Now consider Question 5 in terms of the law’s impact on domestic producers that export goods. Does this policy adversely affect domestic producers that export goods? Details from Question 5: Suppose the United States passed a law stating that we would not purchase imports from any country that imposed any trade restrictions on our exports. Who would benefit and who would lose from such retaliation?
> The story of the worst collapse of the housing market and the most serious financial crisis since the Great Depression is filled with villains and no action hero to sweep down from the sky and save the day. It is an Alice in Wonderland story with plent
> The Federal Open Market Committee (FOMC), which is the Fed’s most powerful monetary policy-making group, and meets eight times a year at the Federal Reserve in Washington, D.C. Often it seems that the whole world is watching for the res
> The case of Lincoln Savings and Loan is a classic example of what went wrong during one of the worst financial crises in U.S. history prior to the banking crisis and Great Recession of 2007–2009. In 1984, the Securities and Exchange Com
> The Federal Reserve is perhaps the most independent government agency in the United States. Periodically, there is a resurgence of interest in curtailing its independence. Should the Fed be independent of partisan politics, or would we be better off with
> On the tiny South Pacific island of Yap, life is easy, but the currency is hard as a rock. For nearly 2,000 years, the Yapese has used large stone wheels to pay for major purchases, such as land, canoes, and permission to marry. The people of Yap have be
> Perhaps the national debt and federal budget deficits are really not so large and threatening. For example, it can be argued that we should use real rather than nominal values to report the national debt—similar to using real GDP to report economic growt
> As unprecedented deficit figures flowed during the Great Recession, it is hard to believe that for four years the federal budget was in surplus. After a one-year small budget surplus in 1969, it took 29 contentious years to eliminate federal budget defic
> Two controversial fundamental tax reform ideas are often hot news topics. One proposal is the flat tax discussed earlier in this chapter, and the other is a national sales tax. The flat tax would grant a personal exemption of say, $36,000, for a typical
> Supply-side economics became popular during the presidential campaign of 1980. This fiscal policy prescription gained prominence after supply-side economist Arthur Laffer, using his pen to draw on a paper napkin, explained what has come to be known as th
> In The General Theory of E mployment, Interest, and Money, Keynes wrote: The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by li
> What are the advantages and disadvantages of the price system?
> The inflation rate for health care in the United States has consistently exceeded the overall rate of inflation over the last half century. According to the Bureau of Labor Statistics, in 2016, the costs of health care increased by 4 percent, while the o
> The following articles are two historical examples of hyperinflation: The first is a Wall Street Journal article from 1985 that describes hyperinflation in La Paz, Bolivia; the second article is from the San Francisco Chronicle article that reported on
> In the late 1980s, many farmers who were tired of milking cows, roping steers, and slopping hogs decided to try their hand at a new animal. Anyone feeding this animal, however, could require a gun for protection. Prior to the late 1970s, alligators were
> There is a global market in human organs in spite of attempts to prevent these transactions. For example, China banned organ sales in 2006, and India did the same in 1994. Conversely, in Iran regulated kidney sales for profit are legal and currently ther
> Radio was in existence for 38 years before 50 million people tuned in. Television took 13 years to reach that benchmark. Sixteen years after the first PC kit was introduced, 50 million people were using one. When available to the public, the Internet cro
> The unemployment rate does not measure the full impact of unemployment on individuals. Prolonged unemployment not only means lost wages, but it also impairs health and social relationships. The United States fought its most monstrous battle against unemp
> Technological advances continue to enhance our productivity, enabling us to enjoy a greater quantity, quality, and variety of products that significantly elevate our standard of living as a nation. Every day we witness incredible new technologies in comp
> Women working full-time earn on average about 20 percent less than men. Discrimination in wages and employment on the basis of sex was made illegal in 1963 by the Equal Pay Act (EPA), which outlawed pay discrimination between men and women doing substant
> Suppose March Madness included your basketball team making it all the way to the Final Four and you were going to be there. Before leaving, you checked the official website and noticed a Coke ad giving a prize to the person who submitted the best video c
> Cartels flourished in Germany and other European countries in the first half of the twentieth century. Many had international memberships. After World War II, European countries passed laws against such restrictive trade practices. The following are some
> Use a graph to show the impact on the price of Japanese cars sold in the United States if the United States imposes import quotas and other trade restrictions that decrease the supply of Japanese cars. Now draw another graph to show how the change in the
> A key characteristic of the market structures discussed in this chapter is that they use advertising to promote product differentiation, which is a form of non-price competition. The television commercial is considered the most effective method of mass-m
> Yellow taxicabs in New York City, which are today one of the most famous icons of the city, engender a love and hate relationship. The upside is that you can stick your arm in the air to hail a cab that will take you to your destination. The downside is
> Oil was discovered in western Pennsylvania by Colonel Edwin L. Drake in 1859, and after the Civil War, oil wells sprang up across the landscape. Because oil was plentiful, there was cutthroat competition, and the result was low prices and profits. At thi
> Interesting examples of monopolies can be found in other countries. Let’s begin with a historical example. In the sixteenth through eighteenth centuries, monarchs granted monopoly rights to a variety of businesses. For example, in 1600,
> Pick the best price that you want to pay for a product. Is zero reserved only for those who believe in Santa Claus? Recall the famous saying by economist Milton Friedman that “there’s no such thing as a free lunch.” Well, today more a
> Tobacco use is one of the chief preventable causes of death in the world. Since 1964, health warnings have been mandated in the United States on tobacco advertising, including billboards and printed advertising. In 1971, television advertising was prohib
> In their book Free to Choose, published in 1980, economists Milton Friedman and his wife Rose Friedman proposed a voucher plan for schools. The objective of their proposal was to retain government financing, but give parents greater freedom to choose the
> For many years the milk industry faced an important question: What does the federal government plan to do about its dairy price support program, which has helped boost farmers’ income since 1949? Under the price support program, the fed
> Use the following demand schedule for a monopolist. Calculate total revenue and marginal revenue. For each price, indicate whether demand is elastic, unit elastic, or inelastic. Using the data from the demand schedule, graph the demand curve, the margina
> Explain why you agree or disagree with the following statements: a. “All monopolies are created by the government.” b.“The monopolist charges the highest possible price.” c. “The monopolist never takes a loss.”
> Which of the following are public goods? a. Air bags b. Pencils c. Cycle helmets d. City streetlights e. Contact lenses
> Why is the demand curve facing a monopolist downward sloping while the demand curve facing a perfectly competitive firm is horizontal?
> Suppose the candy bar industry approximates a perfectly competitive industry. Suppose also that a single firm buys all the assets of the candy bar firms and establishes a monopoly. Contrast these two market structures with respect to price, output, and a
> Suppose the demand and cost curves for a monopolist are as shown in Exhibit 10. Explain what price the monopolist should charge and how much output it should produce.
> Explain why a monopolist would never produce in the inelastic range of the demand curve.
> Indicate whether each of the following is associated with a high or low level of economic growth and development: High Low a. Overpopulation b. Highly skilled labor c. High savings rate d. Political stability e. Low capital accumulation f. Advanced
> Explain why it is so difficult for poor LDCs to generate investment in capital in order to increase productivity and growth and, therefore, improve their standard of living.
> What is the difference between economic development and economic growth? Give examples of how each of these concepts can be measured.
> Explain why GDP per capita comparisons among nations are not a perfect measure of differences in economic well-being.
> Explain the differences among the Agency for International Development (AID), the World Bank, and the International Monetary Fund (IMF).
> What are some of the problems for LDCs of accepting foreign aid?
> The present choice between investing in capital goods and producing consumer goods now affects the ability of an economy to produce in the future. Explain.
> Suppose you are a factory manager. Describe how you might reach production goals under a system of pure capitalism and under a system of pure socialism.
> Karl Marx believed the market system was doomed. Why do you think he was right or wrong?
> “The schools are not in the business of pleasing parents and students, and they cannot be allowed to set their own agendas. Their agendas are set by politicians, administrators, and various constituencies that hold the keys to political
> Explain the advantages and disadvantages of any two of the three basic types of economic systems.
> Do you support a constitutional amendment to prohibit the federal government from imposing any trade barriers, such as tariffs and quotas, except in case of war or national emergency? Why or why not?
> Would the U.S. government gain any advantage from using tariffs or quotas to restrict imports?
> Bill can paint either two walls or one window frame in 1 hour. In the same time, Frank can paint either three walls or two window frames. To minimize the time spent painting, who should specialize in painting walls, and who should specialize in painting
> For each of the following situations, indicate the direction of the shift in the supply curve or the demand curve for dollars, the factor causing the change, and the resulting movement of the equilibrium exchange rate for the dollar in terms of foreign c
> Consider an economy in equilibrium with an inflationary gap. Draw a graph where the equilibrium real GDP is $16 trillion and the price level of 150. Label this equilibrium E1 where the aggregate demand, AD1, intersects the short-run aggregate supply curv
> Why does a production possibilities curve have a bowed-out shape?
> Consider an economy in equilibrium with a recessionary gap. Draw a graph where the equilibrium real GDP is $8 trillion and the price level of 150. Label this equilibrium E1 where the aggregate demand, AD1, intersects the short-run aggregate supply curve
> Exhibit 6 shows the monetarist monetary policy transmission mechanism. Assume the economy is in a recession. At each arrow, identify a reason why the transmission process could fail. Details from Exhibit 6: EXHIBIT 6 U.S. Balance of Trade, 1975-2016
> “A monetarist investigator might say that the sewer flow of 6,000 gallons an hour consisted of an average of 200 gallons in the sewer at any one time with a complete turnover of the water 30 times every hour.” Interpret this statement using the equation
> Using the demand and supply schedule for money shown in Exhibit 10, do the following: a. Graph the demand for money and the supply of money curves. b. Determine the equilibrium interest rate. c. Suppose the Fed increases the money supply by $100 billion.
> What are the basic motives for the transactions demand, precautionary demand, and speculative demand? Explain how these three demands are combined in a graph to show the total demand for money.
> Why is the shape of the aggregate supply curve important to the Keynesian-monetarist controversy? (Hint: Review Exhibit 6 in the chapter on aggregate demand and supply.) Details from Exhibit 6: EXHIBIT 6 U.S. Balance of Trade, 1975-2016 (billions o
> Based on the quantity theory of money, what would be the impact of increasing the money supply by 25 percent?
> Suppose the Federal Reserve’s trading desk buys $500,000 in T-bills from a securities dealer who then deposits the Fed’s check in Best National Bank. Use a balance sheet to show the impact on the bank’s loans. Consider the money multiplier and assume the
> Suppose you remove $1,000 from under your mattress and deposit it in First National Bank. Using a balance sheet, show the impact of your deposit on the bank’s assets and liabilities. If the required reserve ratio is 10 percent, what is the maximum amount
> In what form does a bank hold its required reserves? Assume the Fed has a 20 percent required reserve ratio. What amount of checkable deposits can be supported by $10 million in required reserves?
> Suppose, unfortunately, your mathematics and economics professors have decided to give tests two days from now and you can spend a total of only twelve hours studying for both exams. After some thought, you conclude that dividing your study time equally
> Although the Commerce Department, the Wharton School, the Federal Reserve Board, and other organizations publish economic forecasts and data on key economic indicators, they are not without armchair competition. For example, the chief executive of Stande
> Kyle, a single taxpayer, worked as a free-lance software engineer for the first three months of 2018. During that time, he earned $44,000 of self-employment income. On April 1, 2018 Kyle took a job as a full-time software engineer with one of his former
> Alice is single and self-employed in 2018. Her net business profit on her Schedule C for the year is $140,000. What is her self-employment tax liability and additional Medicare tax liability for 2018?
> Rasheed works for Company A, earning $350,000 in salary during 2018. Assuming he is single and has no other sources of income, what amount of FICA tax will Rasheed pay for the year?
> Brooke, a single taxpayer, works for Company A for all of 2018, earning a salary of $50,000. a. What is her FICA tax obligation for the year? b. Assume Brooke works for Company A for half of 2018, earning $50,000 in salary and she works for Company B f
> In 2018, Deon and NeNe are married filing jointly. They have three dependent children under 18 years of age. Deon and NeNe’s taxable income is $1,090,000, and they itemize their deductions as follows: real property taxes of $10,000, charitable contributi
> In 2018, Janet and Ray are married filing jointly. They have five dependent children under 18 years of age. Janet and Ray’s taxable income is $2,400,000, and they itemize their deductions as follows: state income taxes of $10,000 and mortgage interest ex
> Steve’s tentative minimum tax (TMT) for 2018 is $245,000. What is his AMT if a. His regular tax is $230,000? b. His regular tax is $250,000?
> In 2018, Juanita is married and files a joint tax return with her husband. What is her tentative minimum tax in each of the following alternative circumstances? a. Her AMT base is $100,000, all ordinary income. b. Her AMT base is $250,000, all ordinary i
> Corbett’s AMTI is $600,000. What is his AMT exemption under the following alternative circumstances? a. He is married and files a joint return. b. He is married and files a separate return. c. His filing status is single. d. His filing status is head o
> Olga is married and files a joint tax return with her husband. What amount of AMT exemption may she deduct under the following alternative circumstances? a. Her AMTI is $390,000. b. Her AMTI is $1,080,000. c. Her AMTI is $1,500,000.
> How was the income tax formula for individuals changed for 2018 by the Tax Cuts and Jobs Act?
> In 2018, Sven is single and has $120,000 of regular taxable income. He itemizes his deductions as follows: real property tax of $2,000, state income tax of $4,000, mortgage interest expense of $15,000 (acquisition debt of $300,000). He also has a positiv
> In 2018, Nadia has $100,000 of regular taxable income. She itemizes her deductions as follows: real property taxes of $1,500, state income taxes of $2,000, and mortgage interest expense of $10,000 (acquisition debt of $200,000). In addition, she receives
> Sylvester files as a single taxpayer during 2018. He itemizes deductions for regular tax purposes. He paid charitable contributions of $7,000, real estate taxes of $1,000, state income taxes of $4,000 and mortgage interest of $2,000 on $30,000 of acquisi
> Brooklyn files as a head of household for 2018). She claimed the standard deduction of $18,000 for regular tax purposes. Her regular taxable income was $80,000. What is Brooklyn’s AMTI?
> In 2018, Carson is claimed as a dependent on his parent’s tax return. Carson’s parents provided most of his support. What is Carson’s tax liability for the year in each of the following alternative circumstances? a. Carson is 17 years old at year-end and
> In 2018, Sheryl is claimed as a dependent on her parent’s tax return. Sheryl did not provide more than half her own support. What is Sheryl’s tax liability for the year in each of the following alternative circumstances? a. She received $7,000 from a par
> Henrich is a single taxpayer. In 2018, his taxable income is $450,000. What is his income tax and net investment income tax liability in each of the following alternative scenarios? a. All of his income is salary from his employer. b. His $450,000 of tax
> Lacy is a single taxpayer. In 2018, her taxable income is $40,000. What is her tax liability in each of the following alternative situations? a. All of her income is salary from her employer. b. Her $40,000 of taxable income includes $1,000 of qualified
> In 2018, Jasmine and Thomas, a married couple, have taxable income of $150,000. If they were to file separate tax returns, Jasmine would have reported taxable income of $140,000 and Thomas would have reported taxable income of $10,000. What is the couple
> John and Sandy Ferguson got married eight years ago and have a seven-year-old daughter Samantha. In 2018, John worked as a computer technician at a local university earning a salary of $152,000, and Sandy worked part-time as a receptionist for a law firm
> Troy operates an editorial service that employs two editors. These editors often entertain authors to encourage them to use Troy's service. This year Troy reimbursed the editors $3,000 for the cost of meals and $6,200 for the cost of entertaining authors
> Reba Dixon is a fifth-grade school teacher who earned a salary of $38,000 in 2018. She is 45 years old and has been divorced for four years. She received $1,200 of alimony payments each month from her former husband (divorced in 2016). Reba also rents ou
> In 2018, Jack is single two children, ages 10 and 12. Jack works full-time and earns an annual salary of $195,000 as a consultant.. Jack files as a head of household and does not itemize his deductions. In the fall of this year, he was recently offered a
> George recently received a great stock tip from his friend, Mason. George didn’t have any cash on hand to invest, so he decided to take out a $20,000 loan to facilitate the stock acquisition. The loan terms are 8 percent interest with interest-only payme
> On January 1 of year 1, Nick and Rachel Sutton purchased a parcel of undeveloped land as an investment. The purchase price of the land was $150,000. They paid for the property by making a down payment of $50,000 and borrowing $100,000 from the bank at an
> Shaun bought 300 shares of Dental Equipment, Inc. several years ago for $10,000. Currently the stock is worth $8,000. Shaun’s marginal tax rate this year is 24 percent, and he has no other capital gains or losses. Shaun expects to have a marginal rate of
> Christopher sold 100 shares of Cisco stock for $5,500 in the current year. He purchased the shares several years ago for $2,200. Assuming his marginal ordinary income tax rate is 24 percent, and he has no other capital gains or losses, how much tax will
> For 2018, Sherri has a short-term loss of $2,500 and a long-term loss of $4,750. a. How much loss can Sherri deduct in 2018? b. How much loss will Sherri carryover to 2019 and what is the character of the loss carryover?
> Diana and Ryan Workman were married on January 1 of last year. Diana has an eight-year-old son, Jorge, from her previous marriage. Ryan works as a computer programmer at Datafile Inc. (DI) earning a salary of $96,000. Diana is self-employed and runs a
> Consider the following letter and answer Shady’s question. To my friendly student tax preparer: Hello, my name is Shady Slim. I understand you are going to help me figure out my gross income for the year…whatever that means. It’s been a busy year and I’m
> Ken is 63 years old and unmarried. He retired at age 55 when he sold his business, Understock.com. Though Ken is retired, he is still very active. Ken reported the following financial information this year. Assume Ken files as a single taxpayer. Dete
> Explain why the medical expense provisions are sometimes referred to as “wherewithal” deductions and how this rationale is reflected in the limit on these deductions.
> Grayson is in the 24 percent tax rate bracket and has the sold the following stocks in 2018: Date Purchased Basis Date Sold Amount Realized Stock A 1/23/1994 $7,250 7/22/2018 $4,500 Stock B 4/10/2018 14,000 9/13/2018 17,500 Stock C
