Suppose the government proposes to cut taxes while maintaining the current level of government expenditures. To finance this deficit, it may either (a) sell bonds to the public or (b) print new money (via Federal Reserve cooperation). What are the likely effects of each of these alternatives on each of the following? Would Keynesians, monetarists, and supply-siders give the same answers? (a) Interest rates. (b) Consumer spending. (c) Business investment . (d) Aggregate demand.
> What would happen in the apple market if the government set a minimum price of $5.00 per apple? What might motivate such a policy?
> If the marginal propensity to consume is 0.8, (a) What is the value of the multiplier? (b) What is the marginal propensity to save?
> If the consumption function is C = $300 billion + 0.9Y, (a) How much do consumers spend with incomes of $4 trillion? (b) How much do they save?
> What was the range, in absolute percentage points, of the variation in quarterly growth rates between 2005 and 2008 of (a) Consumer spending? (b) Investment spending? ( See Figure 9.8 for data given below +16 +12 +8 Consumption +4 Investment is more
> If every $1,000 increase in the real price of homes adds 6 cents to annual consumer spending (the “wealth effect”), by how much did consumption decline when home prices fell by $2 trillion in 2006–2008?
> (a) What is the implied MPC in the News on page 186? (b) What is the implied APC? IN THE NE WS News Release: Personal Income and Outlays Personal Income and Outlays: May 2011 Personal income increased $36 billion, or 0.27 percent, and disposable pers
> Suppose you have $7,000 in savings when the price level index is at 100. (a) If inflation pushes the price level up by 10 percent, what will be the real value of your savings? (b) What is the real value of your savings if the price level declines by 10 p
> In Figure 8.8, what price level will induce people to buy all the output produced at full employment? Aggregate supply PE P* Aggregate demand Equilibrium output Full-employment output QE QF REAL OUTPUT (quantity per year) PRICE LE VEL (average price)
> According to Table 7.3 (p. 137), what happened during the period shown to the (a) Nominal price of gold? (b) Real price of gold? Table 7.3:
> If a basic input like oil goes up in price by 20 percent and accounts for 3 percent of total costs in the economy, how much cost-push inflation results?
> For each situation described here determine the type of unemployment: (a) Steelworkers losing their jobs due to decreased demand for steel. (b) A college graduate waiting to accept a job that allows her to utilize her level of education. (c) The Great Re
> The shortage in the organ market (Figure 3.8) requires a nonmarket rationing scheme. Who should get the available (qa) organs? Is this fairer than the market-driven distribution? Figure 3.8
> Using the information on page 141 and Table 7.5, by what percentage did the price level increase (a) Between 1982–1984 and 2010? (b) Between 2000 and 2010? Year CPI Year CPI Year CPI Year CPI 1800 17.0 1915 10.1 1950 24.1 1982–1984
> According to the News on page 126, in October 2009 (a) How many people were in the labor force? (b) How many people were employed? IN THE NEWS Unemployment Rate Hits 10.2 Percent, a 26-Year High In another sign that workers are being left out of the
> Suppose all the dollar values in Problem 4 were in 2000 dollars. Use the Consumer Price Index shown on the end cover of this book to convert Problem 4’s GDP to 2010 dollars. What is the value of that GDP in 2010 dollars? (You’ll be converting the figures
> If 150 million workers produced America’s GDP in 2010 (World View, p. 31), how much output did the average worker produce? 14.6 2010 Gross Domestic Product (GDP) (in trillions of U.S. dollars) 10.1 4.4 3.1 2.7 2.3 1.6 1.4 0.63 0.01
> What market failure does Bill Gates (World View, p. 465) cite as the motivation for global philanthropy?
> If economic growth reduced poverty but widened inequalities, would it still be desirable?
> Can poor nations develop without substantial increases in agricultural productivity? (See Figure 21.2.) How?
> How does microfinance alter prospects for economic growth? The distribution of political power?
> How do unequal rights for women affect economic growth?
> Are property rights a prerequisite for economic growth? Explain.
> Why are scalpers able to resell tickets to the Final Four basketball games at such high prices?
> How do more children per family either restrain or expand income-earning potential?
> If a poor nation must choose between building an airport, some schools, or a steel plant, which one should it choose? Why?
> Why should Americans care about extreme poverty in Haiti, Ethiopia, or Bangladesh?
> Why does the World View on page 451 say the undervalued yuan is “more bane than boom”?
> How would each of these events affect the supply or demand for Japanese yen? (a) Stronger U.S. economic growth. (b) A decline in Japanese interest rates. (c) Higher inflation in the United States. (d) A Japanese tsunami.
> If a nation’s currency depreciates, are the reduced export prices that result “unfair”?
> In the World View on page 445, who is Farshad Shahabadi referring to as “everyone else”?
> In what sense do fixed exchange rates permit a country to “export its inflation”?
> Under what conditions would a country welcome a balance-of-payments deficit? When would it not want a deficit?
> How would rapid inflation in Canada affect U.S. tourism travel to Canada? Does it make any difference whether the exchange rate between Canadian and U.S. dollars is fixed or flexible?
> With respect to the demand for college enrollment, which of the following would cause (1) a movement along the demand curve or (2) a shift of the demand curve? a. An increase in incomes. b. Lower tuition. c. More student loans. d. An increase in te
> How do changes in the value of the U.S. dollar affect foreign enrollments at U.S. colleges?
> Why would a decline in the value of the dollar prompt foreign manufacturers such as BMW to build production plants in the United States?
> Has the tariff on Chinese tires (World View, p. 428) affected you or your family? Who has been affected?
> Who gains and who loses from nontariff barriers to Mexican trucks (World View, p. 432)? What made President Obama offer renewed negotiations?
> Why did President Obama pursue “buy American” rules if they actually hurt the economy?
> On the basis of the News on page 434, how do U.S. furniture manufacturers feel about NAFTA? How about farmers?
> Domestic producers often base their demands for import protection on the fact that workers in country X are paid substandard wages. Is this a valid argument for protection?
> Suppose we refused to sell goods to any country that reduced or halted its exports to us. Who would benefit and who would lose from such retaliation? Can you suggest alternative ways to ensure import supplies?
> If a nation exported much of its output but imported little, would it be better or worse off? How about the reverse—that is, exporting little but importing a lot?
> What would be the effects of a law requiring bilateral trade balances?
> In our story of Tom, the student confronted with a web design assignment, we emphasized the great urgency of his desire for web tutoring. Many people would say that Tom had an "absolute need" for web help and therefore was ready to "pay anything" to get
> Suppose a lawyer can type faster than any secretary. Should the lawyer do her own typing? Can you demonstrate the validity of your answer?
> What is the “magic wand” referred to in this chapter’s opening quotation?
> What are the pros and cons of tax cuts or increased government spending as stimulative tools?
> Suppose the economy is slumping into recession and needs a fiscal policy boost. Voters, however, are opposed to larger federal deficits. What should policymakers do?
> Why is the multiplier higher for unemployment benefits than for infrastructure spending (News, p. 401)? Which occurs faster?
> Suppose it’s an election year and that aggregate demand is growing so fast that it threatens to set off an inflationary movement. Why might Congress and the president hesitate to cut back on government spending or raise taxes, as economic theory suggest
> If policymakers have instant data on the economy’s performance, should they respond immediately? Why or why not?
> What policies would Keynesian, monetarists, and supply-siders advocate for (a) restraining inflation and (b) reducing unemployment?
> Why do some nations grow and prosper while others stagnate?
> Why are incomes so much more unequal in poor nations than in rich ones?
> Is limitless growth really possible? What forces do you think will be most important in slowing or halting economic growth?
> Fertility rates in the United States have dropped so low that we are approaching zero population growth, a condition that France has maintained for decades. How will this affect our economic growth? Our standard of living?
> In 1866 Stanley Jevons predicted that economic growth would come to a halt when England ran out of coal, a doomsday that he reckoned would occur in the mid-1970s. How did we avert that projection? Will we avert an “oil crisis” in the same way?
> Should fiscal policy encourage more consumption or more saving? Does it matter?
> How might economic growth be impeded by (a) high levels of national debt and/or (b) fiscal restraint designed to reduce that national debt?
> Should we grant immigration rights based on potential contributions to economic growth as Canada does?
> Why don't we consume all of our current output instead of sacrificing some present consumption for investment?
> How did output per U.S. worker increase so much in 10 years (World View, p. 375)? Why did Italian productivity decline?
> In what specific ways (if any) does a college education increase a worker's productivity?
> Why would anyone object to President Obama’s proposed infrastructure spending?
> Where do growing companies like Google and Facebook get their employees? What were those workers doing before?
> According to the News on page 109, do per capita GDP data (A) overstate or (B) understate the rise in the U.S. well-being since 1990? IN THE NE WS Material Wealth vs. Social Health National income accounts are regularly reported and widely quoted.
> When Carolina's house burned down, she lost household items worth a total of $50,000. Her house was insured for $160,000 and her homeowners' policy provided coverage for personal belongings up to 55 percent of the insured value of the house. Calculate h
> Karen and Mike currently insure their cars with separate companies paying $700 and $900 a year. If they insure both cars with the same company, they would save 10 percent on the annual premiums. What would be the future value of the annual savings over t
> Kurt Simmons has 50/100/15 auto insurance coverage. One evening he lost control of his vehicle hitting a parked car and damaging a store front along the street. Damage to the parked car was $5,400 and damage to the store was $12,650. What amount will the
> Becky Fenton has 25/50/10 automobile insurance coverage. If two other people are awarded $35,000 each for injuries in an auto accident in which the insured was judged at fault, how much of this judgment would insurance cover?
> For each of the following situations, what amount would the insurance company pay? a. Wind damage of $835; the insured has a $500 deductible. b. Theft of a stereo system worth $1,150; the insured has a $250 deductible. c. Vandalism that does $425 of dam
> If Carissa Dalton has a $130,000 home insured for $100,000, based on the 80 percent coinsurance provision, how much would the insurance company pay on a $5,000 claim?
> What would it cost an insurance company to replace a family’s personal property that originally cost $25,000? The replacement costs for the items have increased 15 percent.
> Assume that you purchased a $1,000 convertible corporate bond. Also assume the bond can be converted to 38.4615 shares of the firm’s stock. What is the dollar value that the stock must reach before investors would consider converting to common stock?
> A health insurance policy pays 65 percent of physical therapy cost after a $200 deductible. In contrast, an HMO charges $15 per visit for physical therapy. How much would a person save with the HMO if he or she had 10 physical therapy sessions costing $5
> Twelve months ago, you purchased 10-year Treasury notes with a face value of $1,000. The interest rate is 2.90 percent. What is the annual dollar amount of interest you will receive each year?
> Assume that three years ago you purchased a corporate bond that pays 5.8 percent. The purchase price was $1,000. What is the annual dollar amount of interest that you receive from your bond investment?
> Assume you are in the 35 percent tax bracket and purchase a 3.75 percent municipal bond. Use the formula presented in this chapter to calculate the taxable equivalent yield for this investment.
> Assume you are in the 28 percent tax bracket and purchase a 3.50 percent municipal bond. Use the formula presented in this chapter to calculate the taxable equivalent yield for this investment.
> Based on the following information, construct a graph that illustrates price movement for a Washington Utilities bond fund. $16.50 February $15.50 $17.20 $18.90 $19.80 January July August September $14.00 $13.10 $15.20 $16.70 $18.40 March April May
> Use the information in the Figure It Out! Box earlier in this chapter to complete the following table.
> Determine the current yield on a corporate bond investment that has a face value of $1,000, pays 4.60 percent, and has a current price of $950.
> Shaan and Anita currently insure their cars with separate companies, paying $650 and $575 a year. If they insure both cars with the same company, they would save 10 percent on the annual premiums. What would be the future value of the annual savings o
> Stephanie was involved in a car accident and rushed to the emergency room. She received stitches for a facial wound and treatment for a broken finger. Under Stephanie’s PPO plan, emergency room care at a network hospital is 80 percent covered after the
> Dave and Ellen are newly married and living in their first house. The yearly premium on their homeowners insurance policy is $450 for the coverage they need. Their insurance company offers a 5 percent discount if they install deadbolt locks on all exteri
> Jane and Bill Collins have total take-home pay of $4,500 a month. Their monthly expenses total $3,400. Calculate the minimum amount this couple needs to establish an emergency fund.
> Match the following terms with an appropriate statement. waiting or elimination period a. A specified period during which benefits are paid. duration of benefits b. A plan that guarantees coverage as long as you continue to pay your premiums. guarantee
> What are the four sources of disability income?
> What is the purpose of disability income insurance?
> Match the following terms with an appropriate statement. Blue Cross a. A medical assistance program offered to certain low-income individuals and families. Blue Shield b. Combines features of both HMOs and PPOs. HMOs c. Statewide organization that prov
> What are the six sources of private health plans?
> What health care services are not covered by Medicare?
> Match the following terms with an appropriate statement. reimbursement a. A policy that will cover only a fixed amount or a expense. Indemnity b. A policy that pays you back for actual expenses. internal limits c. A policy that provides you with spe
> As you decide which health insurance plan to buy, what trade-offs would you consider?
> What basic features should be included in your health insurance plan?
> Match the following terms with an appropriate statement. /
> 1. Jamie Lee is considering a used vehicle, but cannot decide where to begin her search. Using Your Personal Financial Plan Sheets #19, name the sources available to Jamie Lee for a used car purchase. What are the advantages and disadvantages of each?
> What benefits are provided by a. Hospital expense coverage? b. Surgical expenses coverage? c. Physician expense coverage?
> What three types of coverage are included in the basic health insurance?
