Jim earned an annual salary of $15,000 in 1965. What is this equivalent to in 2005 dollars? (Use Exhibit 2 to find the CPI in the years mentioned.) Data from Exhibit 2: The CPI for 1965 = 31.5 The CPI for 2005 = 195.3
> Beginning in long-run equilibrium, explain what happens to the price level and Real GDP in the short run and in the long run as a result of; (a) A decline in AD, (b) A rise in AD, (c) A decline in SRAS, (d) A rise in SRAS.
> Jim says, “I think it’s a little like when you have a cold or the flu. You don’t need to see a doctor. In time your body heals itself. That’s sort of the way the economy works too. We don’t really need government coming to our rescue every time the econo
> Yvonne is telling her friend Wendy that wages are rising but that so is the unemployment rate. She tells Wendy that she (Yvonne) may be the next person to be fired at her company and that she may have to move back in with her parents. What does the econo
> Suppose that the economy is self-regulating, that the price level is 110, that the quantity demanded of Real GDP is $4 trillion, that the quantity supplied of Real GDP in the short run is $4.9 trillion, and that the quantity supplied of Real GDP in the l
> Suppose that the economy is self-regulating, that the price level is 132, that the quantity demanded of Real GDP is $4 trillion, that the quantity supplied of Real GDP in the short run is $3.9 trillion, and that the quantity supplied of Real GDP in the l
> Explain the importance of the real balance, interest rate, and international trade effects to long-run (equilibrium) adjustment in the economy.
> If wage rates are not flexible, can the economy be self-regulating? Explain your answer.
> According to economists who believe in a self-regulating economy, what happens—step by step—when the economy is in a recessionary gap? What happens when the economy is in an inflationary gap?
> When speeding tickets were $100, usually 500 speeders on the roads each month in a given city; when ticket prices were raised to $250, usually 215 speeders were on the roads in the city each month. Can you find any economics in this observation?
> Explain how the economy can operate beyond its institutional PPF but not beyond its physical PPF.
> What is the classical economics position with respect to; (a) Wages, (b) Prices, and (c) Interest rates?
> Explain how expectations about future sales will affect investment.
> Explain how expectations about future prices and incomes will affect consumption.
> Explain what is likely to happen to U.S. export and import spending as a result of the dollar depreciating in value.
> Explain what happens to aggregate demand in each of the following cases: (a) The interest rate rises; (b) Wealth falls; (c) The dollar depreciates relative to foreign currencies; (d) Households expect lower prices in the future; (e) Business taxes r
> The amount of Real GDP (real output) that households are willing and able to buy may change if there is a change in either; (a) The price level, or (b) Some non-price factor, such as wealth, interest rates, and the like. Do you agree or disagree? Expla
> There is a difference between a change in the interest rate that is brought about by a change in the price level and a change in the interest rate that is brought about by a change in some factor other than the price level. The first will change the quan
> An economist is sitting in the Oval Office of the White House, across the desk from the president of the United States. The president asks, “How does the unemployment rate look for the next quarter?” The economist answers, “It’s not good. I don’t think R
> Explain each of the following: (a) Real balance effect (b) Interest rate effect (c) International trade effect.
> Suppose the demand curve for a good is downward-sloping and the supply curve is upward-sloping. Now suppose demand rises. Will producers’ surplus rise or fall? Explain your answer.
> What is the difference between short-run equilibrium and long-run equilibrium?
> Identify the details of each of the following explanations for an upward-sloping SRAS curve: (a) Sticky-wage explanation; (b) Worker-misperception explanation.
> In the short run, what is the impact on the price level and Real GDP of each of the following? (a) An increase in consumption brought about by a decrease in interest rates; (b) A decrease in exports brought about by an appreciation of the dollar; (c)
> A change in the price level affects which of the following? (a) The quantity demanded of Real GDP; (b) Aggregate demand; (c) Short-run aggregate supply; (d) The quantity supplied of Real GDP.
> What is the difference between a change in the quantity supplied of Real GDP and a change in short-run aggregate supply?
> Explain how each of the following can affect short-run aggregate supply: (a) An increase in wage rates; (b) A beneficial supply shock; (c) An increase in the productivity of labor; (d) A decrease in the price of a non-labor resource (such as oil).
> Will a direct increase in the price of U.S. goods relative to foreign goods lead to a change in the quantity demanded of Real GDP or to a change in aggregate demand? Will a change in the exchange rate that subsequently increases the price of U.S. goods r
> Can total spending be a greater dollar amount than the money supply? Explain your answer.
> Under what conditions can consumption rise without some other spending component declining?
> How will a change in the money supply affect aggregate demand?
> Identify what happens to equilibrium price and quantity in each of the following cases:
> Is aggregate demand a specific dollar amount? For example, is it correct to say that aggregate demand is $9 trillion this year?
> Define each of the following terms: (a) Contraction; (b) Business cycle; (c) Trough; (d) Disposable income; (e) Net domestic product.
> What is the difference between a recovery and an expansion?
> Economists prefer to compare Real GDP figures for different years instead of comparing GDP figures. Why?
> A business firm produces a good this year that it doesn’t sell. As a result, the good is added to the firm's inventory. How does this inventory good find its way into GDP?
> Why does GDP omit the sales of used goods? Of financial transactions? Of government transfer payments?
> The manuscript for this book was keyed by the author. Had he hired someone to do the keying, GDP would have been higher than it was. What other activities would increase GDP if they were done differently? What activities would decrease GDP if they were d
> Discuss the problems you see in comparing the GDPs of two countries, say, the United States and the People’s Republic of China.
> Which of the following are included in the calculation of this year’s GDP? (a) 12-year-old Johnny mowing his family’s lawn; (b) Dave Malone buying a used car; (c) Barbara Wilson buying a bond issued by General Motors; (d) Ed Ferguson’s receipt of a S
> In the first quarter of the year, Real GDP was $400 billion; in the second quarter it was $398 billion; in the third quarter it was $399 billion; and in the fourth quarter it was $395 billion. Has there been a recession? Explain your answer.
> Explain how the market moves to equilibrium in terms of shortages and surpluses and in terms of maximum buying prices and minimum selling prices.
> Does the expenditure approach to computing GDP measure U.S. spending on all goods, or U.S. spending on only U.S. goods, or U.S. and foreign spending on only U.S. goods? Explain your answer.
> “I just heard on the news that GDP is higher this year than it was last year. This means that we’re better off this year than last year.” Comment.
> Assume the market basket contains 10X, 20Y, and 45Z. The current-year prices for goods X, Y, and Z are $1, $4, and $6, respectively. The base-year prices are $1, $3, and $5, respectively. What is the CPI in the current year?
> Using Exhibit 2, compute the percentage change in prices between (a) 1966 and 1969, (b) 1976 and 1986, and (c) 1990 and 1999.
> Based on the following data, compute (a) The unemployment rate (b) The structural unemployment rate (c) The cyclical unemployment rate. The frictional unemployment = 2 percent, Natural unemployment rate = 5 percent, Civilian labor force = 100 milli
> Using the following data, compute; (a) The unemployment rate (b) The employment rate (c) The labor force participation rate. The civilian non-institutional population = 200 million number of employed persons = 126 million, and number of unemployed pers
> A house cost $10,000 in 1976. What is this equivalent to in 2001 dollars? (Use Exhibit 2 to find the CPI in the years mentioned.) Data from Exhibit 2: The CPI for 1976 = 56.9 The CPI for 2001 = 177.1
> Change the current year prices in Exhibit 1 to $1 for pens, $28 for shirts, and $32 for a pair of shoes. What is the CPI for the current year based on these prices?
> Suppose 100 million people are in the civilian labor force and 90 million people are employed. How many people are unemployed? What is the unemployment rate?
> Use the law of diminishing marginal utility to explain why demand curves slope downward.
> If the CPI is 150 and nominal income is $100,000, what does real income equal?
> Suppose, 60 million people are employed, 10 million unemployed, and 30 million not in the labor force. What does the civilian non-institutional population equal?
> Suppose there exists a costless way to charge drivers on the freeway. Under this costless system, tolls on the freeway would be adjusted according to traffic conditions. For example, when traffic is usually heavy, such as from 6:30 a.m. to 9:00 a.m. on a
> Application 10 explains that even though no one directly and explicitly pays for good weather (“Here is $100 for the good weather”), you may pay for good weather indirectly, such as through housing prices. Identify three other things (besides good weathe
> In the discussion of healthcare and the right to sue your HMO, we state, “Saying a seller’s minimum price for providing a good or service rises, is the same as saying the seller’s supply curve has shifted upward and to the left.” Does it follow that if a
> What do the applications about freeway congestion and 10 a.m. classes have in common?
> Suppose the purchase and sale of marijuana are legalized and the price of marijuana falls. What is the explanation?
> Harvard, Yale, and Princeton all charge relatively high tuition. Still, each uses ACT and SAT scores as admission criteria. Are charging a relatively high tuition and using standardized test scores as admission criteria inconsistent? Explain your answer.
> If there were no third parties in medical care, medical-care prices would be lower. Do you agree or disagree? Explain your answer.
> Why do some bars offer free peanuts and pretzels to their patrons?
> What will happen if business taxes decrease at the same time that there is a beneficial supply shock, and AD and SRAS shift by the same amounts? The price level will _______________ and Real GDP will _______________.
> There is an increase in business taxes. The price level will _______________ and Real GDP will _______________.
> There is a decrease in prices of nonlabor inputs. The price level will _______________ and Real GDP will _______________.
> There is an appreciation in the country’s currency. The price level will _______________ and Real GDP will _______________.
> There is an increase in foreign real national income. The price level will _______________ and Real GDP will _______________.
> There is an increase in productivity. The price level will _______________ and Real GDP will _______________.
> There is an increase in interest rates. The price level will _______________ and Real GDP will _______________.
> What will happen if there is a decrease in the value of the U.S. dollar at the same time that there is a decrease in the prices of nonlabor inputs, and AD and SRAS shift by the same amounts? The price level will _______________ and Real GDP will ___
> Speculation (on prices) leads to gains for the speculator and losses for others. Do you agree or disagree? Explain your answer.
> What will happen if there is a decrease in interest rates at the same time that there is an increase in wage rates, and AD shifts by more than SRAS shifts? The price level will _______________ and Real GDP will _______________.
> There is an increase in foreign real national income. The price level will _______________ and Real GDP will _______________.
> There is an adverse supply shock. The price level will _______________ and Real GDP will _______________.
> There is a decrease in personal income taxes. The price level will _______________ and Real GDP will _______________.
> Consumers start to expect higher future prices. The price level will _______________ and Real GDP will _______________.
> There is a decrease in productivity. The price level will _______________ and Real GDP will _______________.
> Consumers start to expect lower future incomes. The price level will _______________ and Real GDP will _______________.
> There is a decrease in wage rates. The price level will _______________ and Real GDP will _______________.
> There is a decrease in wealth. The price level will _______________ and Real GDP will _______________.
> If the CPI is 150 and nominal income is $100,000, what does real income equal?
> Samantha is flying from San Diego, California, to Arlington, Texas, on a commercial airliner. She asks for an aisle seat but only middle-of-the-row seats are left. Why aren’t any aisle seats left?
> Assume the market basket contains 10X, 20Y, and 45Z. The current-year prices for goods X, Y, and Z are $1, $4, and $6, respectively. The base-year prices are $1, $3, and $5, respectively. What is the CPI in the current year?
> Using Exhibit 2, compute the percentage change in prices between (a) 1966 and 1969, (b) 1976 and 1986, and (c) 1990 and 1999.
> Based on the following data, compute (a) the unemployment rate, (b) the structural unemployment rate, and (c) the cyclical unemployment rate. The frictional unemployment = 2 percent, natural unemployment rate = 5 percent, civilian labor force = 100 milli
> What will happen if there is an increase in income and this is an inferior good and, at the same time, subsidies to producers rise, and demand and supply shift by equal amounts? The equilibrium price will _______________ and the equilibrium quantit
> What will happen if buyers expect the price of this good to rise in the future and, at the same time, there is an improvement in the technology used to produce this good, and demand shifts by less than supply shifts? The equilibrium price will ____
> There is an increase in the number of buyers of this good: The equilibrium price will _______________ and the equilibrium quantity will _______________.
> There is a decrease in preferences for this good: The equilibrium price will _______________ and the equilibrium quantity will _______________.
> There is a decrease in taxes on producers of this good: The equilibrium price will _______________ and the equilibrium quantity will _______________.
> Sellers expect the price of this good to fall in the future: The equilibrium price will _______________ and the equilibrium quantity will _______________.
> There is a decrease in the number of sellers of this good: The equilibrium price will _______________ and the equilibrium quantity will _______________.
> What is the relationship between the probability of a person being admitted to the college of his choice and the tuition the college charges?
> There is a decrease in the price of a relevant resource used to produce this good: The equilibrium price will _______________ and the equilibrium quantity will _______________.
> There is a decrease in income and this is a normal good: The equilibrium price will _______________ and the equilibrium quantity will _______________.
> The price of a substitute for this good increase: The equilibrium price will _______________ and the equilibrium quantity will _______________.
> What will happen if there is an increase in the price of a complement to this good at the same time that there is an increase in government restrictions for producers of this good, and demand shifts by a larger amount than supply shifts? The equili
> What will happen if there is an increase in the number of buyers of this good at the same time that subsidies to producers of this good decrease, and demand and supply shift by equal amounts? The equilibrium price will _______________ and the equil
> The price of a substitute for this good decreases. The equilibrium price will _______________ and the equilibrium quantity will _______________.
> There is an increase in the price of a relevant resource used to produce this good: The equilibrium price will _______________ and the equilibrium quantity will _______________.
