Question: In each of parts (a)-(d), which

> What does it mean to say that investment is “interest insensitive”? D Sensitive Insensitive Investment Investment (a) (b) Interest rate Interest rate

> Saying that individuals are holding an “excess supply of money” is absurd because no one ever has enough money. Do you agree or disagree? Explain your answer. Interest Rate S2 excess supply of money Quantity of M

> “One-shot inflation may be a demand-side (of the economy) or a supply-side phenomenon, but continued inflation is likely to be a demand-side phenomenon.” Do you agree or disagree with this statement? Explain your answer.

> Draw both the money market and bond market in equilibrium. Next, explain, and show diagrammatically, show what happens to the interest rate and the price of bonds as a result of the Fed’s decreasing the money supply.

> Explain how monetary policy may destabilize the economy. LRAS SRAS, 1' SRAS, 2. AD, AD, JO, Real GDP Recessionary Gap Inflationary Gap Price Laval

> Explain how, under certain conditions, monetary policy can remove an economy from a recessionary gap. LRAS SRAS 2 AD2 AD, Real GDP

> Explain and diagrammatically represent the Keynesian transmission mechanism.

> A person buys a bond that matures in 10 years and pays a coupon rate of 10 percent. The face value of the bond is $10,000. How much money will the bondholder receive in the tenth year?

> The face value of a bond is $10,000 and the annual coupon payment is $850. What is the coupon rate?

> The closing price of the stock is $66.40, and the net earnings per share are $2.50. What is the stock’s P/E ratio?

> The closing price of a stock is$90.25, and the dividend is $3.50. What is the yield of the stock?

> You own 1,250 shares of stock X, and you read in the newspaper that the dividend for the stock is 3.88. How much did you earn in dividends?

> Special-interest group A receives a 1/100 slice of the economic pie. The group spends $100 to lobby for a policy that transfers $1,000 to it but that also reduces the size of the economic pie by $50,000. What are the net benefits to group A of the polic

> Using Exhibit 3, explain the logic of how both group A and group B are likely to end up in box 4, even though both prefer box 1.

> What are the assumptions and predictions of the simple quantity theory of money? Does the simple quantity theory of money predict well?

> Special-interest group A receives a 1/1,000 slice of the economic pie (Real GDP). The group can lobby for one of two different policies, and in each case the lobbying costs are $100. The first policy will increase the size of the economic pie by $10 m

> How much time a person will devote to producing and stealing depends on the ratio of marginal benefits to marginal costs of each activity. Give a numerical example to illustrate this point.

> If the exchange rate is 0.08 = 1 MXN, what is the cost in dollars of a Mexican table priced at 500 pesos?

> If $1 equals 31 rubles, what does 1 ruble equal?

> If $1 equals 7.7 krone (Danish), what does 1 krone equal?

> If $1 equals ¥0.0093, what does ¥1 equal?

> Use the following information to answer (a) – (c): U.S. Dollar Currency Per Equivalent U.S. Dollar Thursday Friday Thursday Friday Russia (ruble) 0.0318 0.0317 31.41

> In the accompanying figure, PW is the world price and PW + T is the world price plus a tariff. Identify the following: (a) The level of imports at PW (b) The level of imports at PW + T (c) The loss in consumers’ surplus as a result o

> Using the data in the accompanying table, answer the following questions: (a) For which good does Canada have a comparative advantage? (b) For which good does Italy have a comparative advantage? (c) What might be a set of favorable terms of trade for

> Diagrammatically represent what happens to the efficient number of gifts a gift-giver wants to give to a gift recipient as the marginal benefits of giving gifts decline.

> Explain how a gold standard, as monetary policy, would work?

> Diagrammatically represent what happens to the efficient number of gifts that a gift giver wants to give to a gift recipient as the marginal cost of giving gifts declines.

> In part (a) of the accompanying figure, the distribution of voters is skewed to the left; in part (b), the distribution is skewed neither left nor right; and in part (c), it is skewed right. Assuming a two-person race for each distribution, will the cand

> Suppose that the net benefits and net costs for each person are known a week before election day and that it is legal to buy and sell votes. Furthermore, suppose that neither buying nor selling votes has any conscience cost (i.e., one does not feel guilt

> Suppose that three major candidates—A, B, and C—are running for president of the United States and that the distribution of voters is that shown in Exhibit 1. Two of the candidates—A and B─ are currently viewed as right of the median voter, and C is view

> What would the aggregate supply curve look like if a rise in aggregate demand led to a rise in Real GDP but to no change in the price level?

> If the tax base is $100 billion and tax revenues are $15 billion, what is the average tax rate?

> A rise in aggregate demand raises Real GDP and the price level. Draw the aggregate supply curve that is consistent with this statement. Next, a rise in aggregate demand raises the price level but leaves Real GDP unchanged. Draw the aggregate supply curve

> A $40 reduction in taxes increases Real GDP by $100, and a $50 increase in government spending increases Real GDP by $120. What is the tax multiplier? What is the government spending multiplier?

> Let labor be the variable shown on the horizontal axis and Real GDP on the vertical axis. Suppose there is an increase in physical capital. Does the increase lead to a movement along the production function or to a shift in the production function? Expla

> Let labor be the variable shown on the horizontal axis and Real GDP on the vertical axis. Suppose there is a rise in labor. Does this lead to a movement along the production function or to a shift in the production function? Explain your answer. Next, dr

> Does the monetary policy of the market monetarists take into account changes in velocity? Explain your answer.

> Explain numerically how an advance in technology can lead to more output or Real GDP.

> The economy of country X is currently growing at 2 percent a year. How many years will it take to double the Real GDP of country X?

> In each of the following figures (a-d) that follow, the starting point is point 1. Which part (a, b, c, or d) illustrates each of the following? (a) Friedman natural rate theory (short run) (b) New classical theory (unanticipated policy, short run) (c)

> Illustrate graphically what would happen to the price level and Real GDP level if individuals hold rational expectations, prices and wages are flexible, and individuals correctly anticipate a rise in aggregate demand.

> Illustrate graphically what would happen in the short run and in the long run to the price level and Real GDP if individuals hold rational expectations, prices and wages are flexible, and individuals overestimate the rise in aggregate demand (bias upward

> Illustrate graphically what would happen in the short run and in the long run to the price level and Real GDP level if individuals hold rational expectations, prices and wages are flexible, and individuals underestimate the decrease in aggregate demand (

> What does the real interest rate equal, given the following: (a) Nominal interest rate = 8 percent; expected inflation rate = 2 percent (b) Nominal interest rate = 4 percent; expected inflation rate = -4 percent (c) Nominal interest rate = 4 percent; ex

> Use the accompanying figure to answer questions a and b. (a) Suppose the economy is self-regulating and is at point A when there is a one-shot demand-induced inflation. If there are no other changes in the economy, at what point will the eco

> According to the Taylor Rule, if inflation is 8 percent and the GDP gap is 3 percent, what is the recommendation for the federal funds rate target?

> How will things change in the AD-AS framework if a change in the money supply is completely offset by a change in velocity?

> According to market monetarists, what problems might arise from a sharp decline in Nominal GDP?

> What does the nominal interest rate equal, given the following: (a) Real interest rate = 3 percent; expected inflation rate = 1 percent (b) Real interest rate = 5 percent; expected inflation rate = -3 percent.

> Show graphically that the more interest rate insensitive the investment demand curve is, the less likely it is that monetary policy will be effective at changing Real GDP.

> The annual average percentage change in Real GDP is 2.3 percent, and the annual average percentage change in velocity is 1.1 percent. Using the monetary rule discussed in the text, what percentage change in the money supply will keep prices stable (on av

> Last year, Charu bought a bond for $10,000 that promises to pay her $1,000 a year. This year investors can buy a bond for $10,000 that promises to pay $800 a year. If Charu wants to sell her old bond, what is its price likely to be?

> Last year, Manuel bought a bond for $10,000 that promises to pay him $900 a year. This year he can buy a bond for $10,000 that promises to pay $1,000 a year. If Manuel wants to sell his old bond, what is its price likely to be?

> Explain how it is possible to have too much money.

> Why is the demand curve for money downward sloping?

> If bond prices fall, will individuals want to hold more or less money? Explain your answer.

> Why might a person purchase an inflation-indexed Treasury bond?

> Monetary policy can affect relative prices. Do you agree or disagree with this statement? Explain your answer.

> If the face value of a bond is $10,900 and the annual coupon payment is $600, what is the coupon rate?

> “An issuer of a bond is a borrower.” Do you agree or disagree? Explain your answer.

> Which of the two stocks has a bigger gap between its close price and net earnings per share, Stock A with a P/E ratio of 15 or Stock B with a P/E ratio of 44? Explain your answer.

> If the share price of each of 500 stocks rises on Monday does everyone in the stock market believe that stocks are headed even higher? (No one will buy a stock if he or she thinks share prices are headed lower.)

> What does it mean if someone invests in a mutual fund? In a stock market fund.

> What does the phrase “to buy the market” mean?

> What does it mean if the Dow Jones Industrial Average rises by, say, 100 points in a day?

> If you thought that the share price of a stock was going to fall, would you buy a call option or a put option?

> “The currency speculator who sells futures contracts assumes the risk that someone else doesn’t want to assume.” Do you agree or disagree? Explain your answer.

> Why might a person buy a call option?

> How does inflation targeting work?

> Why might a person buy a futures contract?

> “If you can predict interest rates, then you can earn a fortune buying and selling bonds.” Do you agree or disagree? Explain your answer.

> What is the purpose of financial markets?

> What is the case for government intervention in the economy with respect to non-excludable public goods?

> Even if government uses taxes to deal with a negative externality, an inefficient market outcome will not necessarily change into an efficient one. Do you agree or disagree? Explain your answer.

> Government can use taxes and subsidies to change an inefficient market outcome into an efficient outcome. Do you agree or disagree? Explain your answer.

> What is the relationship between MPC and MSC if a negative externality exists? What is the relationship between MPB and MSB if a positive externality exists?

> Government can remove two individuals from a prisoner’s dilemma setting and end up making one individual better off and the other individual worse off. Do you agree or disagree? Explain your answer. (Hint: Think taxes.)

> Does government always make individuals better off if it removes them from a prisoner’s dilemma setting? Explain your answer.

> Government can remove individuals from a prisoner’s dilemma setting by changing the payoffs from various actions. Explain.

> Argue the case for and against a monetary rule.

> Government may provide, or be part of a process that generates, both non-excludable public goods and bads. Do you agree or disagree? Explain your answer.

> As presented in this chapter, what is the case for government? What is the case against government?

> Special-interest groups that seek transfers may find themselves in a prisoner’s dilemma setting. Do you agree or disagree? Explain your answer.

> Special-interest group A receives a 1/1,000 slice of the economic pie. The group’s net benefits from an economic growth policy are $3,000, which are the same as its net benefits from a transfer policy. What (absolute) change in the size of the economic p

> Explain how a tax credit policy for first-time home buyers can raise the demand for, and price of, houses.

> In this chapter, we discussed three types of transfers. Identify and explain each.

> Individuals sometimes disagree over the preferred quality and quantity of a non-excludable public good. Why?

> Under what condition would an individual choose to spend additional time producing instead of stealing? Under what condition would an individual choose to spend additional time stealing instead of producing?

> What does it mean to say that a currency is overvalued? Undervalued?

> A country whose currency is the primary reserve currency can likely borrow at lower interest rates than it could if its currency were not the primary reserve currency. Do you agree or disagree? Explain.

> The discussion of supply and demand in Chapter 3 noted that, if two goods are substitutes for each other, the price of one and the demand for the other are directly related. For example, if Pepsi-Cola and Coca-Cola are substitutes, an increase in the pri

> Explain the details of the purchasing power parity (PPP) theory.

> What are the strong and weak points of the flexible exchange rate system? What are the strong and weak points of the fixed exchange rate system?

> Give an example of how a change in the exchange rate alerts the relative price of domestic goods in terms of foreign goods.

> Suppose the United States and Japan have a flexible exchange rate system. Explain whether each of the following events will lead to an appreciation or depreciation of the U.S. dollar and Japanese yen. (a) U.S. real interest rates rise above Japanese rea

> What does it mean to say that the U.S. dollar has depreciated in value in relation to the Mexican peso? What does it mean to say that the Mexican peso has appreciated in value relative to the U.S. dollar?

> The lower the dollar price of a peso, the higher is the quantity demanded of pesos, and the lower is the quantity supplied of pesos. Do you agree or disagree? Explain.

> If everyone in the world spoke the same language, would the world be closer to or further from being an optimal currency area? Explain.

> How important is labor mobility in determining whether an area is an optimal currency area?

> Country 1 produces good X, and country 2 produces good Y. People in both countries begin to demand more of good X and less of good Y. Assume that there is no labor mobility between the two countries and that a flexible exchange rate system exists. What w