflation rate in Zimbabwe recently got up to 230 million percent per year, at the same time that the unemployment rate hit 80 percent of the workforce. Is it possible that the
Other possible measures of the severity of a recession are (i) decline in manufacturing output, (ii) decline in retail sales, and (iii) duration of unemployment. Based on these criteria, how did the recession of 2007–2009 stack up to other post–World War II recessions?
How will financial institutions and other borrowers pay off the loans made to them by the Fed during the recession? What consequences do you think this will have for the economy?
During the recession, Congress changed the law on unemployment benefits to enable people to collect such benefits for up to 99 weeks(the limit had previously been 26 weeks). What impact do you think this change in the law had on (i) employment, (ii) the duration of unemployment, and (iii) the
What members of Congress have the most to gain by passing laws that subsidize the purchase of homes by high-risk, low-income individuals?What data would you need to test your hypothesis?
What elements of the recession of 2007–2009 have led many observers to refer to it as the Great Recession? Do you think this title is warranted? Explain, using data to back up your conclusions.
Why do we bother to declare the beginning or end of something called a “recession”?
The stock market has been called a “leading indicator” of future economic activity, while the unemployment rate has been called a “lagging indicator” of past economic activity. Combine the data from questions 3 and 4, including data on the stock market and the unemployment rate to answer
Some people have called the recession of 2007–2009 the “Great Recession.” Based on the data you think most relevant, is this latest recession worthy of being singled out as “Great”? Explain.
Return to the data you examined for question
Examine the data from the last six recessions. (Good sources for data are www.nber.org/cycles/recessions.html , www.bea.gov , and www.globalindicators.org .) Rank them on the basis of both duration and severity. The first is easy; the second is more difficult: Is it possible that some
Do you think that voters care more about whether the NBER says the economy is in a state of recession or whether they and their friends and family members are currently employed in good jobs?Why do politicians make a big deal over whether the economy is“officially” in a recession or an
Why is it important, both for the political process and for our understanding of the economy, for the NBER to resist the temptation to change its definition of a recession to fit the latest political pressures or economic fads?
Are nations with large underground economies likely to be happier or unhappier than one would expect, given their measured levels of real per capita GDP? Explain.
Over the past 40 years, the levels of water and air pollution in the United States have declined substantially in the United States.Would these environmental improvements likely be reflected in reported measures of well-being or happiness? Would they likely be reflected in GDP?
Over the past 40 years, growing numbers of women have entered the labor force, becoming employed outside the home. As a result, many women now hire people to do household tasks (such as childcare and house cleaning) that they used to do themselves. What impact does this “hiring out” of
Would you categorize each of the following expenditures as intermediate goods, regrettable necessities, or consumption goods:(a) a spare tire, (b) surgery to repair a badly broken arm, (c) a Botox injection to remove forehead wrinkles, (d) voice lessons, and(e) expenditures on your college
Why is it important to carefully distinguish between GDP and real GDP?
How does one determine what is a final good or service and what is a regrettable necessity or an intermediate good? In other words, where does one draw the line?
How does the structure of a country’s tax system affect who decides to immigrate into the nation or emigrate out of the nation? Contrast, for example, nations A and B. Assume that nation A applies a 20 percent tax rate on every dollar of income earned by an individual(i.e., 20 cents in taxes must
Let’s suppose that income tax rates rise significantly over the next ten years. How can people at all levels of income react over time, not just immediately after taxes are raised? How will the size of the response differ, say, a year after the rise in tax rates compared to a week after the
Fifty years ago in America, high-income people paid 91 cents in federal personal income taxes on each additional dollar of income they earned. If you found yourself paying such a 91 marginal tax rate, how great would be your incentive to find legal loopholes to reduce your federal tax liabilities?
Explain why the incentives of individuals and businesses are chiefly affected by changes in marginal tax rates —that is, the percentage of the next income they earn that they must pay in taxes.
Many European countries have imposed a wealth tax. It is typically based on everything a person owns minus everything the person owes (the difference between what is owned and what is owed is called net worth ). Put yourself in the shoes of an individual in a country that has just decided to impose
President Obama campaigned on the theme that he would reduce taxes for 95 percent of working Americans. Why would such a campaign promise be difficult to put into practice?
According to the CIA Factbook, the Democratic Republic of the Congo is the poorest nation in the world. How do you suppose this country ranks in terms of its degree of capitalism? Test your prediction by going to the Fraser Institute’s Web site( www.fraserinstitute.org ) and seeing where the
Over the past few years, the United States has slipped downward in the rankings of capitalist countries. As you read the rest of this book, compile a list of the reasons you think the U.S. ranking has dropped.
If capitalism is so good at creating economic prosperity, why don’t more nations try it?
In light of the analysis in Chapter 1 and the information presented in this chapter, what are some ways that people in developed nations might help people in developing nations achieve higher income levels? Explain, giving specific examples, if you can.
How would a political system in which there is the rule of law(i.e., in which the same rules apply to everyone) serve to protect people at the bottom of the income distribution most strongly?
The income measures discussed in this chapter do not include noncash benefits that are often available to low-income individuals, such as food stamps and Medicaid. Do you think such noncash benefits are more likely to be made available to poor people in a rich nation or in a poor nation? Explain
What is the difference between outsourcing and international trade?
The automaker BMW, whose corporate headquarters is in Germany, makes its X-series sport utility vehicles in South Carolina, and sells many of them in China. Who is outsourcing what to whom? Explain.
Some companies that outsourced call centers during the 1990s have returned these centers to North America over the past decade. Who has gained and who has lost as a result of the return of the call centers to this continent? Explain.
International Business Machines Corporation (IBM) recently stated that it expected to save almost $170 million annually by shifting several thousand high-paying programming jobs overseas. Explain why IBM would undertake this move. Then explain the short-run and long-run effects of this outsourcing.
When BMW decides to build a plant in the United States, who gains and who loses?
What, if any, differences exist between competition among service workers across the fifty states and competition among service workers across nations?
When you voluntarily exchange your labor services with someone else who pays you “on the books,” can you be made worse off compared to not working at all? What if you are paid “off the books?”
Is it possible that you might prefer to be paid “on the books,” while your employer would prefer paying you “off the books?” If so, how would such a disagreement be settled between you?
Why would you predict that a much larger share of total economic activity due to the underground economy will exist when a country’s government is very corrupt? What type of activities would you expect would be part of the underground economy?
Is there a difference between becoming part of the underground economy because the activities in which you are dealing are illegal and simply trying to reduce the share of income that you pay in taxes? If so, what is that difference?
How do employers respond to labor laws that make it difficult or costly to fire incompetent workers? Do such laws actually yield higher employment levels?
What is the relevance of marginal income tax rates when seeking to understand the extent of a country’s underground economy?
Louisiana and Quebec both have systems of local law (state and provincial, respectively) that are heavily influenced by their common French heritage, which includes civil law. What do you predict is true about per capita income in Louisiana compared to the other U.S. states, and per capita income
Most international attempts to aid people living in low-income nations have come in one of two forms: (i) gifts of consumer goods (such as food), and (ii) assistance in constructing or obtaining capital goods (such as tractors or dams or roads).Based on what you have learned in this chapter, how
Go to a source such as the CIA factbook or the World Bank and collect per capita income and population data for each of the nations listed in Table 1-1 . Compare the average per capita income of the common law with the average per capita income of the civil law countries. Based on the discussion in
Going to college in the United States raises average lifetime earnings by about two-thirds, given our current political and economic institutions.But suppose that ownership of the added income generated by your college education suddenly became uncertain. Specifically, suppose a law was passed in
In light of your answer to question 1, how do you explain the fact that in some countries there is widespread political support for government policies that expropriate resources from some groups for the purpose of handing them out to other groups?
Consider two countries, A and B, and suppose that both have identical physical endowments of, say, iron ore. But in country A, any profits that are made from mining the ore are subject to confiscation by the government, while in country B, there is no such risk. How does the risk of expropriation
If you had only $17 to spend per day (the U.S. poverty threshold), how would you spend it? What if you had only $1.90 a day (the World Bank “extreme poverty”threshold)? LO23-1
Why should Americans care about extreme poverty in Haiti, Ethiopia, or Bangladesh? LO23-2
What factors impede or promote poverty reduction.
How many people in the world are poor.
How U.S. and global poverty are defined.
The Economy Tomorrow: Show graphically the impact on the South Korean currency (won)when the Thai baht was devalued
As shown in Table 22.1, in 2016 the United States was running a current account deficit. Would the following events increase or decrease the current account deficit?(a) U.S. companies, the largest investors in Switzerland, see even more promising investment opportunities there.(b) The Netherlands,
The following schedules summarize the supply and demand for trifflings, the national currency of Tricoli:Triffling price(U.S. dollars per triffling) 0 $4 $8 $12 $16 $20 $24 Quantity demanded (per year) 40 38 36 34 32 30 28 Quantity supplied (per year) 1 11 21 31 41 51 61 Use these schedules for the
According to World View “Foreign Exchange Rates,” what was the peso price of a euro in March 2017?
Between 1990 and 2000, by how much did the dollar appreciate (Figure 22.3)?

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The Micro Economy Today 15th Edition Bradley R. Schiller, Karen Gebhardt - Solutions

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