Question:

> (a) When the reserve requirement changes, which of the following will change for an individual bank? (A = change, B = no change.) Transactions deposits Total reserves Required reserves Excess reserves Lending capacity

> In December 1994 a man in Ohio decided to deposit all of the 8 million pennies he’d been saving for nearly 65 years. (His deposit weighed over 48,000 pounds!) With a reserve requirement of 10 percent, what will be the cumulative change for the banking sy

> Suppose a bank’s balance sheet looks as follows: and banks are required to hold reserves equal to 10 percent of deposits. (a) How much excess reserves does the bank hold? (b) How much more can this bank lend? Assets Llabi

> Is the Index of Social Health, discussed in the News on page 109, a better barometer of well-being than GDP? What are its relative advantages or disadvantages? IN THE NE WS Material Wealth vs. Social Health National income accounts are regularly repo

> 1. If you cash a $50 traveler’s check at a bank, by how much do(es) (a) M1 change? (b) M2 change? (c) Bank reserves change? If you deposit the traveler’s check in your bank account, by how much do(es) (d) M1 change? (e) M2 change? (f) Bank reserves chan

> In Figure 12.5, what is the opportunity cost of increasing government spending from g1 to g2 if (a) No external financing is available? (b) Complete external financing is available?

> (a) According to the News on page 258, how much fiscal restraint occurred between 1931 and 1933? (b) By how much did this policy reduce aggregate demand if the MPC was 0.75?

> Suppose a government has no debt and a balanced budget. Suddenly it decides to spend $4 trillion while raising only $3 trillion worth of taxes. (a) What will be the government’s deficit? (b) If the government finances the deficit by issuing bonds, what a

> Use Table 12.3 to determine how much fiscal stimulus or restraint occurred between (a) 2007 and 2008. (b) 2008 and 2009. Flscal Year Budget Balance Cycllcal Component + Structural Component +236 +128 2000 +138 +98 2001 +79 +49 2002 -158 -21 -137 20

> What would happen to the budget deficit if the (a) GDP growth rate jumped from 2 percent to 5 percent? (b) Inflation rate increased by two percentage points?

> Use the accompanying graph to illustrate changes in the structural and total deficits for fiscal years 2002–2010 (a) In how many years do the two deficits change in different directions? (b) In how many years was the government pursuin

> (a) What percentage of U.S. debt do foreigners hold? (b) If the interest rate on U.S. Treasury debt is 4 percent, how much interest do foreigners collect each year from the U.S. Treasury? (Assume a total debt of $16 trillion.) Foderal Govemment Fede

> From 2008 to 2010, by how much did each of the following change? (a) Tax revenue. (b) Government spending. (c) Budget deficit. Budget Total (In Billions of Dollars) 2006 2007 2008 2009 2010 2011 2012 Revenues 2,524 2,105 2,407 -2,655 -2,729 -2,983 -

> According to the News on page 234, how much of a cumulative impact on spending could be expected from President Obama’s (a) Increase in government spending? (b) Tax cuts? Assume an MPC of 0.75.

> Why is it important to know how much output is being produced? Who uses such information?

> According to the World View on page 235, (a) How large was China’s 2008 fiscal stimulus? (b) How much faster was GDP expected to grow as a result? (c) According to the News on page 234 and Table 11.2, how large was President Obama&acirc

> (a) According to the News on page 238, how much more did the average household spend on appliances, electronics, and furniture when it received the 2008 tax rebate? (b) If all 110 million households did so, how much did aggregate consumption increase? (c

> If the AD shortfall is $600 billion and the MPC is 0.9, (a) How large is the desired fiscal stimulus? (b) How large an income tax cut is needed? (c) Alternatively, how much more government spending would achieve the target?

> On the accompanying graph, identify and label (a) Macro equilibrium. (b) The real GDP gap. (c) The AD excess or AD shortfall. (d) The new equilibrium that would occur with appropriate fiscal policy.

> Suppose the consumption function is C = $400 billion + 0.8Y and the government wants to stimulate the economy. By how much will aggregate demand at current prices shift initially (before multiplier effects) with (a) A $50 billion increase in government

> Use the following data to answer the following questions: (a) What is the rate of equilibrium GDP? (b) If full employment occurs at a real output rate of $880, how large is the real GDP gap? (c) If AD increases enough to restore full employment, what w

> If the marginal propensity to consume was 0.9, how large would each of the following need to be in order to restore a full-employment equilibrium in Figure 11.6? (a) A tax increase. (b) A government spending cut. (c) A cut in income transfers. AS AD

> Illustrate in the following graph the impact of a sudden decline in consumer confidence that reduces autonomous consumption by $50 billion at the price level PF. Assume MPC = 0.8. (a) What is the new equilibrium level of real output? (Donâ€&#

> Suppose that investment demand increases by $200 billion in a closed and private economy (no government or foreign trade). Assume further that households have a marginal propensity to consume of 75 percent. (a) Compute four rounds of multiplier effects.

> The accompanying graph depicts a macro equilibrium. Answer the questions based on the information in the graph. (a) What is the equilibrium rate of GDP? (b) If full-employment real GDP is $1,200, what problem does this economy have? (c) How large is the

> Can we increase consumption in a given year without cutting back on either investment or government services? Under what conditions?

> From 1960 to 2010, in how many years did (a) Real consumption decline? (b) Real investment decline? (c) Real government spending increase at least $100 billion?

> On the following graph, draw the AD and AS curves with these data: Price level 140 130 120 110 100 90 80 70 60 50  Real output Demanded 600 700 800 900 1,000 1,100 1,200 1,300 1,400 1,500   Supplied 1,200 1,150 

> Complete the following table:  Real Output Demanded (in $ billions) by   Price Level Consumers + Investors + Government + Net Exports = Aggregate Demand Aggregate Supply  120 80  15  20  10  125 320  110 92  16  20 

> llustrate on the following graphs the impact of Panasonic’s changed investment plans. INVESTMENT REAL OUTPUT INTEREST RATE PRICE LE VEL

> Illustrate on the following two graphs the wealth effect from declining home prices. C= a + bY 45" DISPOSABLE INCOME (OUTPUT) AS AD REAL OUTPUT PRICE LEVEL CONSUMPTION

> On the accompanying graph, draw the consumption function C = $200 + 0.75YD. (a) At what level of income do households begin to save? Designate that point on the graph with the letter A. (b) By how much does consumption increase when income rises $

> From the information on pages 181–83, in 2010 what was (a) The APC? (b) The APS? (c) The MPC? (d) The MPS?

> Assume that the accompanying graph depicts aggregate supply and demand conditions in an economy. Full employment occurs when $6 trillion of real output is produced. (a) What is the equilibrium rate of output? (b) How far short of full employment is the e

> 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?

> 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 output would have been identical. Why is this? Does this make sense?

> According to the News on page 162, (a) By what percentage did GDP decline in the fourth quarter of 2008? (b) At that rate, how much output would have been lost in the $14 trillion economy of 2008? (c) How much income did this represent for each of the 30

> 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 price level does equilibrium occur? (b) What curve (AD or AS) would have shifte

> (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? Aggregate supply PE Macro equilibrium Aggregate demand QE S, D1 REAL OUTPUT (quantity per year) PRICE LEVEL (average price) Lu

> Use the item weights in Figure 7.2 to determine the percentage change in the CPI that would result from a (a) 10 percent increase in entertainment prices. (b) 6 percent decrease in transportation costs. (c) Doubling of clothing prices. Figure 7.2: Tr

> Suppose the prices listed in the table for Problem 5 changed from one year to the next, as shown here. Use the rest of the table to compute the average inflation rate.

> Assuming that the following table describes a typical consumer’s complete budget, compute the item weights for each product. Item Quantity Unit Price Item Welght 20 pounds 1 year 150 pizzas 75 days 1 week Coffee $ 5 Tuition 4,000 P

> Suppose you borrow $100 of principal that must be repaid at the end of two years, along with interest of 5 percent a year. If the annual inflation rate turns out to be 10 percent, (a) What is the real rate of interest on the loan? (b) What is the real va

> Suppose you’ll have an annual nominal income of $20,000 for each of the next three years, and the inflation rate is 5 percent per year. (a) Find the real value of your $20,000 salary for each of the next three years. (b) If you have a COLA in your contra

> 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 wo

> 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 (i.e., number employed ÷ popula

> Which taxes hit the poor hardest—those of local, state, or federal governments?

> According to Okun’s Law, how much output (real GDP) was lost in 2010 when the nation’s unemployment rate increased from 9.3 percent to 9.6 percent?

> 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 years was “full employment” achieved? (Use the curren

> 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? Table 5.3: 2007 2008 1. Nominal GDP (in billions) 2. Change in nominal GDP $14,062 $14,369 +$307 Inflation adjustment: 3. C

> (a) Compute real GDP for 2010 using average prices of 2000 as the base year. (On the inside covers of this book you’ll find data for GDP and the GDP “price deflator” used to measure inflation.) (b) By how much did real GDP increase between 2000 and

> Based on the following figures, Consumption ………………….. $200 billion Depreciation ………………….. 20 Retained earnings ….…………….12 Gross investment ………………….30 Imports ……………………………… 40 Exports ……………………………….50 Net foreign factor income………10 Government purchases…

> If real GDP increases by 2 percent next year and the price level goes up by 4 percent, what will happen to nominal GDP?

> 1. Using the following data, what is the value of (a) total output (GDP)? (b) total income? Consumer goods and services $10,000 Wages and salaries 9,000 Corporate profits 1,000 Investment in plants, equipment, and inventory 2,500 Proprietor'

> Suppose that furniture production encompasses the following stages: Stage 1: Trees are sold to lumber company. $ 8,000 Stage 2: Lumber is sold to furniture company. $17,000 Stage 3: Furniture company sells furniture to retail store. $28,000 Stag

> Assume the market demand for cigarettes is Price per pack $10 $9 $8 $7 $6 $5 $4 $3 Quantity demanded 2 4 6 8 10 12 14 16 (million packs pe

> What government actions might cause failures like points G1, G2, and G3 in Figure 4.6? Can you give examples? Figure 4.6: Government intervention Production may worsen outcomes. possibilities G2 X (Optimal mix) G4 M (Market mix) G3 ALL OTHER GOODS (u

> Suppose the following data represent the market demand for college education: Tuition (per year) $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 Enrollment demanded 8 7 6 5 4 3 2 1 (in millions per year) (a

> (a) Assuming a 10 percent sales tax levied on all consumption, complete the following table: (b) Is the sales tax (A) progressive or (B) regressive? Sales Percentage of Income Pald In Taxes Income Consumption Таx $11,000 $10,000 20,000 20,000 40,00

> If the average adult produces $90,000 of output per year, how much output is lost as a result of adult deaths from secondhand smoke, according to the News on page 74? WORLD VIE W Secondhand Smoke Kills 600,000 People a Year: Study Sekondhand smoke gl

> Assume that the product depicted below generates external costs in consumption of $4 per unit. (a) What is the market price (market value) of the product? (b) Draw the social demand curve. (c) What is the socially optimal output? (d) By how much doe

> According to the News on page 82, what percentage of income is spent on lottery tickets by (a) A poor family with income of $18,000 per year? (b) An affluent family with income of $40,000 per year? IN THE NE WS Perpetuating Poverty: Lotteries Prey o

> In Figure 4.2 (p. 73), by how much is the market (a) Overproducing private goods? (b) Underproducing public goods? B (Market mix) A (Optimal mix) W Production possibilities R S PUBLIC GOODS (units per time period) FIGURE 4.2 Underproduction of Public

> According to Figure 3.8, (a) How many organs are supplied at a zero price? (b) If the News on page 66 is correct, how many organs would be supplied at positive prices? Figure 3.8:

> According to Figure 3.8, (a) How many people die in the market-driven economy? (b) How many people die in the government-regulated economy? Figure 3.8:

> 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) Quantity demanded? (c) Price? IN THE N EWS Seafood Prices Rise on BP Oil Spill Original supply WASHINGTON-Diners Sh

> Given the following data on gasoline supply and demand, (a) What is the equilibrium price? (b) How large a market shortage would exist if the government set a price ceiling of $2 per gallon? Price per gallon $5.00 $4.00 $3.00 $2.00 $1.00 Quantity dema

> The government now spends over $700 billion a year on Social Security benefits. Why don’t we leave it to individuals to save for their own retirement?

> According to the News on page 61 (a) What was the initial price of a Final Four ticket? (b) At that price was there (A) an equilibrium, (B) a shortage, or (C) a surplus? IN THE NEWS: Students Struggle to Find Final Four Tickets When midnight struck Su

> According to Figures 3.5 and 3.6, what would the new equilibrium price of tutoring services be if Ann decided to stop tutoring? Figures 3.5: Figure 3.6: (a) Ann's supply curve (b) Bob's supply curve (c) Cory's supply curve $50 45 40 35 30 25 20 15 10

> Use the following data to draw supply and demand curves on the accompanying graph. Price $8 7 6 5 4 3 2 1 Quantity demanded 2 3 4 5 6 7 8 9 Quantity supplied 10 9 8 7 6 5 4 3 (a) What is the equilibrium price? (b) If a minimum price (price floor)

> 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 decrease? (d) The supply decrease? Figure 3.8: Mar

> 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. Figure 3.3: $50 Demand shifts when 45 tastes, income, other goods, or expectations change. 40 Shift in demand 35 D2: inc

> How much more output (income) per year will have to be produced in the world just to provide the 2.7 billion “severely” poor population with $1 more output per day?

> Using the data in Figure 2.3, (a) Compute the average income of U.S. households. (b) If all incomes were equalized by government taxes and transfer payments, how much would the average household in each income quintile gain (via transfers) or lose (via

> 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 12 percent. What was the dollar value of manufactured o

> According to Table 2.1 (p. 34), how fast does total output (GDP) have to grow in order to raise per capita GDP in (a) China? (b) Ethiopia? Table 2.1: Average Growth Rate (2000–2009) of GDP Populatlon Per Caplta GDP High-income countries United State

> (a) How much more output does the $15 trillion U.S. economy produce when GDP increases by 1.0 percent? (b) By how much does this increase the average (per capita) income if the population is 300 million?

> If smoking generates external costs, should smoking simply be outlawed? How about cars that pollute?

> Using data from the endpapers, illustrate on the graph below (a) The federal government’s share of the total output. (b) The state/local government’s share of total output. 15 14 13 12 11 10 4 2 1930 1940 1950 196

> Using data from Table 2.1 (p. 34), illustrate on the following graphs real GDP and population growth since 2000 (in the manner of Figure 2.1) for the nations indicated. Table 2.1: Figure 2.1:

> In 2010 the world’s total output (real GDP) was roughly $75 trillion. What percent of this total was produced? (a) By the three largest economies (World View, p. 31)? (b) By the three smallest economies in that World View? (c) How much larger is the U.S

> Suppose there’s a relationship of the following sort between study time and grades: / If you have only 20 hours per week to use for either study time or fun time, (a) Draw the (linear) production possibilities curve on the graph below that represents

> If a person literally had “nothing else to do,” (a) What would be the opportunity cost of doing these problems? (b) What is the likelihood of that?

> According to the World View on page 15, which nation has (a) The highest level of faith in the market system? (b) The lowest level of faith in the market system?

> Suppose either computers or televisions can be assembled with the following labor inputs: / (a) Draw the production possibilities curve for an economy with 54 units of labor. Label it P54. (b) What is the opportunity cost of the eighth computer? (c)

> According to Figure 1.4, (a) At which point(s) is this society producing some of each type of output but still producing inefficiently? (b) At which point(s) is this society producing the most output possible with the available resources and technology?

> What are the three core economic questions societies must answer?

> What is the opportunity cost (in civilian output) of a defense buildup that raises military spending from 4.3 to 4.7 percent of a $15 trillion economy?

> 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) solar energy? Would a purely private economy produce any of these services?

> (a) What is the cost of the North Korean 2009 missile launch, according to South Korea ? (b) How many people could have been fed for an entire year at the World Bank standard of $2 per day with that money?

> According to Figure 1.2 (p. 9), what is the opportunity cost of North Korea moving from point P to point N (in terms of food output)? Reduced food output Military! buildup D B MILITARY OUTPUT (units per year) H FOOD OUTPUT (units per year) AG

> (a) Compute the opportunity cost in forgone tanks for each additional truck produced: (b) As truck output increases, are opportunity costs (A) increasing, (B) decreasing, or (C) remaining constant? Truck output Tank output 1 2 3 4 5 5 4.5 3.8 3.0

> According to Table 1.1 (or Figure 1.1), what is the opportunity cost of the fourth truck? Figure 1.1 Step 1: give up one truck. Producing more of one good implies producing less of another. B 4 Step 2: get two tanks. Step 3: give up another truck. St

> According to the World View on page 465, (a) How much money is spent annually to combat baldness? (b) How much medical care would that money buy for each child who dies from malaria each year?

> (a) Which low-income nation in Table 21.3 has a GDP growth rate closest to that of the United States? (b) How much faster is that nation’s population growth? (c) How much lower is its per capita GDP growth? Average Annual Growth

> According to Table 21.3, how many years will it take for per capita GDP to double in (a) China? (b) Madagascar? (c) Zimbabwe? Average Annual Growth Rate (2000–2009) of GDP Population Per Caplta GDP High-Income countries 2.1 1.5 Canada 1.0 1.1 F

> If the industrialized nations were to satisfy the UN’s Millennium Aid Goal, how much more foreign aid would they give annually?

> (a) How much foreign aid does the United States now provide? (b) How much more is required to satisfy the UN’s Millennium Aid Goal if U.S. GDP = $15 trillion? Total Aid Percentage of Donor Country (S billions) Total Income Austral