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economics today the macro view

Economics Today The Macro View 16th Edition Roger LeRoy Miller - Solutions

For the currency you chose in part 1, keep track of its value relative to the dollar over the course of several days. Based on your tabulations, try to predict the value of the currency at the end of
Choose a currency from the many available in the drop-down menu. How many dollars does it take to purchase a unit of the currency in the spot foreign exchange market?
Suppose that the People’s Bank of China wishes to peg the rate of exchange of its currency, the yuan, in terms of the U.S. dollar. In each of the following situations, should it add to or subtract
Suppose that under the Bretton Woods system, the dollar is pegged to gold at a rate of $35 per ounce and the pound sterling is pegged to the dollar at a rate of $2 £1. If the dollar is devalued
Suppose that under a gold standard, the U.S. dollar is pegged to gold at a rate of $35 per ounce and the pound sterling is pegged to gold at a rate of£17.50 per ounce. Explain how the gold standard
Briefly explain the differences between a flexible exchange rate system and a fixed exchange rate system.
Suppose that signs of an improvement in the Japanese economy lead international investors to resume lending to the Japanese government and businesses. Policymakers, however, are worried about how
On Wednesday, the exchange rate between the euro and the U.S. dollar was $1.20 per euro, and the exchange rate between the Canadian dollar and the U.S. dollar was U.S. $1.05 per Canadian dollar. What
On Wednesday, the exchange rate between the Japanese yen and the U.S. dollar was $0.010 per yen. On Thursday, it was $0.009. Did the dollar appreciate or depreciate against the yen? By how much,
Suppose that the following two events take place in the market for China’s currency, the yuan: U.S.parents are more willing than before to buy action figures and other Chinese toy exports, and
Explain how the following events would affect the market for South Africa’s currency, the rand, assuming a floating exchange rate.a. A rise in U.S. inflation causes many U.S. residents to seek to
Explain how the following events would affect the market for the Mexican peso, assuming a floating exchange rate.a. Improvements in Mexican production technology yield superior guitars, and many
Identify whether each of the following items creates a surplus item or a deficit item in the current account of the U.S. balance of payments.a. A Central European company sells products to a U.S.
Over the course of a year, a nation tracked its foreign transactions and arrived at the following amounts:What are this nation’s balance of trade, current account balance, and capital account
Does the WTO actually “punish” a country it finds has broken international trading agreements? If not, who does impose sanctions?
As the article discusses, settling trade disputes often takes at least a year. What aspects of the WTO’s dispute settlement process take the longest time?
Critics of the North American Free Trade Agreement (NAFTA) suggest that much of the increase in exports from Mexico to the United States now involves goods that Mexico otherwise would have exported
Refer to your answers to Problem 32-7 when answering the following questions.a. Which one of the following rates of exchange of modems for flash memory drives will be acceptable to both nations: (i)
Consider the above table and answer the questions that follow.a. What is the opportunity cost of producing modems in South Shore? Of producing flash memory drives in South Shore?b. What is the
Suppose that the two nations in Problem 32-4 decide to specialize in producing the good for which they have a comparative advantage and to engage in trade. Will residents of both nations agree to
Based on your answers to Problem 32-4, which nation has a comparative advantage in producing digital TVs? Which nation has a comparative advantage in producing bottles of wine?
Residents of the nation of Border Kingdom can forgo production of digital televisions and utilize all available resources to produce 300 bottles of high-quality wine per hour. Alternatively, they can
Suppose that the two nations in Problems 32-1 and 32-2 choose to specialize in producing the goods for which they have a comparative advantage. They agree to trade at a rate of exchange of 1 pastry
To answer the questions below, consider the following table for the neighboring nations of Northland and West Coast. The table lists maximum feasible hourly rates of production of pastries if no
Click on Lending by the IMF, and then click on Main Lending Facilities. Which IMF lending “facilities”appear to be aimed at maintaining stability of international flows of funds? Which appear to
Click on Surveillance. Based on this discussion, what type of asymmetric information problem does IMF surveillance attempt to address?
Click on the link on the Web page titled Our Work.Which of the IMF’s purposes are most directly related to promoting a higher rate of global economic growth? Are any related more indirectly to this
Answer the following questions concerning proposals to reform long-term development lending programs currently offered by the IMF and World Bank.a. Why might the World Bank face moral hazard problems
For each of the following situations, explain which of the policy issues discussed in this chapter is associated with the stance the institution has taken.a. The IMF extends a long-term loan to a
For each of the following situations, explain which of the policy issues discussed in this chapter is associated with the stance the institution has taken.a. The World Bank offers to make a loan to a
Identify which of the following situations currently faced by international investors are examples of adverse selection and which are examples of moral hazard.a. Among the governments of several
Last year, $100 million in outstanding bank loans to a developing nation’s government were not renewed, and the developing nation’s government paid off $50 million in maturing government bonds
During the past year, several large banks extended$200 million in loans to the government and several firms in a developing nation. International investors also purchased $150 million in bonds and
Assume that each $1 billion in investment in capital goods generates 0.3 percentage point of the average percentage rate of growth of per capita real GDP, given the nation’s labor resources. Firms
Suppose that every $500 billion of dead capital reduces the average rate of growth in worldwide per capita real GDP by 0.1 percentage point. If there is $10 trillion in dead capital in the world, by
Consider the estimates that the World Bank has assembled for the following nations:Rank the nations in order starting with the one you would expect to have the highest rate of economic growth, other
A developing country has determined that each additional $1 billion of investment in capital goods adds 0.01 percentage point to its long-run average annual rate of growth of per capita real GDP.a.
The annual rate of growth of real GDP in a developing nation is 0.3 percent. Initially, the country’s population was stable from year to year. Recently, however, a significant increase in the
A country’s real GDP is growing at an annual rate of 3.1 percent, and the current rate of growth of per capita real GDP is 0.3 percent. What is the population growth rate in this nation?
Is it possible that governments could overcome adverse selection difficulties and select worthy entrepreneurs to support yet still experience moral hazard problems?
How might differences in incentives faced by private investors and government bureaucrats lead to diverging decisions regarding which types of entrepreneurial projects merit support?
Back up to Economy at a Glance, and now click on the“back data” box next to Unemployment Rate. Was the unemployment rate lower or higher before 2008? Do you note any appearance of an inverse
Click on the “back data” box next to Consumer Price Index. Has the U.S. economy consistently experienced inflation since 2008? Was there consistently inflation prior to 2008?
The policy relevance of new Keynesian inflation dynamics based on the theory of small menu costs and sticky prices depends on the exploitability of the implied relationship between inflation and real
Normally, when aggregate demand increases, firms find it more profitable to raise prices than to leave prices unchanged. The idea behind the small-menu-cost explanation for price stickiness is that
The real-business-cycle approach attributes even short-run increases in real GDP largely to aggregate supply shocks. Rightward shifts in aggregate supply tend to push down the equilibrium price
Both the traditional Keynesian theory discussed in Chapter 11 and the new Keynesian theory considered in this chapter indicate that the short-run aggregate supply curve is horizontal.a. In terms of
Consider the diagram below, which is drawn under the assumption that the new Keynesian sticky-price theory of aggregate supply applies.Assume that at present, the economy is in longrun equilibrium at
Evaluate the following statement: “In an important sense, the term policy irrelevance proposition is misleading because even if the rational expectations hypothesis is valid, economic policy
Suppose that economists were able to use U.S.economic data to demonstrate that the rational expectations hypothesis is true. Would this be sufficient to demonstrate the validity of the policy
People called “Fed watchers” earn their living by trying to forecast what policies the Federal Reserve will implement within the next few weeks and months. Suppose that Fed watchers discover that
Suppose that more unemployed people who are classified as part of frictional unemployment decide to stop looking for work and start their own businesses instead. What is likely to happen to each of
When will the natural rate of unemployment and the NAIRU differ? When will they be the same?
What distinguishes the nonaccelerating inflation rate of unemployment (NAIRU) from the natural rate of unemployment? (Hint: Which is easier to quantify?)
The natural rate of unemployment depends on factors that affect the behavior of both workers and firms. Make lists of possible factors affecting workers and firms that you believe are likely to
Suppose that the government altered the computation of the unemployment rate by including people in the military as part of the labor force.a. How would this affect the actual unemployment rate?b.
Furthermore, every $20 billion increase in the money supply brings about a 0.1-percentagepoint reduction in the equilibrium interest rate.Use this information to answer the following questions under
Based on the report, what are the Fed’s current monetary policy goals?E-1. Suppose that each 0.1-percentage-point decrease in the equilibrium interest rate induces a $10 billion increase in real
According to the report, what economic events were most important in shaping recent monetary policy?
Explain the concept of the neutral federal funds rate in your own words, and then answer the following questions.a. Suppose that the Federal Open Market Committee’s current target for the federal
Consider the following diagram of the market for bank reserves, in which the current equilibrium value of the federal funds rate, 2.50 percent, also corresponds to the Federal Open Market
Imagine working at the Trading Desk at the New York Fed. Explain whether you would conduct open market purchases or sales in response to each of the following events. Justify your recommendation.a.
Suppose that the Federal Reserve wishes to keep the nominal interest rate at a target level of 4 percent. Draw a money supply and demand diagram in which the current equilibrium interest rate is 4
Suppose that the Fed implements each of the policy changes you discussed in Problem 16-10.Now explain how the net export effect resulting from these monetary policy actions will reinforce their
Assuming that the Fed judges inflation to be the most significant problem in the economy and that it wishes to employ all of its policy instruments except interest on reserves, what should the Fed do
Suppose that the money supply increases by $100 billion and real GDP and the income velocity remain unchanged.a. According to the quantity theory of money and prices, what is the new price level
Consider the data in Problem
Consider the following data: The money supply is $1 trillion, the price level equals 2, and real GDP is $5 trillion in base-year dollars. What is the income velocity of money?
Suppose that following the events in Problem 16-6, the Fed cuts the money supply in half. How does the price level now compare with its value before the income velocity and the money supply changed?
Suppose that the quantity of money in circulation is fixed but the income velocity of money doubles. If real GDP remains at its long-run potential level, what happens to the equilibrium price level?
Suppose that, initially, the U.S. economy was in an aggregate demand–aggregate supply equilibrium at point A along the aggregate demand curve AD in the diagram on the top of the next column.Now,
Explain why the net export effect of a contractionary monetary policy reinforces the usual impact that monetary policy has on equilibrium real GDP per year in the short run.
You learned in Chapter 11 that if there is an inflationary gap in the short run, then in the long run a new equilibrium arises when input prices and expectations adjust upward, causing the aggregate
Based on Problem 16-1, imagine that initially the market interest rate is 5 percent and at this interest rate you have decided to hold half of your financial wealth as bonds and half as holdings of
Let’s denote the price of a nonmaturing bond(called a consol) as Pb. The equation that indicates this price is Pb I/r, where I is the annual net income the bond generates and r is the nominal
Back up, and click on M1 Money Stock (Bil. of $; M), again either seasonally adjusted or not. Does it show any change in pattern beginning around 1993?
Select the data series for Demand Deposits at Commercial Banks (Bil. of $; M), either seasonally adjusted or not. Scan through the data. Do you notice any recent trend? (Hint: Compare the growth in
Assume a 1 percent reserve ratio and no currency leakages. What is the potential money multiplier?How will total deposits in the banking system ultimately change if the Federal Reserve purchases$5
Consider a world in which there is no currency and depository institutions issue only transactions deposits. The reserve ratio is 20 percent. The central bank sells $1 billion in government
Suppose that the value of the potential money multiplier is equal to
The Federal Reserve purchases $1 million in U.S.Treasury bonds from a bond dealer, and the dealer’s bank credits the dealer’s account. The reserve ratio is 15 percent. Assuming that no currency
Draw an empty bank balance sheet, with the heading “Assets” on the left and the heading“Liabilities” on the right. Then place the following items on the proper side of the balance sheet:a.
Today, the U.S. population is centered just west of the Mississippi River—that is, about half of the population is either to the west or the east of a line running roughly just west of this river.
Take a look at the map of the locations of the Federal Reserve districts and their headquarters in Figure 15-6 on page
In what respects is the Fed like a private banking institution? In what respects is it more like a government agency?
In what sense is currency a liability of the Federal Reserve System?
Identify whether each of the following events poses an adverse selection problem or a moral hazard problem in financial markets.a. A manager of a savings and loan association responds to reports of a
Match each of the rationales for financial intermediation listed below with at least one of the following financial intermediaries: insurance company, pension fund, savings bank. Explain your
Identify whether each of the following items is counted in M1 only, M2 only, both M1 and M2, or neither:a. A $1,000 balance in a transactions deposit at a mutual savings bankb. A $100,000 time
Considering the following data (expressed in billions of U.S. dollars), calculate M1 and M2. Currency Savings deposits Small-denomination time deposits Traveler's checks outside banks and thrifts
During the 1945–1946 Hungarian hyperinflation, when the rate of inflation reached 41.9 quadrillion percent per month, the Hungarian government discovered that the real value of its tax receipts was
During the late 1970s, prices quoted in terms of the Israeli currency, the shekel, rose so fast that grocery stores listed their prices in terms of the U.S. dollar and provided customers with
Until 1946, residents of the island of Yap used large doughnut-shaped stones as financial assets.Although prices of goods and services were not quoted in terms of the stones, the stones were often
Why do you suppose that a few economists argue that society ultimately might be better off on net if federal deposit insurance were eliminated?
If even banks’ largest depositors pay no attention to what bank managers are doing with their funds, who is left to look out for taxpayers’ interests?
Table 7.1 includes estimates of the gross and net public debt over the next several years. Suppose that these estimates turn out to be accurate. Calculate how much the net public debt would increase
In the Table of Contents in the left-hand margin of the Historical Tables, click on Table 7.1, “Federal Debt at the End of the Year, 1940–2015.” In light of the discussion in this chapter,
To reduce the size of the deficit (and reduce the growth of the net public debt), a politician suggests that “we should tax the rich.” The politician makes a simple arithmetic calculation in
Suppose that the economy is experiencing the short-run equilibrium position depicted at point B in the diagram below. Explain the short-run effects of an increase in the government deficit on
Suppose that the economy is experiencing the short-run equilibrium position depicted at point A in the diagram at the top of the next column. Then the government raises its spending and thereby runs

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