Question: The Fed has announced a new, lower

> In the diagram, what areas represent the deadweight loss due to the price ceiling (PC)? PM PE 4 7 8 Pc 6 Q Q2 2.

> Suppose the demand curve is downward sloping, the supply curve is upward sloping, and the equilibrium quantity is 50 units. Show on a graph that the difference between the maximum buying price and minimum selling price is greater at 25 units than at 33 u

> In the figure that follows, can the movement from point 1 to point 2 be explained by a combination of an increase in the price of a substitute and a decrease in the price of non-labor resources? Explain your answer. S2 D2 D1 Q

> At what quantity in the preceding figure is the maximum buying price equal to the minimum selling price?

> At equilibrium in the following figure, what area(s) represent consumers’ surplus? producers’ surplus? P S GIHII iJ 10 20 30 40 50 Q

> Draw a diagram that shows a smaller increase in supply than the increase in demand.

> Using the data in Problem 8, prove that both Tina and David can be made better off through specialization and trade. Data from Problem 8: Tina can produce any of the following combinations of goods X and Y: (a) 100X and 0Y (b) 50X and 25Y (c) 0X and 5

> Tina can produce any of the following combinations of goods X and Y: (a) 100X and 0Y (b) 50X and 25Y (c) 0X and 50Y. David can produce any of the following combinations of goods X and Y: (a) 50X and 0Y (b) 25X and 40Y (c) 0X and 80Y Who has a compa

> If PPF1 in the preceding figure is the relevant production possibilities frontier, then which point(s) represent efficiency? Explain your answer. Y Y х о х о х о (1) (2) (3) (4)

> With respect to each of the following changes, identify whether the demand curve will shift rightward or leftward: a. An increase in income (the good under consideration is a normal good) b. A rise in the price of a substitute good c. A fall in the price

> If PPF2 in the following graph is the relevant production possibilities frontier, then which points are unattainable? Explain your answer. Y Y х о х о х о (1) (2) (3) (4)

> In the preceding figure, which graph depicts a change in the PPF that is likely as a consequence of war? Y Y х о х о х о (1) (2) (3) (4)

> In the following figure, which graph depicts a technological breakthrough in the production of good X only? Y Y х о х о х о (1) (2) (3) (4)

> Draw a PPF that represents the production possibilities for goods X and Y if there are constant opportunity costs. Next, represent an advance in technology that makes it possible to produce more of X, but not more of Y. Finally, represent an advance in t

> Using numbers, explain how a market demand curve is derived from two individual demand curves.

> Suppose the price is $10, the quantity supplied is 50 units, and the quantity demanded is 100 units. For every $1 rise in price, the quantity supplied rises by 5 units and the quantity demanded falls by 5 units. What is the equilibrium price and quantity

> Describe how each of the following will affect the supply of personal computers: (a) A rise in wage rates (b) An increase in the number of sellers of computers (c) A tax placed on production of computers (d) A subsidy placed on the production of compu

> Describe how each of the following will affect the demand for personal computers: (a) A rise in incomes (assuming computers are a normal good) (b) A lower expected price for computers (c) Cheaper software (d) Computers that are simple to operate

> A Dell computer is a substitute for a HP* computer. What happens to the demand for HP computers and the quantity demanded of Dell computers as the price of a Dell falls?

> Many movie theaters charge a lower admission price for the first show on weekday afternoons than for a weeknight or weekend show. Explain why.

> “The price of T-shirts keeps rising and rising, and people keep buying more and more. T-shirts must have an upward-sloping demand curve.” Identify the error.

> There is a decrease in government purchases. The price level will _______________ and Real GDP will _______________.

> Must consumers’ surplus equal producers’ surplus at equilibrium price? Explain your answer.

> At equilibrium in a market, the maximum price buyers would be willing to pay for the good is equal to the minimum price sellers need to receive before they are willing to sell the good. Do you agree or disagree with this statement? Explain your answer.

> Compare the ratings for television shows with prices for goods. How are ratings like prices? How are ratings different from prices?

> Predict what happens to the equilibrium price of marijuana if it is legalized.

> What exactly allows individuals to consume more if they specialize and trade than if they don’t?

> Use the PPF framework to explain something in your everyday life that was not mentioned in the chapter.

> Can a technological advancement in sector X of the economy affect the number of people who work in sector Y of the economy? Explain your answer.

> Suppose a nation’s PPF shifts inward as its population grows. What happens, on average, to the material standard of living of the people? Explain your answer.

> If the slope of the PPF is the same between any two points, what does this imply about costs? Explain your answer.

> Explain how to derive a production possibilities frontier. For instance, how is the extreme point on the vertical axis identified? How is the extreme point on the horizontal axis identified?

> Some goods are bought largely because they have “snob appeal.” For example, the residents of Beverly Hills gain prestige by buying expensive items. In fact, they won’t buy some items unless they are expensive. The law of demand, which holds that people b

> Within a PPF framework, explain each of the following: (a) A disagreement between a person who favors more domestic welfare spending and one who favors more national defense spending (b) An increase in the population (c) A technological change that

> Why are most production possibilities frontiers for goods bowed outward (concave downward)?

> Give an example to illustrate each of the following: (a) Constant opportunity costs (b) Increasing opportunity costs

> What condition must hold for the production possibilities frontier to be bowed outward (concave downward)? To be a straight line?

> Explain how the following can be represented in a PPF framework: (a) The finiteness of resources implicit in the scarcity condition; (b) Choice; (c) Opportunity cost; (d) Productive efficiency; (e) Unemployed resources.

> Describe how each of the following would affect the U.S. PPF: (a) An increase in the number of illegal immigrants entering the country, (b) A war that takes place on U.S. soil, (c) The discovery of a new oil field (d) A decrease in the unemployment ra

> Explain the similarities and differences between an open market purchase and quantitative easing.

> Suppose you read in the newspaper that all last week the Fed conducted open market purchases and that on Tuesday of last week it lowered the discount rate. What would you say the Fed is trying to do?

> Explain how a decrease in the required reserve ratio increases the money supply.

> Suppose bank A borrows reserves from bank B. Now that bank A has more reserves than previously, will the money supply increase? Explain your answer.

> “The price of a bushel of wheat, which was $3.00 last month, is $3.70 today. The demand curve for wheat must have shifted rightward between last month and today.” Discuss.

> Suppose the Fed raises the required reserve ratio, a move that is normally thought to reduce the money supply. However, banks find themselves with a reserve deficiency after the required reserve ratio is increased and are likely to react by requesting a

> Explain how an open market sale decreases the money supply.

> Explain how an open market purchase increases the money supply.

> What are the differences between the Fed and the U.S. Treasury?

> Explain how market forces would determine the money supply under free banking.

> What does it mean to say the Fed serves as the lender of last resort?

> The Fed can change the discount rate directly and the federal funds rate indirectly. Explain.

> Identify the major responsibilities of the Federal Reserve System.

> If you were on an island with 10 other people and there were no money, do you think that money would emerge on the scene? Why or why not?

> True or false? As the price of oranges rises, the demand for oranges falls, ceteris paribus. Explain your answer.

> “Money is a means of lowering the transaction costs of making exchanges.” Do you agree or disagree? Explain your answer.

> Explain why gold backing is not necessary to give paper money value.

> Money makes trade easier. Would having a money supply twice as large as it currently is make trade twice as easy? Would having a money supply half its current size make trade half as easy?

> “A barter economy would have very few comedians.” Do you agree or disagree with this statement? Explain your answer.

> “People in a barter economy came up with the idea of money because they wanted to do something to make society better off.” Do you agree or disagree with this statement? Explain your answer.

> Does inflation, which is an increase in the price level, affect the three functions of money? If so, how?

> Suppose the value of the dollar declines relative to other currencies. How does the decline affect the three functions of money?

> Explain the difference between a bank’s loans and its borrowings.

> Explain how financial intermediaries help to solve adverse selection problems and moral hazard problems when it comes to lending and borrowing.

> Identify each of the following as either an adverse selection or a moral hazard problem: (a) Poor drivers apply for car insurance more than good drivers do (b) The federal government promises to help banks that get into financial problems (c) The federa

> What is the difference between demand and quantity demanded?

> What is a financial system, and why would a country with a well-developed and fully functional financial system be better off than a country without it?

> Explain the process by which goldsmiths could increase the money supply.

> Define the following: (a) Time deposit (b) Money market mutual fund (c) Money market deposit account (d) Fractional reserve banking (e) Reserves

> Why isn’t credit card money?

> Can M1 fall as M2 rises? Can M1 rise without M2 rising too? Explain your answers.

> “How much money did you make last year?” What is wrong with that statement?

> What is the difference between discretionary fiscal policy and automatic fiscal policy?

> What is the difference between a structural deficit and a cyclical deficit?

> Jim favors progressive taxation and equal after-tax pay for equal work. Comment.

> A progressive income tax always raises more revenue than a proportional income tax. Do you agree or disagree? Explain your answer.

> What is the difference between supply and quantity supplied?

> Is it true that, under a proportional income tax structure, a person who earns a high income will pay more in taxes than a person who earns a low income? Explain your answer.

> What percentage of total income did the top 10 percent of income earners earn in2011? What percentage of federal income taxes did this group pay in 2011?

> The bulk of federal government expenditures go for four programs. What are they?

> Georgia Dickens is sitting with a friend at a coffee shop and they are talking about the new tax bill. Georgia thinks that cutting tax rates at this time would be wrong: “Lower tax rates,” she says, “will lead to a larger budget deficit, and the budget

> Will tax revenue necessarily rise if tax rates are lowered? Explain your answer.

> What is the difference between a marginal tax rate and an average tax rate?

> Will tax cuts that the public perceives to be temporary affect the SRAS and LRAS curves differently than tax cuts that are perceived to be permanent? Explain your answer.

> Suppose the economy is in a recessionary gap, and both Smith and Jones advocate expansionary fiscal policy. Does it follow that both Smith and Jones favor so-called big government?

> How much were government expenditures in2013? How much were government tax revenues in 2013?

> Identify and explain the five lags associated with fiscal policy.

> How might the price of corn affect the supply of wheat?

> Explain how, under expansionary fiscal policy, expansionary fiscal policy can, , destabilize the economy.

> Tax cuts will likely affect aggregate demand and aggregate supply. Does it matter which is affected more? Explain in terms of the AD-AS framework.

> Is crowding out equally likely under all economic conditions? Explain your answer.

> The debate over using government spending and taxing powers to stabilize the economy involves more than technical economic issues. Do you agree or disagree? Explain your answer.

> Give a numerical example to illustrate the difference between complete crowding out and incomplete crowding out.

> Some economists argue for the use of fiscal policy to solve economic problems; some argue against it. What are some of the arguments on both sides?

> Why is crowding out an important issue in the debate over the use of fiscal policy?

> Explain two ways crowding out may occur.

> According to Buchanan and Wagner, why is there a political bias towards expansionary fiscal policy and not contractionary fiscal policy?

> What is the difference between government expenditures and government purchases?

> In the previous chapter you learned about the law of increasing opportunity costs. What does this law have to do with an upward-sloping supply curve?

> Explain the multiplier process.

> Using the Keynesian consumption function, prove numerically that, as the MPC rises, saving declines.