If gross investment is not large enough to replace the capital that depreciates in a particular year, is net investment greater or less than zero? What happens to our production possibilities?
> What opportunity costs did you incur in reading this chapter? If you read another chapter today, would your opportunity costs (per chapter) increase? Explain.
> Could demand-pull inflation occur before an economy was producing at capacity? How?
> Why is the failure of a major bank so frightening?
> By how much did defense spending increase in 1940 to 1944? (See the front endpapers of this book.) What was crowded out?
> Can you forecast next year’s deficit without knowing how fast GDP will grow?
> When are larger deficits desirable?
> According to the World View on page 235, what prompted China’s fiscal stimulus in 2008? Had the government not intervened, what might have happened?
> Why are the AD shortfall and AD excess larger than their respective GDP gaps? Are they ever the same size as the GDP gap?
> Why did increasing inflation cause the British to rein in their policy?
> Will the price level always rise when AD increases? Why or why not?
> What is the “ripple effect” in the News on page 216?
> How might construction industry job losses affect incomes in the clothing and travel industries?
> Identify two groups that benefit from deflation and two that lose.
> (a) Between 2000 and 2010, by what percentage did federal spending increase in (i) in nominal terms? (ii) in real (inflation-adjusted terms)? Use the following values: 2000 - $698.1 billion; 2010 - $1,075.9 billion. (b) What percentage of nominal total
> Why wouldn’t investment and saving flows at full employment always be equal?
> What causes consumer confidence to change (Figure 10.10)? 118 114 110 Changes in confidence shift AD. 106 102 98 94 90 86 82 78 74 66 62 58 54 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ΥΕΑΠ INDEX OF CONSUMER CONFIDENCE
> How might declining prices affect a firm’s decision to borrow and invest?
> If an inflationary gap exists, what will happen to business inventories? How will producers respond?
> Why wouldn’t market participants always want to buy all the output produced?
> Why are faster supplier deliveries considered a negative leading indicator? (See News, p. 198.) IN THE NE WS U.S. Leading Indicators Index Increases More Than Forecast The index of U.S. leading economic indicators increased in December more than fore
> Why did New York Governor Cuomo cut state spending in 2011–2012? How did that affect AD? (See News, p. 192.)
> According to the World View on page 191, why did Panasonic cut investment spending in 2009? What this a rational response? WORLD VIEW Panasonic Slashes Spending Hurt by sliding consumer spending around the world, electronics giant Panasonic Corp. sai
> Why would an employed consumer cut spending when other workers were being laid off (see News, p. 187)? IN THE NE WS Consumer Confidence Index at All-Time Low NEW YORK (CNNMoney.com)-A key measure of consumer confidence fell to an all-time low in Dece
> Why do rich people have a higher marginal propensity to save than poor people?
> Are people worse off when the price level rises as fast as their income? Why do people often feel worse off in such circumstances?
> Why might rising prices stimulate short-run production but have no effect on long-run production?
> What’s wrong with the classical theory of self-adjustment? Why didn’t sales and employment increase in 1929–1933 in response to declining prices and wages (see Figure 8.1)? 26 24 22 20 18 Unempl
> How did the decline in U.S. home prices in 2006–2008 affect aggregate demand?
> If business cycles were really inevitable, what purpose would macro policy serve?
> Who gains and who loses from rising house prices?
> How might rapid inflation affect college enrollments?
> How do higher gasoline prices contribute to inflation?
> Why would farmers rather store their output than sell it during periods of hyperinflation? How does this behavior affect prices?
> Identify (a) two jobs at your school that could be outsourced and (b) two jobs that would be hard to outsource.
> Why might job market (re)entrants have a harder time finding a job than job losers?
> Would it be advantageous to borrow money if you expected prices to rise? Would you want a fixed-rate loan or one with an adjustable interest rate?
> How can the outsourcing of U.S. computer jobs generate new U.S. jobs in construction or retail trade?( See News, page 127) IN THE NEWWS Outsourcing May Create U.S. Jobs Higher Productivity Allows for Investment in Staffing, Expanslon, a Study Finds W
> Over 4 million websites sell a combined $100 billion of pornography a year. Should these sales be included in (a) GDP and (b) an index of social welfare?
> The value of total expenditure must equal the value of total income. Why?
> Are you better off today than a year ago? How do you measure the change?
> Should the government be downsized? Which functions should be cut back? Which ones should be expanded?
> How might free markets help reduce global poverty? How might they impede that goal?
> How does XM Satellite deter nonsubscribers from listening to its transmissions? Does this make radio programming a private good or a public good?
> What jobs are likely part of the underground economy?
> Clear-cutting a forest adds to GDP the value of the timber, but it also destroys the forest. How should we value that loss?
> In Figure 3.8, why is the organ demand curve downward-sloping rather than vertical? Figure 3.8: Market demand Market supply -Equilibrium - Market shortage at p = 0 > 9a QUANTITY (organs per year) PRICE (per organ)
> If all prices increased at the same rate (i.e., no relative price changes), would inflation have any redistributive effects?
> If more teenagers stay in school longer, what happens to (a) production possibilities? (b) unemployment rates?
> Which determinants of pizza demand change when the White House is in crisis?
> GDP in 1981 was $2.96 trillion. It grew to $3.07 trillion in 1982, yet the quantity of output actually decreased. How is this possible?
> Is it possible for unemployment rates to increase at the same time that the number of employed persons is increasing? How?
> Could a nation reorder Rostow’s five stages of development and still grow? Explain.
> How do nations expect nationalization of basic industries to foster economic growth?
> Why do economists put so much emphasis on entrepreneurship? How can poor nations encourage it?
> Would you invest in Cambodia or Kenya on the basis of the information in Figure 21.5?
> Is a stronger dollar good or bad for the United States? Explain.
> Whose real wealth (see Table 7.3) declined in the 1990s? Who else might have lost real income or wealth? Who gained as a result of inflation? Table 7.3: Asset Change In Value (%), 1991–2001 Stocks +250% +71 Diamonds Oil +66 Housing U.S. farmland
> How does international trade restrain the price behavior of domestic firms?
> Should military spending be subject to macroeconomic constraints? What programs should be expanded or contracted to bring about needed changes in the budget? Is this feasible?
> Why did Fed Chairman Bernanke expect there would be no recession in 2008? Why was he wrong?
> Why were banks reluctant to use their lending capacity in 2008? (See News, p. 322.) What did they do with their increased reserves?
> Why might China’s monetary restraint (World View, p. 321) not have worked?
> Why might the Fed want to decrease the money supply?
> Why did China raise reserve requirements in 2011? How did they expect consumers and businesses to respond?
> What are the current price and yield of 10-year U.S. Treasury bonds? Of General Motors bonds? (Check the financial section of your daily newspaper.) What accounts for the difference?
> What are the economic risks of aggressive Fed open market purchases?
> If all banks heeded Shakespeare's admonition "Neither a borrower nor a lender be,” what would happen to the circular flow?
> Who gained and who lost from the price changes in Table 7.2? Table 7.2: Prices That Rose (%) Prices That Fell (%) Gasoline +18.4% Bananas - 5.7% Used cars Cigarettes Air fares +12.7 -7.2 Computers Televisions -24.7 +10.5 +7.8 Textbooks +5.4 +5.2 Av
> Why do banks pay higher interest rates for longer-term certificates of deposit?
> In what respects are modern forms of money superior to the colonial use of wampum as money?
> If inflation raises U.S. prices by 3 percent and the U.S. dollar appreciates by 5 percent, by how much does the foreign price of U.S. exports change?
> Between 1980 and 2003, by how much did the dollar appreciate (Figure 20.3)? 130 125 120 115 110 8 105 1980 1985 1990 1995 2000 2005 2010 YEAR GLOBAL VALUE OF U.S. DOLLAR (broad, trade-weighted index) 1997 = 100 Dollar appreciation Dollar depreciation
> If a PlayStation 3 costs 20,000 yen in Japan, how much will it cost in U.S. dollars if the exchange rate is (a) 120 yen = $1? (b) 1 yen = $0.00833? (c) 100 yen = $1?
> If a pound of U.S. pork cost 40 rupiah in Indonesia before the Asian crisis, how much did it cost when the dollar value of the rupiah fell by 80 percent?
> The following exchange rates were taken from ExchangeRate.com. On July 21, by how much did the dollar appreciate or depreciate against the (a) Chinese yuan? (b) Canadian dollar? Currency Rates per 1.00 U.S. Dollar July 20 July 21 Chinese yuan (CNY)
> As shown in Table 20.1, in 2010 the United States was running a current account deficit. How would each of the following events affect the size of the current account deficit? (a) U.S. companies, the largest investors in Switzerland, see even more promis
> According to the World View on page 442, which nation had (a) The cheapest currency? (b) The most expensive currency?
> Suppose the following table reflects the domestic supply and demand for compact discs (CDs): (a) Graph these market conditions and identify (i) The equilibrium price. (ii) The equilibrium quantity. (b) Now suppose that foreigners enter the ma
> Why do people expect inflation to heat up when the unemployment rate approaches 4 percent?
> Suppose the two islands in Problem 4 agree that the terms of trade will be one for one and exchange 10 pearls for 10 pineapples. (a) If Alpha produced 6 pearls and 15 pineapples while Beta produced 30 pearls and 8 pineapples before they decided to trad
> (a) How much more are U.S. consumers paying for the 20 billion pounds of sugar they consume each year as a result of the quotas on sugar imports? (b) How much sales revenue are foreign sugar producers losing as a result of those same quotas?
> Alpha and Beta, two tiny islands off the east coast of Tricoli, produce pearls and pineapples. The following production possibilities schedules describe their potential output in tons per year: (a) Graph the production possibilities confronting each is
> If it takes 24 farmworkers to harvest 1 ton of strawberries and 8 farmworkers to harvest 1 ton of wheat, what is the opportunity cost of 5 tons of strawberries?
> Suppose a country can produce a maximum of 20,000 jumbo airliners or 2,000 aircraft carriers. (a) What is the opportunity cost of an aircraft carrier? (b) If another country offers to trade six planes for one aircraft carrier, should the offer be acc
> Complete the following chart by summarizing the policy prescriptions of various economic theories: Policy Prescription for Policy Approach Recession Inflation Fiscal Classical Keynesian Monetarist Monetary Keynesian Monetarist Supply side
> The following table displays Congressional Budget Office forecasts of federal budget balances for the following fiscal years. Compare these forecasts with actual surplus and deficits for those same years. (a) In how many years was the CBO too optimist
> According to the World View on page 394, (a) Which country had the greatest macro misery in the 2000s? (b) Which country had the fastest growth?
> If the unemployment rate stays two percentage points above full employment for an entire year, (a) How many jobs will be lost in a labor force of 155 million? (b) If the average worker produces $105,000 of output, how much output will be lost?
> What is the annual rate of productivity advance implied by Moore’s Law?
> Why frictional unemployment is deemed desirable?
> The real (inflation-adjusted) value of U.S. manufacturing output and related manufacturing employment was (a) How many manufacturing jobs were lost between 2000 and 2010? (b) How much did output increase? (c) What was average manufacturing
> If output per worker is now $100,000 per year, how much will the average worker produce 10 years from now if productivity improves by (a) 2.0 percent per year? (b) 3.0 percent per year?
> In 2011 approximately 59 percent of the adult population (230 million) was employed. If the employment rate increased to 62 percent, (a) How many more people would be working? (b) By how much would output increase if per worker GDP were $105,00
> According to Figure 17.3, in how many years since 1970 has GDP grown (a) Faster than the population (1.1 percent growth)? (b) Slower than the population? 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 -1.0 -2.0 -3.0 -4.0 1970 1972 1974 1976 1978 1980 1982
> How much more output will the average American (U.S. population = 310 million) have a year from now if the $15 trillion GDP grows by (a) 0 percent? (b) 1 percent? (c) 3.5 percent?
> According to the Rule of 72 (Table 17.1) and recent growth rates (World View, p. 373) how long will it be before GDP doubles in (a) The United States? (b) China? (c) Ivory Coast? Net Growth Rate (%) Doubling Time (Years) 0.0% Ne
> Using data from the endpapers of this book, graph real GDP and population growth since 2000, setting 2000 values to an index base of 100.
> Suppose that every additional five percentage points in the investment rate (I ÷ GDP) boost economic growth by one percentage point. Assume also that all investment must be financed with consumer saving. The economy is now assumed to be fully employed at
> According to the Rule of 72 (Table 17.1), how many years will it take for GDP to double if the economy is growing at (a) 1.5 percent a year? (b) 2.8 percent a year? Net Growth Rate (%) Doubling Time (Years) 0.0% Never 0.5 144 years 1.0
> If the tax elasticity of labor supply is 0.15, by what percentage will the quantity of labor supplied increase in response to (a) A $500 per person income tax rebate? (b) A 4 percent reduction in marginal tax rates?
