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microeconomics
Questions and Answers of
Microeconomics
Which country has the comparative advantage in beef production?Use the following table: Amount of Beef or Computers Produced by One Worker in a Day Canada Beef Computers Japan 8 5 3 4
Which country has the comparative advantage in computer production?Use the following table: Amount of Beef or Computers Produced by One Worker in a Day Canada Beef Computers Japan 8 5 3 4
What are the limits of the terms of trade? Specifically, when is Canada willing to trade with Japan, and when is Japan willing to trade with Canada?Use the following table: Amount of Beef or
Use the following supply and demand schedule for two countries to determine the international equilibrium price of shoes. How many shoes will be traded? Demand and Supply of Shoes (in thousands)
How would each of the following theories of comparative advantage explain the fact that the United States exports computers?a. Productivity differencesb. Factor abundancec. Human skillsd. Product
Which of the theories of comparative advantage could explain why the United States exports computers to Japan at the same time that it imports computers from Japan? Explain.
Developing countries have complained that the terms of trade they face are unfavorable. If they voluntarily engage in international trade, what do you suppose they mean by ‘‘unfavorable terms of
If two countries reach equilibrium in their domestic markets at the same price, what can be said about their export supply and import demand curves and about the international trade equilibrium?
What are the potential benefits and costs of a commercial policy designed to pursue each of the following goals?a. Save domestic jobsb. Create a level playing fieldc. Increase government revenued.
For each of the goals listed in exercise 1, discuss what the appropriate commercial policy is likely to be (in terms of tariffs, quotas, subsidies, etc.).Data from in exercise 1What are the potential
Tariffs and quotas both raise the price of foreign goods to domestic consumers. What is the difference between the effects of a tariff and the effects of a quota on the following?a. The domestic
Would trade-diversion and trade-creation effects occur if the whole world became a free trade area? Explain.
What is the difference between a customs union and a free trade area?
Draw a graph of the U.S. automobile market in which the domestic equilibrium price without trade is Pd and the equilibrium quantity is Qd. Use this graph to illustrate and explain the effects of a
If commercial policy can benefit U.S. industry, why would any U.S. resident oppose such policies?Find two newspaper articles illustrating opposition to commercial policies and summarize their
Suppose you were asked to assess U.S. commercial policy to determine whether the benefits of protection for U.S. industries are worth the costs. Do Tables 1 and 2 provide all the information you
How would the effects of international trade on the domestic orange market change if the world price of oranges were above the domestic equilibrium price? Draw a graph to help explain your answer.
Suppose the world price of kiwi fruit is \($25\) per case and the U.S. equilibrium price with no international trade is \($40\) per case. If the U.S. government had previously banned the import of
Think of an industry in your country (if you currently have a job, use that industry). What kind of nontariff barrier could you design that would keep out foreign competitors to the domestic
Under a gold standard, if the price of an ounce of gold is 1,400 U.S. dollars and 1,300 Canadian dollars, what is the exchange rate between U.S. and Canadian dollars?
What were the three major results of the Bretton Woods conference?
What is the difference between the IMF and the World Bank?
How can Mexico fix the value of the peso relative to the dollar when the demand for and supply of dollars and pesos changes continuously? Illustrate your explanation with a graph.
Draw a foreign exchange market supply and demand diagram to show how the yen-dollar exchange rate is determined. Set the initial equilibrium at a rate of 100 yen per dollar.
Using the diagram in exercise 5, illustrate the effect of a change in tastes that prompts Japanese residents to buy more goods from the United States. If the exchange rate is floating, what will
Using the diagram in exercise 5, illustrate the effect of the change in Japanese tastes if exchange rates are fixed. What will happen to the foreign exchange market equilibrium?Data from in exercise
When and why should exchange rates change under a fixed-exchange-rate system?
Suppose you just returned home from a vacation in Mazatla´n, Mexico, where you exchanged U.S. dollars for Mexican pesos. How did your trip to Mexico affect the supply and demand for dollars and the
What does it mean to say that a currency appreciates or depreciates in value? Give an example of each and briefly mention what might cause such a change.
How does a currency speculator profit from exchange-rate changes? Give an example of a profitable speculation.
Find the U.S. dollar value of each of the following currencies at the given exchange rates:a. \($1\) = C$.96 (Canadian dollars)b. \($1\) = ¥81 (Japanese yen)c. \($1\) = A$.95 (Australian dollars)d.
You are a U.S. importer who buys goods from many different countries. How many U.S. dollars do you need to settle each of the following invoices?a. 1,000,000 Australian dollars for wool blankets
What is the dollar value of the invoices in exercise 13 if the dollar:a. depreciates 10 percent against the Australian dollarb. appreciates 10 percent against the British poundc. depreciates 10
Explain purchasing power parity and why it does not hold perfectly in the real world.
Write an equation that describes purchasing power parity and explain the equation.
Write an equation that describes interest rate parity and explain the equation.
If the interest rate on one-year government bonds is 5 percent in Germany and 8 percent in the United States, what do you think is expected to happen to the dollar value of the euro? Explain your
In 1960 a U.S. dollar sold for 620 Italian lire. If PPP held in 1960, what would the PPP value of the exchange rate have been in 1987 if Italian prices rose 12 times and U.S. prices rose 4 times
What is the difference between traditional Keynesian and new Keynesian economics?
Why does monetary policy operate with a long and variable lag? Give an example to illustrate your explanation.
What is the difference between old classical and new classical economics?
Draw an aggregate demand and supply diagram for each theory of macroeconomics. Use the diagrams to explain how the government can influence equilibrium real GDP and prices.
What, if any, similarities are there among the theories of economics discussed in this chapter regarding the use of fiscal and monetary policies to stimulate real GDP?
If unexpected increases in the growth rate of the money supply can increase real GDP, why doesn’t the Fed follow a policy of unexpectedly increasing the money supply to increase the growth of real
‘‘The popular macroeconomic theories have evolved over time as economic conditions have changed to reveal shortcomings of existing theory.’’Evaluate this quote in terms of the emergence of
Has the recent financial crisis and recession supported or discredited any of the macroeconomic theories discussed in this chapter? If it was a result of excessive credit creation associated with
Do sticky wages seem realistic? If you wanted to research the stickiness of wages, how might you design your study?For exercises 10–17, tell which school of thought would most likely be associated
‘‘Changes in prices and wages are too slow to support the new classical assumption of persistent macroeconomic equilibrium.’’
‘‘The best monetary policy is to keep the money supply growing at a slow and steady rate.’’
‘‘Frictional unemployment is a result of workers voluntarily substituting leisure for labor when wages fall.’’
‘‘A change in the money supply will affect GDP after a long and variable lag, so it is difficult to predict the effects of money on output.’’
‘‘Government policymakers should use fiscal policy to adjust aggregate demand in response to aggregate supply shocks.’’
‘‘The economy is subject to recurring disequilibrium in labor and goods markets, so government can serve a useful function of helping the economy adjust to equilibrium.’’
‘‘Since the aggregate supply curve is horizontal, aggregate demand will determine the equilibrium level of real GDP.’’
‘‘If everyone believed that the monetary authority was going to cut the inflation rate from 6 percent to 3 percent, such a reduction in inflation could be achieved without any significant
Why is the growth of per capita real GDP a better measure of economic growth than the growth of real GDP?
What is the level of output after four years if initial output equals $1,000 and the economy grows at a rate of 8 percent a year?
Use the data in the following table to determine the average annual growth rate for each country in terms of real GDP growth and per capita real GDP growth (real GDP is in billions of U.S. dollars,
Suppose labor’s share of GDP is 70 percent and capital’s is 30 percent, real GDP is growing at a rate of 4 percent a year, the labor force is growing at 2 percent, and the capital stock is
Suppose labor’s share of GDP is 70 percent and capital’s is 30 percent, total factor productivity is growing at an annual rate of 2 percent, the labor force is growing at a rate of 1 percent, and
Discuss possible reasons for the slowdown in U.S.productivity growth that occurred in the 1970s and 1980s, and relate each reason to the equation for economic growth. Does the growth of TFP or of
How did the post–World War II baby boom affect the growth of the U.S. labor force? What effect is this baby boom likely to have on the future U.S.labor force?
How do developing and industrial countries differ in their use of technological change, labor, capital, and natural resources to produce economic growth?Why do these differences exist?
How would an aging population affect economic growth?
If real GDP for China was 10,312 billion yuan at the end of 2002 and 9,593 billion yuan at the end of 2001, what is the annual rate of growth of the Chinese economy?
If Botswana’s economy grew at a rate of 1 percent during 2006 and real GDP at the beginning of the year was 44 billion pula, then what is real GDP at the end of the year?
Suppose a country has a real GDP equal to $1 billion today. If this economy grows at a rate of 4 percent a year, what will be the value of real GDP after five years?
Is the following statement true or false? Explain your answer. ‘‘Abundant natural resources are a necessary condition for economic growth.’’
What is the difference between total factor productivity and the productivity of labor? Why do you suppose that people often measure a nation’s productivity using labor productivity only?
How would each of the following affect productivity in the United States?a. The quality of education in high schools increases.b. A cutback in oil production by oil-exporting nations raises oil
How does the development of financial markets enhance the productivity of a country?
What are basic human needs? Can you list additional needs besides those considered in the chapter?
Per capita GNP or GDP is used as an absolute measure of poverty.a. What are some criticisms of using per capita GNP as a measure of standard of living?b. Do any of these criticisms also apply to a
In many developing countries, there are economists and politicians who were educated in industrial countries. These individuals know what policies would maximize the growth of their countries, but
Suppose you are a benevolent dictator who can impose any policy you choose in your country. If your goal is to accelerate economic development, how would you respond to the following problems?a.
What effect does population growth have on economic development?
Why have most developing countries followed inward-oriented development strategies?
Why is an outward-oriented development strategy likely to allocate resources more efficiently than an inward-oriented strategy?
Who benefits from an import-substitution strategy? Who is harmed?
If poverty is a relative concept, why don’t we define it in relative terms?
‘‘The poor will always be with us.’’ Does this statement have different meanings depending on whether poverty is interpreted as an absolute or a relative concept?
How do traditional societies answer the questions What to produce?, How to produce?, and For whom to produce?
What are the most important sources of foreign savings for developing countries? Why don’t developing countries save more so that they don’t have to rely on foreign savings for investment?
Private foreign investment and foreign aid are sources of savings to developing countries. Yet each has been controversial at times. What are the potential negative effects of private foreign
Why do immigrants often play an important role in developing the economies of poor nations? What role did immigrants play in developing the economy of the early United States?
How does a nation go about instituting a policy of import substitution? What is a likely result of such a policy?
In what ways might development harm the environment?In what ways might development be beneficial for the environment?
Search online for information about microfinance in developing countries. What are the potential benefits?What criticism has it received?
What is globalization?
Comment on the following statement: ‘‘Globalization is an event of the post-1980s. Prior to this time, we never had to worry about globalization and its effects.’’
Write a script for two speakers arguing about globalization and its effects. Give each speaker a name, and then write a script for a debate between the two. The debate should be no longer than two
Why has the pace of globalization quickened since the 1950s?
If you wanted to compare countries on the basis of how globalized they are, how could you construct some numerical measures that would allow a crosscountry comparison?
What are the major arguments against globalization?
What are the major arguments in favor of globalization?
What is the difference between ‘‘fair’’ and ‘‘free’’ trade?
What is the WTO? Where is it located, and what does it do?
Suppose we find that multinational firms are paying much lower wages in some poor countries than they would have to pay in the United States. Would this be sufficient evidence that these firms are
How can globalization reduce poverty? What does the evidence suggest about globalization and poverty?
There were several major international financial crises in the 1990s. What role did globalization play in these crises?
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