Should the government try to equalize incomes more by raising taxes on the rich and giving more money to the poor? How might such redistribution affect total output and growth?
> Is the relative decline in U.S. farming and manufacturing (Figure 2.2) a good thing or a bad thing? 100 Services 80 60 80% 40 Agriculture Manufacturing mining, and construction 20 19% 1% 1800 1840 1880 1920 1960 2000 PERCENTAGE OF EMPLOYMENT
> In early 2009, short-term bond yields in the United States fell to less than 0.5 percent. Yet relatively few people moved their assets out of bonds into banks. How might this failure of open market operations be explained?
> Why did bond prices decline at the February 2009 auction?
> Why do people hold bonds rather than larger savings account or checking account balances? Under what circumstances might they change their portfolios, moving their funds out of bonds and into bank accounts?
> Why do banks want to maintain as little excess reserves as possible? Under what circumstances might banks want to hold excess reserves?
> How does federal deposit insurance encourage greater risk taking by banks? Could the banking system function without government deposit insurance? How?
> If people never withdrew cash from banks, how much money could the banking system potentially create? Could this really happen? What might limit deposit creation in this case?
> Does the fact that your bank keeps only a fraction of your account balance in reserve make you uncomfortable? Why don’t people rush to the bank and retrieve their money? What would happen if they did?
> What percentage of your monthly bills do you pay with (a) cash, (b) check, (c) credit card, and (d) automatic transfers? How do you pay off the credit card balance? How does your use of cash compare with the composition of the money supply (Figure
> How are an economy’s production possibilities affected when workers are paid in goods rather than in cash?
> Why are checking account balances, but not credit cards, regarded as “money”?
> The U.S. farm population has shrunk by over 25 million people since 1900. Where did all the people go? Why did they move?
> Which of the following options do you favor for resolving future Social Security deficits? What are the advantages and disadvantages of each option? (a) cutting Social Security benefits, (b) raising payroll taxes, (c) cutting non–Social Security prog
> How long would it take to pay off the national debt? How would the economy be affected?
> A constitutional amendment has been proposed that would require Congress to balance the budget each year. Is it possible to balance the budget every year? Is it desirable?
> If deficit spending "crowds out" some private investment, could future generations be worse off? If external financing eliminates crowding out, are future generations thereby protected?
> What is considered "too much" debt or "too large" a deficit? Are you able to provide any guidelines for deficit or debt ceilings?
> In what ways do future generations benefit from this generation’s deficit spending? Cite three examples.
> Who paid for the Revolutionary War? Did the deficit financing initiated by the Continental Congress pass the cost of the war on to future generations?
> What were the differences in size, content, and expected impact between the U.S. and Chinese 2009 stimulus packages?
> When Barack Obama was campaigning for president in 2008, he proposed more government spending paid for with higher taxes on “the rich.” What impact would those options have on macro equilibrium?
> Why do critics charge that fiscal policy has a “big-government bias”?
> Can we continue to produce more output every year? Is there a limit?
> How quickly should Congress act to remedy an AD excess or AD shortfall? What are the risks of quick fiscal policy responses?
> Will consumers always spend the same percentage of any tax cut? Why might they spend more or less than usual?
> What happens to aggregate demand when transfer payments and the taxes to pay them both rise by the same amount?
> How did consumers spend their 2008 tax cut? Does it matter what they spend it on? Explain.
> How can you tell if the economy is in equilibrium? How could you estimate the GDP gap?
> Why might “belt-tightening” by consumers in a recession be unwelcome?
> What forces might turn an economic bust into an economic boom? What forces might put an end to the boom?
> How can equilibrium output exceed full-employment output?
> When unwanted inventories pile up in retail stores, how is production affected? What are the steps in this process?
> How might a “perfect” macro equilibrium (Figure 9.10a) be affected by (a) a stock market crash, (b) rising home prices, (c) a recession in Canada, and (d) a spike in oil prices? z/
> Why is per capita GDP so much higher in the United States than in Mexico?
> How do households dissave? Where do they get the money to finance their extra consumption? Can everyone dissave at the same time?
> Did President Obama make the right policy decisions? How could you be sure?
> How would a sudden jump in U.S. prices affect (a) imports from Mexico, (b) exports to Mexico, and (c) U.S. aggregate demand?
> What might have caused real GDP to decline so dramatically in (a) 1929 and (b) 1946 (see Figure 8.3)? What caused output to increase again in each case? 20 20 World War II Great 15 15 Depression Long-term average growth (3%) Korean War 10 10 Vietna
> What exactly did Say mean when he said that “supply creates its own demand”?
> If equilibrium is compatible with both buyers’ and sellers’ intentions, how can it be undesirable?
> In 2010, how many of the 800,000 black teenagers who participated in the labor market (a) Were unemployed? (b) Were employed? (c) Would have been employed if they had the same unemployment rate as white teenagers? 40 36 32 Teenagers 43.0 28 24 20 Ad
> Why might more reliance on markets rather than government be desirable? When and how might it be undesirable?
> The World View on page 63 explains why gasoline prices rose in 2011. What will bring prices down?
> The goal of the price cut described in the News on page 51 was to (select one– enter letter) (A) Increase supply. (B) Increase quantity supplied. (C) Increase demand. (D) Increase quantity demanded. |N THE NEWS AT&T Cuts Price on IP
> On the accompanying graph, illustrate (A) nominal per capita GDP and (B) real per capita GDP for each year. (The necessary data appear on the endpapers of this book.) (a) By what percentage did nominal per capita GDP increase in the 1990s? (b) By what pe
> What is the connection between North Korea’s missile program and its hunger problem?
> How many resources should we allocate to space exploration? How will we make this decision?
> What events might prompt consumers to demand fewer goods at current prices?
> Use the GDP deflator data on the inside cover of this book to compute real GDP in 2000 at 2010 prices.
> Why do people around the world have so much faith in free markets?
> Illustrate what’s happening to oil prices in the World View on page 63. (a) Which direction did the demand curve shift (left or right)? (b) Which direction did the supply curve shift (left or right)? (c) Did price (A) increase or (B) decrease?
> Who would go to college in a completely private (market) college system? How does government intervention change this FOR WHOM outcome?
> How does the slope of the AS curve affect the size of the AD shortfall? If the AS curve were horizontal, how large would the AD shortfall be in Figure 11.3?
> (a) If Haiti’s per capita GDP of roughly $1,150 were to DOUBLE every decade (an annual growth rate of 7.2 percent), what would Haiti’s per capita GDP be in 50 years? (b) What is U.S. per capita GDP in 2010 (World View
> What are the opportunity costs of developing wind farms to generate “clean” electricity? Should we make the investment?
> If the labor force of 150 million people is growing by 1.5 percent per year, how many new jobs have to be created each month to keep unemployment from increasing? Web query: By how much did U.S. employment actually increase last month ( www.bls.gov )?
> In the previous problem’s market equilibrium, what is (a) The market value of the good? (b) The social value of the good?
> What was the “soaring” inflation rate in the United Kingdom in early 2011 (World View, p. 148)? Why was it such a concern? WORLD VIE W U.K. Inflation Soars U.K. consumer price inflation accelerated sharply in Decem
> How might a nation’s production possibilities be affected by the following? a. A decrease in income taxes. b. An increase in immigration. c. An increase in military spending. d. An increase in college tuition.
> What would have happened to shrimp prices and consumption if the government had prohibited price increases after the BP oil spill (see News, p. 58)?
> Between 2000 and 2010, by how much did (a) The labor force increase? (b) Total employment increase? (c) Total unemployment increase? (d) Total output (real GDP) increase?
> What was real per capita GDP in 1933 measured in 2008 prices? (Use the data in Table 5.4 to compute your answer.)
> Should the firefighters have saved the house in the News on page 73? What was the justification for their belated intervention? I N T H E N E W S Firefighters Watch as Home Burns to the Ground OBION COUNTY, Tenn.—Imagine your home catches fire but th
> What’s the real cost of the food in the “free lunch” cartoon on page 6?
> According to the World View on page 32, what percentage of America’s GDP per capita is available to the average citizen of (a) Mexico? (b) China? (c) Haiti? 47,020 GDP per Capita (2010) 37,380 34,790 34,440 29,010 24,020 19,190 15
> Use Figure 4.3 (p. 75) to illustrate on the accompanying production possibilities curve the optimal mix of output (X). M CIGARETTES (packs per year) CTHER GOO DS (units per year) FIGURE 4.3 Externalities Market supply The market responds to consumer
> How much time could you spend on homework in a day? How much do you spend? How do you decide?
> 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?
