What macroeconomic conditions, issues, and events can shape your future?
> The following table shows Spain’s (annualized) quarterly real GDP growth rates for the 2007–2012 period. (Roman numbers refer to quarters.) a) Plot real GDP growth rate in a graph. Can you identify a trend in the dat
> Suppose your model predicts that overweight children have an 80% higher risk of suffering from diabetes in their adult life. If data show that overweight children do not suffer from diabetes as predicted by your model (i.e., data show a lower than 80% pr
> Sciences other than economics also use models to explain the behavior of endogenous variables based on assumptions about the environment and changes in exogenous variables. Suppose you have to design a model that links childhood obesity and diabetes. a)
> Refer to the previous exercise for data and assume that three million unemployed individuals become “discouraged” and decide not to look for a job anymore. Calculate the new unemployment rate for Brazil. Data from Exercise 8: Use the accompanying table
> Suppose Equation 2 represents the production function of both Mexico and Spain. Use the following information to answer the next questions. a) Calculate total factor productivity for both countries using Equation 3. b) Calculate per capita income for b
> Suppose that Apple Inc. manufactures a new generation of iPhones that can ascertain whether your interlocutor is lying. Assuming that the price of this good will be higher than that of the currently marketed iPhone, comment on the CPI’s capability to cor
> Based on surveys conducted by the BLS, the CPI basket assigns a weight of approximately 15% to transportation spending. Suppose you walk to your workplace every day and you do not use any other means of transportation. a) With everything else the same, i
> Mario and Lucia are discussing current economic data printed in the morning newspaper. Mario is quite happy about the fact that nominal GDP has increased at a steady rate for the last two years and asserts that this is very good news, since it means they
> Use the following table, based on BEA data from the first quarter of 2013 (billions of dollars), to calculate items (a) and (b): a) Other income b) Net factor income Compensation of employees…………………………………….8,737 Corporate profits……………………………………………………...2
> Consider the expenditure approach to the measurement of GDP. For each of the following situations, decide if the transaction will affect GDP and, if so, in which expenditure category will it be included. a) A household purchase of a home built in 2005. b
> The inhabitants of Pandora value their natural environment (e.g., forests, springs, breathable air, etc.) twice as much as the inhabitants of Utopia. Suppose that the value added for all goods and services increases by the same amount in both countries,
> Suppose you take out a loan at your local bank and the nominal interest rate is 12%. The bank expects the inflation rate to be 4% during the life of your loan. a) What is the bank’s ex ante real interest rate? b) What is the bank’s ex post real interest
> Is it correct to assume that total income equals total expenditure for a household? What about for the whole economy?
> These days many firms post their catalogs or their product prices on the Internet. In addition, most retailers have adopted bar codes to keep track of their inventories and implement price changes. Comment on the effect of these technologies on menu cost
> Currently, many banks offer online services that save customers a trip to the bank. In addition, ATMs and debit cards allow depositors twenty-four-hour access to their balances. Comment on the effects of online banking and ATMs on shoe-leather costs.
> Go to the St. Louis Federal Reserve FRED database, and pull data on annual unemployment rates for the following countries, starting in 2000: United States (USAURNAA), Canada (CANURNAA), United Kingdom (GBRURNAA), Japan (JPNURNAA), and Germany (DEUURNAA).
> Plot the following table on a graph showing average money growth rates on the horizontal axis and average inflation rates on the vertical axis (data is for the period 2002–2012, from the International Monetary Fund. International Financ
> Inhabitants of Pandora use stone beads as money. On average, every stone bead is used five times per year to carry out transactions. The total supply of beads is forty million. a) What is the level of aggregate spending in Pandora according to the quanti
> Assume that you are interested in earning some return on idle balances you usually keep in your checking account and decide to buy some money market mutual fund shares by writing a check. Comment on the effects of your action (everything else being the s
> Consider the following table with data about monetary aggregates (billions of dollars, seasonally adjusted data): a) Calculate the annualized growth rate of M1 and M2 for the following periods: May 2012–May 2013 (one year), Nov. 2012&
> Most of the time it is quite difficult to separate the three functions of money. Money performs its three functions at all times, but sometimes we can stress one in particular. For each of the following situations, identify which function of money is emp
> It is not unusual to find a business that displays a sign reading “no personal checks, please.” Based on this observation, comment on the relative degree of liquidity of a checking account and currency.
> Suppose Alex earned $500 (nominal capital gain) from selling stock he bought ten years ago. During the last ten years, prices increased significantly, which means that Alex’s real capital gain is only $300. If the tax applied to capital gains is 35%, a)
> In the movie The Count of Monte Cristo (2002), a scene shows the main character paying for an estate in France using a wagon full of silver and gold coins. During the 1800s, it was not common for people to pay for a house using this method, but gold and
> Comment on the effect of a decrease in autonomous investment on wealth when the economy can be considered a a) closed economy. b) small open economy.
> Consider a small open economy that is currently running a trade surplus. Answer the following questions using a graphical representation of desired saving and investment in the small open economy: a) Is the world real interest rate higher or lower than t
> Go to the St. Louis Federal Reserve FRED database, and find data on the 1-Year Treasury Rate (GS1) and the GDP Deflator price index (GDPDEF). For (GS1), choose the frequency setting as “quarterly”; for (GDPDEF), set the units setting to “Percent Change F
> Suppose Japan has a GDP of $5 trillion, and that its national savings rate is 25%. Assuming Japan is an open economy, a) calculate Japan’s investment if net exports are 1% of GDP. b) calculate Japan’s exports if imports are valued at $650 billion.
> On March 23, 2010, President Obama signed into law a major overhaul of the U.S. healthcare system. The Congressional Budget Office estimated that this legislation will reduce the U.S. government budget deficit by around $140 billion for the next ten year
> The financial crisis that hit the United States first and then the world economy starting in fall 2007 meant that the future prospects of many firms looked gloomy at best for some time. Comment on the effect of a recession on the investment curve (only)
> Consider the (rather implausible) scenario in which the U.S. government phases out all Social Security transfers to retirees. Assuming the goods market is in equilibrium, graph the new saving curve and comment on the effects on the level of saving, inves
> Assume that you have saved $20,000 and that you are considering a couple of options. One of them is to use these funds as a down payment on a newly built house. The other one is to buy a U.S. savings bond. a) Which option will add to the economy’s capita
> Comment on the effect of an increase in the government budget surplus (or a decrease in the government budget deficit) on the real interest rate, desired saving, and net exports for a a) large open economy. b) small open economy.
> Suppose that you work at the statistical office of a given country. The graph plots estimates of the labor and capital income shares for that country over time. Your boss suggests that a Cobb-Douglas production function could be a good representation o
> Suppose an economy has total income of $8 trillion, where total labor income equals $6 trillion and capital income equals $2 trillion. Which are the values of the exponents on labor and capital using a Cobb-Douglas production function?
> A manufacturer of toys is employing fifty workers and using fifteen pieces of equipment to assemble toys. Currently, the marginal product of labor is $5 and the marginal product of capital is $25. Assuming the market prices for labor and capital are $12
> The figure below represents the production function relating output to capital in the United States. Suppose unusual weather conditions result in a higher than expected crop yield in the mid western states. a) Draw the new production function in the same
> Go to the St. Louis Federal Reserve FRED database, and find data on nominal wages (COMPNFB) and prices using the consumer price index (CPIAUCSL). Convert the data series to annual data by using the “frequency” setting on the website, and choose the units
> Go to the St. Louis Federal Reserve FRED database, and calculate the GDP growth rate and inflation rate. For GDP, use (GDPC1). For the inflation rate, use the personal consumption expenditure price index (PCECTPI). For each series, change the units to Pe
> For each of the following pairs of variables, pull the data from the St. Louis Federal Reserve FRED database and create a scatter plot graph of the two variables using Excel. For each pair, name the exogenous variable relative to the endogenous variable,
> The U.S. Treasury issues some bonds as Treasury Inflation Indexed Securities, or TIIS, which are bonds adjusted for inflation: hence the yields can be roughly interpreted as real interest rates. Go to the St. Louis Federal Reserve FRED database and find
> Go to the St. Louis Federal Reserve FRED database and find the most recent values of the unemployment rate (UNRATE), the labor force participation rate (CIVPART), and the labor force (CLF16OV). Using these values, calculate the number of people not in th
> Go to the St. Louis Federal Reserve FRED database and find the most recent values, and values from one year earlier, for nominal GDP (GDP) and real GDP (GDPC1). a) Compute the GDP price deflator for the most recent period and for one year prior to the mo
> Go to the St. Louis Federal Reserve FRED database, and find the most recent values for Gross Domestic Product (GDP) and Gross National Product (GNP). a) Calculate net factor income using the most recent values. b) Based on the most recent values, explain
> Go to the St. Louis Federal Reserve FRED database and find data on government saving (GGSAVE). a) Describe what has happened to government saving from 2005 to the most current data available. b) Based on your answer to part (a), what do you expect should
> What is the effect of an increase in domestic saving or domestic investment on the trade balance and net capital outflows?
> What is the Fisher effect? What is its significance?
> Assume that the marginal product of capital is given by the following expression: MPK =60 K0.7 (K is measured in trillions). a) Graph the demand curve for capital and find the equilibrium real rental rate of capital if capital supply is ten
> Use the accompanying table to calculate the following statistics for Brazil: a) Labor force b) Labor-force participation rate c) Unemployment rate Adult Population (millions)…………………………………………140 Unemployed (millions)…………………………………………………..7 Employed (milli
> What happens to the overall level of prices during periods of inflation and deflation?
> What is the business cycle? Which part of the business cycle is of particular concern to macroeconomists? Why?
> What key assumption of classical economists provides the basis for their analysis of the relationship between money and other economic variables?
> What causes desired saving to increase? What effects will an increase in desired saving have in a closed economy?
> Go to the St. Louis Federal Reserve FRED database, and find data on exports (BOPXGS) and imports (BOPMGS). a) Calculate net exports for the most current period available. Is the United States currently running a trade balance, surplus, or deficit? b) Whe
> Suppose Japan has a GDP of $5 trillion, and that its national savings rate is 25%. a) Calculate Japan’s national saving. b) Calculate Japan’s government saving if private saving is $800 billion.
> What is the consumer price index, who calculates it, and how is it calculated and used to measure the inflation rate?
> Describe the GDP deflator and the personal consumption expenditure deflator.
> Consider the following diagram of a small open economy: a) Calculate net exports and the capital outflow when the world real interest rate is 7%. b). Calculate net exports and the capital outflow when the world real interest rate is 5%.
> How do macroeconomists distinguish between nominal and real values of variables? Does nominal GDP or real GDP provide a better picture of changes in economic activity and economic well-being? Why?
> What are the main types of income included in national income? Why doesn’t national income equal GDP?
> Identify the four major expenditure components in the national income identity and discuss the major subcategories of each component.
> Why are capital goods and inventories treated differently from intermediate goods in the production approach to measuring GDP?
> Distinguish between a flow measure and a stock measure. Which type of measure is GDP?
> How is GDP defined in the production approach to measuring economic activity? Explain how economists at the U.S. Department of Commerce’s Bureau of Economic Analysis account for the production of goods and services that are not sold in markets, the produ
> Explain the differences between nominal and real interest rates and between ex ante and ex post real interest rates.
> What does the unemployment rate measure, who calculates it, and how is it calculated?
> What is the fundamental identity of national income accounting? What is its significance?
> What is hyperinflation? What has been the main cause of hyperinflation episodes?
> Go to the St. Louis Federal Reserve FRED database, find data on Gross Private Saving (GPSAVE) and Gross Saving (GSAVE), and download the data. a) How have these variables changed from 5 years earlier to the latest available data? b) Calculate Gross Gover
> Go to the St. Louis Federal Reserve FRED database, and find data on the M1 Money Stock (M1SL), M1 Money Velocity (M1V), and Real GDP (GDPC1). Convert the M1SL data series to “quarterly” using the frequency setting, and for all three series, use the “Perc
> Second National Insurance Company provided this information for its trading securities portfolio: Required: 1. Provide the journal entries to record the fair value adjustment on December 31, 2016. Assume that Second National uses an account entitled Fa
> Goff Corporation acquired stock of Spiegel, Inc., on March 1, 2016, at a cost of $500,000. The stock had a fair value of $550,000 at December 31, 2016, $610,000 at December 31, 2017, and $590,000 at December 31, 2018. Goff sold the stock for $640,000 on
> In its 2005 annual report, Waste Management Inc. provided the following note to the financial statements: Financial Interest in Surety Bonding Company—During the third quarter of 2003, we issued a letter of credit to support the debt of a surety bonding
> On January 1, 2018, Wilson Corporation acquired mortgage-backed securities (MBS) from National Financial for $10,000 and classified the investment in its available-for-sale (AFS) portfolio. On December 31, 2018, the MBS’s fair value had declined to $7,00
> AutoParts Heaven is a U.S. company whose operations include a large, 100% owned foreign subsidiary. The subsidiary’s functional currency is the U.S. dollar. The local currency in the country where the foreign subsidiary operates is appreciating against t
> On January 1, 2017, Figland Company purchased for cash 40% of Irene Company’s 300,000 shares of voting common stock for $1,800,000. At the time, 40% of the book value of the underlying equity in Irene’s net assets was $1,400,000; $50,000 of the excess wa
> Central Sprinkler Corporation manufactures and sells automatic fire sprinkler heads and valves, and it distributes components for automatic sprinkler systems. Selected information from the company’s 2017 financial statements show: In
> Tredegar Industries Inc. makes plastic films and molded plastic products and soft alloy aluminum extrusions, distributes business applications software, and provides proprietary chemistry services. A note to the company’s annual report states: While cert
> The Shareholders’ Equity section of Holiday Roads Company’s balance sheet shows: Net income for 2017 was $1,700,000, preferred stock dividends were $200,000, and common stock dividends were $500,000. The company issu
> Avnext Industries issues 10-year convertible notes at par for $10,000 on December 31, 2017. The notes mature in 10 years and are convertible into 400 shares of Avnext common stock at any time after January 1, 2022. Interest is paid annually at the end of
> Statements of cash flows are provided for three companies: Telstra Corporation Limited is an Australian telecommunications and media company, formerly owned by the Australian government and privatized in stages from the late 1990s. Telstra is the larges
> On January 1, 2012, when its $30 par-value common stock was selling for $80 per share, Gierach Corporation issued $10 million of 4% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert the bond i
> It’s July 1, 2018, and the market price of Warm Ways’ common stock is $175 per share. There are 1.1 million common shares outstanding, and the Retained earnings account shows a balance of $45,000,000. Management wants to declare and pay a 20% common stoc
> The stockholders’ equity section of Warm Ways Inc.’s balance sheet at January 1, 2017, shows: Preferred stock, $100 par value, 10% dividend, 50,000 shares issued and outstanding ………………….. $ 5,000,000 Common stock, $6 par value, 1 million shares issued
> Massey Coal just issued $50 million of convertible notes. Each note has a $1,000 face value, a stated interest rate of 2%, and matures in five years from the issue date. Investors have the option of holding each note to maturity or converting the note in
> Kadri Corporation reported basic EPS of $3.00 and diluted EPS of $2.40 for 2017. Its EPS calculations follow: Required: Kadri issued the convertible preferred stock at the beginning of 2017 and the Series A and Series B convertible debt at par in late
> Hanigan Manufacturing had 1,800,000 shares of common stock outstanding as of January 1, 2017, and 900,000 shares of 10% noncumulative (nonconvertible) preferred stock outstanding. Required: The following events occurred during 2017: On February 28, Han
> AT&T Wireless Services was once one of the largest wireless communication—think “cell phones”—service providers in the United States. Information from its annual report to shareh
> Keystone Enterprises just announced record 2017 EPS of $5.00, up $0.25 from last year. This is the tenth consecutive year that the company has increased its EPS, an enviable record. Unfortunately, management fears that this string of EPS increases is abo
> The following excerpts are taken from the annual report of J. Crew Group, Inc. At January 29, 2005 and January 28, 2006, 92,800 shares of Series A preferred stock and 32,500 shares of Series B preferred stock were issued and outstanding. Dividends compou
> The following excerpt is from Ball Corporation’s 2006 annual report. Effective January 1, 2006, the company adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” and elected to use the . . . Black–Scholes valuation model. Tax benefits associated wi
> Excerpts from the Year 2 annual report of Air Products and Chemicals, Inc., follow. The income statement and balance sheet are condensed but the note entitled “Summarized Financial Information of Equity Affiliates” is
> On January 2, 2017, Dwyer Corporation granted 10,000 nonqualified stock options each to four of its key executives (40,000 options in total). Under the terms of the option plan, upon exercise, each executive will pay the exercise price of $10 per share o
> On January 1, 2017, Darth Corp. granted nonqualified stock options to certain key employees as additional compensation. The options were for 100,000 shares of Darth’s $1 par value common stock at an exercise price of $24 per share. The market price of th
> Riggs Corporation has the following balance sheet information at December 31, 2016. Current liabilities …………………...…………………...…………………...$ 800,000 Convertible bonds ($1,000 par, 5%) …………………...…………………...2,000,000 Common stock ($1 par, 300,000 shares issued
> In its December 31, 2016, balance sheet, Castle, Inc., reported 400,000 issued shares of common stock and 50,000 shares of treasury stock. The 2016 annual report also reported 100,000 exercisable incentive stock options. Each option allows the holder to
> Nike Inc. is one of the world’s largest sellers of athletic footwear and athletic apparel. The following information is from Nike’s annual report. Note 7: Redeemable Preferred Stock NIAC is the sole owner of the Compan
> Trask Corporation, a public company whose shares are traded in the over-the-counter market, had the following shareholders’ equity account balances at December 31, 2016: Common stock …………………..…………………..…………………..$ 7,875,000 Additional paid-in capital (incl
> Berle Corp. has a defined benefit pension plan that features the following data: January 1, 2016 (beginning of fiscal year): Fair value of plan assets ……………….……………….………………. $4,000 Projected benefit obligation ……………….……………….………………. $6,200 Accumulated be
> Selected pension information extracted from the retirement benefits note that appeared in Green’s 2017 annual report follows. (These numbers have been modified but are based on the activities of a real company whose name has been disgui
