Question: Use the concept of opportunity cost to

> Do you think that Titan is an isolated example or that many companies engage in similar behaviors overseas but are never caught? Do you think it is acceptable for a firm to take the risk and pay a bribe if the firm believes that the chances of getting ca

> How would you account for the sharp differences in the perceptions of the Polish locals and U.S. expatriates?

> Based on what you have learned in this chapter, what do you think are the underlying problems in the Polish subsidiary of Pressman Company?

> Do you think it is appropriate for a company to transfer jobs overseas that may be perceived as too hazardous at home? Explain.

> Would you be willing to follow Dan’s desired career path? Why or why not?

> Based on the materials discussed in this chapter, what courses, experiences, or training programs do you think are most likely to help Dan achieve his dream of a foreign assignment? Explain.

> Assume you run a small business. Working individually or in groups, visit the Web site www.dol.gov/elaws. Write a two-page summary explaining: (1) the various retirement savings programs available to small-business employers, and (2) which retirement sav

> Prepare and give a short presentation titled “How to Be Effective as an Interviewer.”

> Most American businesses are small, but most of the output is produced by large businesses. That sounds paradoxical. How can it be true?

> If the U.S. government wants to pursue a “trade war” against Country X, what weapons does it have? Would using those weapons hurt the United States as well? What if Country X retaliates in kind?

> What are some policies the U.S. government could pursue to ease the burden on the losers from globalization?

> President Trump has said that he doesn’t see why the U.S. economy cannot grow at 3 or 4 percent per annum (or maybe higher) indefinitely. Do you see why?

> The Affordable Care Act (known as “Obamacare”) tried to solve the adverse selection problem by getting everyone into the insurance pool. How? How well did it succeed? President Trump opposes Obamacare. Why? (You may want to do some Internet searching on

> Budget projections show the debt-to-GDP ratio of the U.S. government topping its World War II high before too long. What problems does that pose?

> In 2010 and 2011, the international value of the dollar fell. This development was viewed with alarm in Japan. Why?

> Given what you now know, do you think it was a good idea for the United States to adopt a policy mix of tight money and large government budget deficits in the early 1980s? Why or why not? What were the benefits and costs of reversing that policy mix in

> Explain why American fiscal policy is less powerful and American monetary policy is more powerful than indicated in the closed-economy model described earlier in this book.

> For years, the U.S. government has been trying to get Japan and the European Union to expand their economies faster. Explain how more rapid growth in Japan would affect the U.S. economy.

> In the economy considered in Test Yourself Question 3, suppose the government, seeing that it has not wiped out the deficit, keeps cutting G until it succeeds in balancing the budget. What level of GDP will then prevail?

> From the summer of 2015 to the summer of 2016, market forces raised the international value of the Japanese yen sharply. Why do you think the government of Japan was unhappy about this currency appreciation? If they wanted to stop the yen’s appreciation,

> Explain why the members of the Bretton Woods conference in 1944 wanted to establish a system of fixed exchange rates. What flaw led to the ultimate breakdown of the system in 1971?

> How are the problems of a country faced with a balance of payments deficit similar to those posed by a government regulation that holds the price of milk above the equilibrium level? (Hint: Think of each in terms of a supply-demand diagram.)

> If the dollar appreciates relative to the euro, will the German camera you have wanted become more or less expensive? What effect do you imagine this change will have on American demand for German cameras? Does the American demand curve for euros, theref

> What items do you own or routinely consume that are produced abroad? From what countries do these items come? Suppose Americans decided to buy fewer of these things. How would that affect the exchange rates between the dollar and these currencies?

> Suppose the United States finds Country X guilty of unfair trade practices and penalizes it with import quotas. So U.S. imports from Country X fall. Suppose, further, that Country X does not alter its trade practices in any way. Is the United States bett

> Under current trade law, the president of the United States must report periodically to Congress on countries engaging in unfair trade practices that inhibit U.S. exports. How would you define an “unfair” trade practice? Suppose Country X exports much mo

> Country A has a mercantilist government that believes it is always best to export more than it imports. As a consequence, it exports more to Country B every year than it imports from Country B. After 100 years of this arrangement, both countries are dest

> After the removal of a quota on sugar, many U.S. sugar farms go bankrupt. Discuss the pros and cons of removing the quota in the short and long runs.

> In the eighteenth century, some writers argued that one person in a trade could be made better off only by gaining at the expense of the other. Explain the fallacy in this argument.

> Now raise exports to $650 and find the equilibrium again. How large is the multiplier?

> You have a dozen shirts and your roommate has six pairs of shoes worth roughly the same amount of money. You decide to swap six shirts for three pairs of shoes. In financial terms, neither of you gains anything. Explain why you are nevertheless both like

> The year 2017 closed with the unemployment rate just below 4 percent, real GDP growing at roughly 2.5 percent, inflation slightly below 2 percent, and the federal budget showing a deficit under 3 percent of GDP. a. Give one or more arguments for engaging

> It is often said that the Federal Reserve Board typically cares more about inflation and less about unemployment than the administration. If this is true, why might presidents often worry about what the Fed might do to interest rates?

> What is meant by “rational” expectations? Why does the hypothesis of rational expectations have such stunning implications for economic policy? Would believers in rational expectations want to shorten a recession by expanding aggregate demand? Would they

> Explain why expectations of inflation affect the wages that result from labor-management bargaining.

> What is a Phillips curve? Why did it seem to work so much better in the period from 1954 to 1969 than it did in the 1970s?

> Why is it said that decisions on fiscal and monetary policy are, at least in part, political decisions that cannot be made on “objective” economic criteria?

> There is no sense in trying to shorten recessions through fiscal and monetary policy because the effects of these policies on the unemployment rate are sure to be temporary.” Comment on both the truth of this statement and its relevance for policy formul

> When inflation and unemployment fell together in the 1990s, some observers claimed that policy makers no longer faced a trade-off between inflation and unemployment. Were they correct?

> Explain the difference between crowding out and crowding in. Given the current state of the economy, which effect would you expect to dominate today?

> This question is a variant of the previous problem that approaches things in the way that a fiscal policy planner might. In an economy whose consumption function and tax function are as given in Test Yourself Question 1, with investment fixed at 320 and

> Comment on the following: “Deficit spending paves the road to ruin. If we keep it up, the whole nation will go bankrupt. Even if things do not go this far, what right have we to burden our children and grandchildren with these debts while we live high on

> Explain how the U.S. government managed to accumulate a debt of more than $18 trillion. To whom does it owe this debt? Is the debt a burden on future generations?

> During the year 2008, U.S. economic performance deteriorated sharply. Can this decline be blamed on inferior monetary or fiscal policy? (You may want to ask your instructor about this question.)

> Many observers think that the Federal Reserve succeeded in using deft applications of monetary policy to “fine-tune” the U.S. economy into the full-employment zone in the 1990s without worsening inflation. Use the data on money supply, interest rates, re

> Explain why lags make it possible that policy actions intended to stabilize the economy will actually destabilize it.

> Explain why their contrasting views on the shape of the aggregate supply curve lead some economists to argue much more strongly for stabilization policies to fight unemployment and other economists to argue much more strongly for stabilization policies t

> Given all the pros and cons, do you think the Federal Reserve should try to prevent asset price bubbles from forming? If so, how would it do that?

> Distinguish between the expenditure lag and the policy lag in stabilization policy. Does monetary or fiscal policy have the shorter expenditure lag? What about the policy lag?

> In March 2008, the Fed helped prevent the bankruptcy of Bear Stearns. However, in September 2008, the Fed and the Treasury let Lehman Brothers go bankrupt. What accounts for the different decisions? (Note: You may want to discuss this question with your

> Suppose exports and imports of a country are given by the following: Calculate net exports at each level of GDP.

> Explain the basic idea behind the TARP legislation. Was that idea carried out in practice?

> Explain how a collapse of the economy’s credit-granting mechanisms might lead to a recession.

> Explain how a collapse in house prices might lead to a recession.

> Explain why a mortgage-backed security becomes riskier when the values of the underlying houses decline. What, as a result, happens to the price of the mortgage-backed security?

> If you were watching house prices rise during the years 2000–2006, how might you have decided whether or not you were witnessing a “bubble”?

> Explain why both business investments and purchases of new homes rise when interest rates decline.

> Once the federal funds rate reached (approximately) zero, which happened in December 2008, what options were still open to the Fed. What did it actually do? (Note: This may be a good question to discuss with your instructor.)

> From September 2007 through December 2008, the Fed believed that interest rates needed to fall and took steps to reduce them, eventually cutting the federal funds rate from 5.25 percent to nearly zero. How did the Fed reduce the federal funds rate? Illus

> Explain why the quantity of bank reserves supplied normally is higher and the quantity of bank reserves demanded normally is lower at higher interest rates.

> Why does a modern industrial economy need a central bank?

> If domestic expenditure (the sum of C + I + G in the economy described in Test Yourself Question 1) is as shown in the following table, construct a 45° line diagram and locate the equilibrium level of GDP.

> If the government takes over a failed bank with liabilities (mostly deposits) of $2 billion, pays off the depositors, and sells the assets for $1.5 billion, where does the missing $500 million come from? Why?

> Excess reserves make a bank less vulnerable to runs. Why, then, don’t bankers like to hold excess reserves? What circumstances might persuade them that it would be advisable to hold excess reserves?

> After 2008-2014, a rash of bank failures occurred in the United States. Explain why these failures did not lead to runs on banks.

> What is fractional reserve banking, and why is it the key to bank profits? (Hint: What opportunities to make profits would banks lose if reserve requirements were 100 percent?) Why does fractional reserve banking give bankers discretion over how large th

> How is “money” defined, both conceptually and in practice? Does the U.S. money supply consist of commodity money, full-bodied paper money, or fiat money?

> If ours were a barter economy, how would you pay your tuition bill? What if your college did not want the goods or services you offered in payment?

> Advocates of lower taxes on capital gains argue that this type of tax cut will raise aggregate supply by spurring business investment. Compare the effects on investment, aggregate supply, and tax revenues of three different ways to cut the capital gains

> Explain why G has the same multiplier as I, but taxes have a different multiplier.

> The federal government spending (relative to the size of the economy) is rising again, after years of comparative “austerity.” How will this development affect GDP in the United Sates if the higher spending leads to a. larger budget deficits? b. less sp

> Why do you think wages tend to be rigid in the downward direction?

> In a certain economy, the multiplier for government purchases is 2 and the multiplier for changes in fixed taxes is 1.5. The government then proposes to raise both spending and taxes by $100 billion. What should happen to equilibrium GDP on the demand si

> Give two different explanations of how the economy can suffer from stagflation.

> Comment on the following statement: “Inflationary and recessionary gaps are nothing to worry about because the economy has a built-in mechanism that cures either type of gap automatically.”

> For more than 30 years, imports have consistently exceeded exports in the U.S. economy. Many people consider this imbalance to be a major problem. Does this chapter give you any hints about why?

> Between 2008 and 2009, real disposable income (in 2009 dollars) declined slightly (by $19 billion), owing to a recession. The decline in real consumption expenditures was far larger: $133 billion. Explain why dividing the two does not give a good estimat

> In 2001 and again in 2003, Congress enacted changes in the tax law designed to promote saving. If such saving incentives had been successful, how would the consumption function have shifted?

> Explain why permanent tax cuts are likely to lead to bigger increases in consumer spending than temporary tax cuts do.

> Look at the scatter diagram in Figure 3. What does it tell you about what was going on in this country in the years 1942 to 1945?

> The marginal propensity to consume (MPC) for the United States as a whole is roughly 0.90. Explain in words what this means. What is your personal MPC at this stage in your life? How might that change by the time you are your parents’ age?

> Explain the difference between investment as the term is used by most people and investment as defined by an economist.

> Discuss some of the pros and cons of increasing development assistance, both from the point of view of the donor country and the point of view of the recipient country.

> Suppose real GDP is $10,000 billion and the basic expenditure multiplier is two. If two tax changes are made at the same time: a. fixed taxes are raised by $100 billion b. the income-tax rate is reduced from 20 percent to 18 percent will equilibrium GDP

> Explain why the best educational policies to promote faster growth might be different in the following countries. a. Mozambique b. Brazil c. France

> The previous chapter pointed out that, because faster capital formation comes at a cost (reduced current consumption), it is possible for a country to invest too much. Suppose the government of some country decides that its businesses are investing too m

> Explain the different objectives of (long-run) growth policy versus (short-run) stabilization policy.

> Show why each of the following complaints is based on a misunderstanding about inflation: a. “Inflation must be stopped because it robs workers of their purchasing power.” b. “Inflation makes it impossible for working people to afford many of the things

> In Figure 8, interpret the economic meaning of points A and B. What do the two points have in common? What is the difference in their economic interpretation?

> In Figure 6, determine the values of X and Y at point K and at point E. What do you conclude about the slopes of the lines on which K and E are located?

> Arthur believes that the number of job offers he will get depends on the number of courses in which his grade is B+ or better. He concludes from observation that the following figures are typical: Put these numbers into a graph like Figure 1(a). Measure

> From Figure 5, calculate the slope of the curve at point M.

> Portray the following hypothetical data on a two variable diagram: Measure the slope of the resulting line, and explain what this number means

> In each of these cases, how much saving is there in equilibrium? (Hint: Income not consumed must be saved.) Is saving equal to investment?

> Suppose each of the transactions listed in Test Yourself Question 2 was done by many Americans. Indicate how each would affect the international value of the dollar if exchange rates were floating.

> For each of the following transactions, indicate how it would affect the U.S. balance of payments if exchange rates were fixed: a. You spent the summer traveling in Europe. b. Your uncle in Canada sent you $20 as a birthday present. c. You bought a new H

> Show that if the economy’s aggregate supply curve is vertical, fluctuations in the growth of aggregate demand produce only fluctuations in inflation with no effect on output.

> The following table provides data on nominal gross domestic product and the money supply (M1 definition) in recent selected years. Compute velocity for each year. Do you see any trend? How does it compare with the trend that prevailed from about 1996 to

> How much money by the M1 definition (cash plus checking account balances) do you typically have at any particular moment? Divide this amount into your total income over the past 12 months to obtain your own personal velocity. Are you typical of the natio

> Why do we say that deposits are “liabilities” of banks?