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The poorest countries in the world have a per capita income of about $600 today. We can reasonably assume that it is nearly impossible to live on an income below half this level (below $300)
Economists have devised measures of how much consumers alter their purchases in response to price changes. These measures are called price controls. price floors.
Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2002 and 2003 from the preceding year. For each year, identify the variable that does not change. Explain in words why y
What was the growth rate of real GDP between 1996 and 1997? f. Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP? Explain.
Why is investment spending unstable? How is it possible for investment spending to increase even in a period in which the real interest rate rises?
Suppose that when the interest rate on loans is 16 percent, businesses find it unprofitable to invest in machinery and equipment. However, when the interest rate is 14 percent, $5 billion worth of inv
Suppose that, on the basis of a nation’s production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the 1 additional industrial robot it desires but that it can
Draw the short-run tradeoff between inflation and unemployment. How might the Fed move the economy from one point on this curve to another?
The government spends $3 billion to buy police cars. Explain why aggregate demand might increase by more than $3 billion. Explain why aggregate demand might increase by less than $3 billion.
The business section of most major newspapers contains a table showing U.S. exchange rates. Find such a table and use it to answer the following questions. a. Does this table show nominal or real exch
Let’s consider the effects of inflation in an economy composed only of two people: Bob, a bean farmer, and Rita, a rice farmer. Bob and Rita both always consume equal amounts of rice and beans.
What happened to the elasticity of demand for American cars when the Japanese developed a strong auto industry? What happened to the elasticity of demand for American autoworkers? Explain.
What are the three categories into which the Bureau of Labor Statistics divides everyone? How does it compute the labor force, the unemployment rate, and the laborforce participation rate?
Using a diagram of the labor market, show the effect of an increase in the minimum wage on the wage paid to workers, the number of workers supplied, the number of workers demanded, and the amount of u
Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loana
Explain the difference between saving and investment as defined by a macro economist. Which of the following situations represent investment? Saving? Explain.
The chapter explains that Social Security benefits are increased each year in proportion to the increase in the CPI, even though most economists believe that the CPI overstates actual inflation.
Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate r. What would determine whether a student would choose to be a
1) when inflation rises quickly, borrowers will be hurt or lenders if the actual inflation rate is less than the expected inflation then:
According to the rule of 70, how long will it take for your income to double if you get a 5 percent raise every year? If you start work at the age of 23 earning $40,000 per year and get a 5 percent ra
How does the total effect of this $20 billion tax cut compare to the total effect of a $20 billion increase in government purchases? Why?
A slowdown in the economy increases unemployment and decreases output. As a result of this action, there will be an increase in the quantity supplied of loanable funds. an increase in supply the of lo
Say that investment increases by 20 for each interest rate drop of one percent. Say also that the expenditures multiplier is 3. If the money multiplier is 4, and each 5 unit change in the money supply
Suppose a consumer buys 10 units of good X and 20 units of good Y every year. The following table lists the prices of goods X and Y in the years 2005-2007. Assume that these two goods constitute the t
Discuss the sticky-wage model of aggregate supply, carefully identifying any assumptions made. How well does the sticky-wage model explain the observed behaviour of real wages over the business cycle?