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microeconomics
Questions and Answers of
Microeconomics
What is the equilibrium level of real GDP?Use the following equations C $100+.8Y 1 = $200 G= $250 X $100 2Y
What is the new equilibrium level of real GDP if government spending increases by $150?Use the following equations C $100+.8Y 1 = $200 G= $250 X $100 2Y
What is the new equilibrium level of real GDP if government spending and taxes both increase by$150?Use the following equations C $100+.8Y 1 = $200 G= $250 X $100 2Y
Make a graph showing the spending and tax revenue of your state government for as many years as you can find (use the government of your home country if you are not from the United States).What
Describe the four functions of money, using the U.S. dollar to provide an example of how dollars serve each function.
During World War II, cigarettes were used as money in prisoner of war camps. Considering the attributes that a good money should possess, why would cigarettes emerge as money among prisoners?
What is a financial intermediary? Give an example of how your bank or credit union serves as a financial intermediary between you and the rest of the economy.
What is the Eurocurrency market, and how is banking in the Eurocurrency market different from domestic banking?
What are IBFs? Why do you think they were legalized?
First Bank has cash reserves of \($200,000,\) loans of \($800,000,\) and deposits of \($1,000,000\).a. Prepare a balance sheet for the bank.b. If the bank maintains a reserve requirement of 15
Yesterday Bank A had no excess reserves. Today it received a new deposit of $4,000.a. If the bank maintains a reserve requirement of 2 percent, what is the maximum loan that Bank A can make?b. What
‘‘M2 is a better definition of the money supply than M1.’’ Agree or disagree with this statement. In your argument, clearly state the criteria on which you are basing your decision.
The deposit expansion multiplier measures the maximum possible expansion of the money supply in the banking system. What factors could cause the actual expansion of the money supply to differ from
What is liquidity? Rank the following assets in order of their liquidity: \($10\) bill, personal check for \($20,\) savings account with \($400\) in it, stereo, car, house, traveler’s check.
What is the value of M1 in the above table?Use the following table on the components of money in a hypothetical economy Money Component Traveler's checks Amount $ 100 Currency $2,000
What is the value of M2 in the above table?Use the following table on the components of money in a hypothetical economy Money Component Traveler's checks Amount $ 100 Currency $2,000
The deposit expansion multiplier has been defined as the reciprocal of the reserve requirement. Suppose that banks must hold 10 percent of their deposits in reserve. However, banks also lose 10
The Federal Reserve System divides the nation into 12 districts.a. List the 12 cities in which the district banks are located.b. Which Federal Reserve district do you live in?
Briefly describe the functions that the Fed performs for the banking community. In what sense is the Fed a banker’s bank?
Draw a graph showing equilibrium in the money market. Carefully label all curves and axes, and explain why the curves have the slopes that they do.
Using the graph you prepared for exercise 3, illustrate and explain what happens when the Fed increases the money supply.Data from exercise 3Draw a graph showing equilibrium in the money market.
When the Fed decreases the money supply, the equilibrium level of income changes. Illustrate and explain how.
Describe the quantity theory of money, defining each variable. Explain how changes in the money supply can affect real GDP and the price level.Under what circumstances could an increase in the money
There are several tools that the Fed uses to implement monetary policy.a. Briefly describe these tools.b. Explain how the Fed would use each tool in order to increase the money supply.c. Suppose the
First Bank has total deposits of \($2,000,000\) and legal reserves of \($220,000\).a. If the reserve requirement is 10 percent, what is the maximum loan that First Bank can make, and what is the
Suppose you are a member of the FOMC and the U.S. economy is entering a recession. Write a directive to the New York Fed about the conduct of monetary policy over the next two months. Your directive
Suppose the Fed has a target range for the yen–dollar exchange rate. How would it keep the exchange rate within the target range if free market forces push the exchange rate out of the range? Use a
Why do you demand money? What determines how much money you keep in your pocket, purse, or bank accounts?
What is the current yield on a bond? Why do interest rates change when bond prices change?
If the Fed increases the money supply, what will happen to each of the following (other things being equal)?a. Interest ratesb. Money demandc. Investment spendingd. Aggregate demande. The equilibrium
It is sometimes said that the Federal Reserve System is a nonpolitical agency. In what sense is this true?Why might you doubt that politics have no effect on Fed decisions?
Suppose the banking system has vault cash of \($1,000,\) deposits at the Fed of \($2,000,\) and demand deposits of \($10,000\).a. If the reserve requirement is 20 percent, what is the maximum
What does ECB stand for? Where is the ECB located?In what way is central banking in the euro-area countries similar to the Federal Reserve System?
What is the difference between the short-run Phillips curve and the long-run Phillips curve? Use an aggregate supply and demand diagram to explain why there is a difference between them.
Give two reasons why there may be a short-run tradeoff between unexpected inflation and the unemployment rate.
‘‘Unexpected increases in the money supply cause clockwise movements in the Phillips curve diagram;unexpected decreases in the money supply cause counterclockwise movements in the Phillips curve
Economists have identified two kinds of macroeconomic expectations.a. Define them.b. What are the implications for macroeconomic policy of these two forms of expectations?
Write down the government budget constraint and explain how it can be used to understand the relationship between fiscal and monetary policies.
Using the government budget constraint, explain:a. Why some countries experience hyperinflation.b. How fiscal policy must change in order to implement a noninflationary monetary policy.
Parents, like governments, establish credibility by seeing to it that their ‘‘policies’’ (the rules that they outline for their children) are time consistent.Analyze the potential for time
Suppose an economy has witnessed an 8 percent rate of growth in its money supply and prices over the last few years. How do you think the public will respond to an announced plan to increase the
What are the implications for the timing of business cycle fluctuations over the years if all business cycles are:a. Manipulated by incumbent administrations.b. A product of real shocks to the
Suppose the Federal Reserve System were abolished and Congress assumed responsibility for monetary policy along with fiscal policy. What potential harm to the economy could result from such a change?
Suppose tax revenues equal \($100\) billion, government spending equals \($130\) billion, and the government borrows \($25\) billion. How much do you expect the money supply to increase, given the
If the government budget deficit equals \($240\) billion and the money supply increases by \($100\) billion, how much must the government borrow?
Discuss how each of the following sources of real business cycles would affect the economy.a. Farmers go on strike for six months.b. Oil prices fall substantially.c. Particularly favorable weather
Using an aggregate demand and aggregate supply diagram, illustrate and explain how a political business cycle is created.
Use a Phillips curve diagram to illustrate and explain how a political business cycle is created.
What is the natural rate of unemployment? What can cause it to change over time?
Many developing countries have experienced high money growth rates and, consequently, high inflation. Use the government budget constraint to explain how a poor country that wants to increase
What factors should affect the variability of the growth rate of real output? Which do you think could provide for more stability going forward, and which are likely to be less important?
Starting in 2011, the Federal Reserve chairman will participate in a quarterly press conference as part of a new strategy to increase communication with the public. Discuss the rationale behind such
Which of the following are economic goods? Explain why each is or is not an economic good.a. steaksb. housesc. carsd. garbagee. T-shirts
Many people go to a medical doctor every time they are ill; others never visit a doctor. Explain how human behavior could include such opposite behaviors.
Erin has purchased a $35 ticket to a Dave Matthews concert. She is invited to a send-off party for a friend who is moving to another part of the country.The party is scheduled for the same day as the
It is well documented in scientific research that smoking is harmful to health. Smokers have higher incidences of coronary disease, cancer, and other catastrophic illnesses. Knowing this, about 30
Indicate whether each of the following statements is true or false. If the statement is false, change it to make it true.a. Positive analysis imposes the value judgments of one individual on the
Are the following statements normative or positive? If a statement is normative, change it to a positive statement.a. The government should provide free tuition to all college students.b. An
If people behave in ways that they believe are in their best self-interest, how would you explain the following?a. Mother Teresa devoted her entire life to living in the worst slums of Asia,
Use economics to explain why men’s and women’s restrooms tend to be located near each other in airports and other public buildings.
Use the Broken Window Fallacy to explain what the ‘‘seen’’ and ‘‘unseen’’ effects of the government’s decision to subsidize ‘‘green jobs’’ might be.
Use economics to explain why people leave tips (a) at a restaurant they visit often and(b) at a restaurant they visit only once.
Use economics to explain why people contribute to charities.
Use economics to explain this statement: ‘‘Increasing the speed limit has, to some degree, compromised highway safety on interstate roads but enhanced safety on non-interstate roads.’’
Apply the Broken Window Fallacy to the argument that an earthquake in Haiti is beneficial in the sense that reconstruction will create jobs and income.
Listed in the following table are two sets of figures: the total quantity of Mexican pesos (new pesos) in circulation (the total amount of Mexican money available) and the peso price of a U.S. dollar
Plot the data listed in the table below.a. Use price as the vertical axis and quantity as the horizontal axis and plot the first two columns.b. Show what quantity is sold when the price is $550.c.
In most political campaigns, candidates promise more than they can deliver. In the United States, both Democrats and Republicans promise better health care, a better environment, only minor
Janine is an accountant who makes \($30,000\) a year.Robert is a college student who makes \($8,000\) a year. All other things being equal, who is more likely to stand in a long line to get a concert
In 2009, President Barack Obama and Congress enacted a budget that included increases in spending for the war in Iraq and national defense, as well as huge increases in welfare programs, education,
The following numbers measure the trade-off between grades and income:a. Calculate the opportunity cost of an increase in the number of hours spent studying in order to earn a 3.0 grade point average
Suppose a second individual has the following trade-offs between income and grades:a. Define comparative advantage.b. Does either individual (the one in exercise 4 or the one in exercise 5) have a
A doctor earns \($250,000\) per year, while a professor earns \($40,000\). They play tennis against each other each Saturday morning, each giving up a morning of relaxing, reading the paper, and
Plot the PPC of a nation given by the following data.a. Calculate the marginal opportunity cost of each combination.b. What is the opportunity cost of combination C?c. Suppose a second nation has the
A doctor earns \($200\) per hour, a plumber \($40\) per hour, and a professor \($20\) per hour. Everything else the same, which one will devote more hours to negotiating the price of a new car?
Perhaps you’ve heard of the old saying, ‘‘There is no such thing as a free lunch.’’ What does it mean?If someone invites you to a lunch and offers to pay for it, is it free to you?
You have waited 30 minutes in a line for the Star Tours ride at Disneyland. You see a sign that says, ‘‘From this point on, your wait is 45 minutes.’’ You must decide whether to remain in the
A university is deciding between two meal plans.One plan charges a fixed fee of \($600\) per semester and allows students to eat as much as they want.The other plan charges a fee based on the
Evaluate this statement: ‘‘You are a natural athlete, an attractive person who learns easily and communicates well. Clearly, you can do everything better than your friends and acquaintances. As a
During China’s Cultural Revolution in the late 1960s and early 1970s, highly educated people were forced to move to farms and work in the fields.Some were common laborers for eight or more years.
In elementary school and through middle school, most students have the same teacher throughout the day and for the entire school year. Then, beginning in high school, different subjects are taught by
The top officials in the federal government and high-ranking officers of large corporations often have chauffeurs to drive them around the city or from meeting to meeting. Is this simply one of the
In Botswana, Zimbabwe, and South Africa, individuals can own and farm elephants. In other African countries, the elephants are put on large reserves.Explain why the elephant population in Botswana,
Calculate the slope of the relationship in Problem 4 between 4,071 and 3,143 theaters.Use the following news clip to work Problems. Kong Tops the Box Office Theaters Revenue (dollars Movie (number)
After you have studied Economics in the News, answer the following questions.a. How have robots changed the U.S. production possibilities?b. How have advances in technologies for producing services
Derive Pat’s supply curve.Use the following table to work Problems 2 to 4. Pat’s Pizza Kitchen is a price taker and the table shows its costs of production. Output (pizzas per hour) 0 12345 Total
After you have studied Economics in the News, answer the following questions.a. Why did Apple improve the cameras and the battery in iPhone 7?b. How would Apple’s cost curves (MC and ATC ) have
Which statement is true?a) Very few poor people hold jobs.b) The main reason for poverty is that some people refuse to work.c) A person holding a minimum wage job could raise her family out of
Which statement is false?a) About three-fourths of the poor are single mothers and their children.b) About half of the poor are elderly.c) People living in the South are more likely to be poor
About _______million Americans are homeless. a) 2 to 3b) 6 to 8c) 12 to 15d) 20 to 25e) 40 to 50
Which statement is true?a) Most poor people are black.b) Most black people are poor.c) People over age 65 have a higher poverty rate than the overall rate for Americans.d) None of the above.
Darity and Myers observe that ___________.a) welfare reform will lead to a sharp decline in the number of black families living below the poverty lineb) cutting welfare benefi ts will increase the
“The exodus of middle- and working-class families from many ghetto neighborhoods removes an important ‘social buffer’” was said by ________.a) Nicholas Lemannb) Charles Murrayc) Barbara
Which statement is true?a) Virtually none of the homeless have jobs.b) Many homeless people are mentally ill.c) The homeless are concentrated in a few large cities.d) None of the above.
More than one out of every ____________children lives in poverty.a) twob) threec) fived) nine
Which one of the following has been the least effective antipoverty program _______?a) the Welfare Reform Act of 1996b) Social Securityc) food stampsd) the Earned Income Tax Credit
Which statement is false?a) Poverty breeds poverty.b) Poor people have low human capital.c) The liberals and conservatives disagree on how to get people off the welfare rolls and into
It would not be reasonable to say that poor people are ________.a) grudgingly tolerated by society’s “productive” membersb) largely superfluous to our socioeconomic systemc) basically
Which statement is false?a) The poor pay higher prices to buy groceries, furniture, and appliances.b) Low-income families can pay over $500 more for the same car bought by a higher-income
The Earned Income Tax Credit is _________.a) a form of welfareb) a refund check paid to the working poor by the Internal Revenue Servicec) a very minor form of government aid to the
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