39w.1
Get solution
39w.2
Get solution
39w.3
Get solution
39w.4
Get solution
39w.5
Get solution
39w.6
Get solution
39w.7
Get solution
39w.8
Get solution
39w.9
Get solution
39w.10
Get solution
39w.11
Get solution
39w.12
Get solution
39w.13
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 38. Textbook solutions
38.1 Do
all international financial transactions necessarily involve exchanging
one nation's distinct currency for another? Explain. Could a nation
that neither imports goods and services nor exports goods and services
still engage in international financial transactions?
Get solution
38.2 Explain: “U.S. exports earn supplies of foreign currencies that Americans can use to finance imports.” Indicate whether each of the following creates a demand for or a supply of European euros in foreign exchange markets;a.A U.S. airline firm purchases several Airbus planes assembled in France.b.A German automobile firm decides to build an assembly plant in South Carolina.c.A U.S. college student decides to spend a year studying at the Sorbonne in Paris.d.An Italian manufacturer ships machinery from one Italian port to another on a Liberian freighter.e.The U.S. economy grows faster than the French economy.f.A U.S. government bond held by a Spanish citizen matures, and the loan amount is paid back to that person.g.It is widely expected that the euro will depreciate in the near future.
Get solution
38.3 What do the plus signs and negative signs signify in the U.S. balance-of-payments statement? Which of the following items appear in the current account and which appear in the capital and financial account? U.S. purchases of assets abroad; U.S. services imports; foreign purchases of assets in the United States; U.S. good exports, U.S. net investment income. Why must the current account and the capital and financial account sum to zero?
Get solution
38.4 What are official reserves? How do net sales of official reserves to foreigners and net purchases of official reserves from foreigners relate to U.S. balance-of-payment deficits and surpluses? Explain why these deficits and surpluses are not actual deficits and surpluses in the overall balance-of-payments statement.
Get solution
38.5 Generally speaking, how is the dollar price of euros determined? Cite a factor that might increase the dollar price of euros. Cite a different factor that might decrease the dollar price of euros. Explain: "A rise in the dollar price of euros necessarily means a fall in the euro price of dollars." Illustrate and elaborate: "The dollar-euro exchange rate provides a direct link between the prices of goods and services produced in the Euro Zone and in the United States." Explain the purchasing-power-parity theory of exchange rates, using the euro-dollar exchange rate as an illustration.
Get solution
38.6 Suppose that a Swiss watchmaker imports watch components from Sweden and exports watches to the United States. Also suppose the dollar depreciates, and the Swedish krona appreciates, relative to the Swiss franc. Speculate as to how each would hurt the Swiss watchmaker.
Get solution
38.7 Explain why the U.S. demand for Mexican pesos is downsloping and the supply of pesos to Americans is upsloping. Assuming a system of flexible exchange rates between Mexico and the United States, indicate whether each of the following would cause the Mexican peso to appreciate or depreciate, other things equal:a. The United States unilaterally reduces tariffs on Mexican products.b. Mexico encounters severe inflation.c. Deteriorating political relations reduce American tourism in Mexico.d. The U.S. economy moves into a severe recession.e. The United States engages in a high-interest-rate monetary policy.f. Mexican products become more fashionable to U.S. consumers.g. The Mexican government encourages U.S. firms to invest in Mexican oil fields.h. The rate of productivity growth in the United States diminishes sharply.
Get solution
38.8 Explain why you agree or disagree with the following statements. Assume other things equal.a. A country that grows faster than its major trading partners can expect the international value of its currency to depreciate.b. A nation whose interest rate is rising more rapidly than interest rates in other nations can expect the international value of its currency to appreciate.c. A country’s currency will appreciate if its inflation rate is less than that of the rest of the world.
Get solution
38.9 ”Exports pay for imports. Yet in 2009 the nations of the world exported about $379 billion more of goods and services to the United States than they imported from the United States.” Resolve the apparent inconsistency of these two statements.
Get solution
38.10 Diagram a market in which the equilibrium dollar price of 1 unit of fictitious currency zee (Z) is $5 (the exchange rate is $5 = Z1). Then show on your diagram a decline in the demand for zee.a. Referring to your diagram, discuss the adjustment options the United States would have in maintaining the exchange rate at $5 = Zl under a fixed-exchange-rate system.b. How would the U.S. balance-of-payments surplus that is caused by the decline in demand be resolved under a system of flexible exchange rates?
Get solution
38.11 Suppose that a country follows a managed-float policy but that its exchange rate is currently floating freely. In addition, suppose that it has a massive current account deficit. Does it also necessarily have a balance-of-payments deficit? If it decides to engage in a currency intervention to reduce the size of its current account deficit, will it buy or sell its own currency? As it does so, will its official reserves of foreign currencies get larger or smaller? Would that outcome indicate a balance-of- payments deficit or a balance-of-payments surplus?
Get solution
38.12 What have been the major causes of the large U.S. trade deficits in recent years? What are the major benefits and costs associated with trade deficits? Explain: "A trade deficit means that a nation is receiving more goods and services from abroad than it is sending abroad." How can that be considered to be “unfavorable”?
Get solution
38.13 LAST WORD Suppose Super D’Hiver—a hypothetical French snowboard retailer—wants to order 5000 snowboards made in the United States. The price per board is $200, the present exchange rate is 1 euro = $1, and payment is due in dollars when the boards are delivered in 3 months. Use a numerical example to explain why exchange-rate risk might make the French retailer hesitant to place the order. How might speculators absorb some of Super D’Hiver’s risk?
Get solution
Get solution
38.2 Explain: “U.S. exports earn supplies of foreign currencies that Americans can use to finance imports.” Indicate whether each of the following creates a demand for or a supply of European euros in foreign exchange markets;a.A U.S. airline firm purchases several Airbus planes assembled in France.b.A German automobile firm decides to build an assembly plant in South Carolina.c.A U.S. college student decides to spend a year studying at the Sorbonne in Paris.d.An Italian manufacturer ships machinery from one Italian port to another on a Liberian freighter.e.The U.S. economy grows faster than the French economy.f.A U.S. government bond held by a Spanish citizen matures, and the loan amount is paid back to that person.g.It is widely expected that the euro will depreciate in the near future.
Get solution
38.3 What do the plus signs and negative signs signify in the U.S. balance-of-payments statement? Which of the following items appear in the current account and which appear in the capital and financial account? U.S. purchases of assets abroad; U.S. services imports; foreign purchases of assets in the United States; U.S. good exports, U.S. net investment income. Why must the current account and the capital and financial account sum to zero?
Get solution
38.4 What are official reserves? How do net sales of official reserves to foreigners and net purchases of official reserves from foreigners relate to U.S. balance-of-payment deficits and surpluses? Explain why these deficits and surpluses are not actual deficits and surpluses in the overall balance-of-payments statement.
Get solution
38.5 Generally speaking, how is the dollar price of euros determined? Cite a factor that might increase the dollar price of euros. Cite a different factor that might decrease the dollar price of euros. Explain: "A rise in the dollar price of euros necessarily means a fall in the euro price of dollars." Illustrate and elaborate: "The dollar-euro exchange rate provides a direct link between the prices of goods and services produced in the Euro Zone and in the United States." Explain the purchasing-power-parity theory of exchange rates, using the euro-dollar exchange rate as an illustration.
Get solution
38.6 Suppose that a Swiss watchmaker imports watch components from Sweden and exports watches to the United States. Also suppose the dollar depreciates, and the Swedish krona appreciates, relative to the Swiss franc. Speculate as to how each would hurt the Swiss watchmaker.
Get solution
38.7 Explain why the U.S. demand for Mexican pesos is downsloping and the supply of pesos to Americans is upsloping. Assuming a system of flexible exchange rates between Mexico and the United States, indicate whether each of the following would cause the Mexican peso to appreciate or depreciate, other things equal:a. The United States unilaterally reduces tariffs on Mexican products.b. Mexico encounters severe inflation.c. Deteriorating political relations reduce American tourism in Mexico.d. The U.S. economy moves into a severe recession.e. The United States engages in a high-interest-rate monetary policy.f. Mexican products become more fashionable to U.S. consumers.g. The Mexican government encourages U.S. firms to invest in Mexican oil fields.h. The rate of productivity growth in the United States diminishes sharply.
Get solution
38.8 Explain why you agree or disagree with the following statements. Assume other things equal.a. A country that grows faster than its major trading partners can expect the international value of its currency to depreciate.b. A nation whose interest rate is rising more rapidly than interest rates in other nations can expect the international value of its currency to appreciate.c. A country’s currency will appreciate if its inflation rate is less than that of the rest of the world.
Get solution
38.9 ”Exports pay for imports. Yet in 2009 the nations of the world exported about $379 billion more of goods and services to the United States than they imported from the United States.” Resolve the apparent inconsistency of these two statements.
Get solution
38.10 Diagram a market in which the equilibrium dollar price of 1 unit of fictitious currency zee (Z) is $5 (the exchange rate is $5 = Z1). Then show on your diagram a decline in the demand for zee.a. Referring to your diagram, discuss the adjustment options the United States would have in maintaining the exchange rate at $5 = Zl under a fixed-exchange-rate system.b. How would the U.S. balance-of-payments surplus that is caused by the decline in demand be resolved under a system of flexible exchange rates?
Get solution
38.11 Suppose that a country follows a managed-float policy but that its exchange rate is currently floating freely. In addition, suppose that it has a massive current account deficit. Does it also necessarily have a balance-of-payments deficit? If it decides to engage in a currency intervention to reduce the size of its current account deficit, will it buy or sell its own currency? As it does so, will its official reserves of foreign currencies get larger or smaller? Would that outcome indicate a balance-of- payments deficit or a balance-of-payments surplus?
Get solution
38.12 What have been the major causes of the large U.S. trade deficits in recent years? What are the major benefits and costs associated with trade deficits? Explain: "A trade deficit means that a nation is receiving more goods and services from abroad than it is sending abroad." How can that be considered to be “unfavorable”?
Get solution
38.13 LAST WORD Suppose Super D’Hiver—a hypothetical French snowboard retailer—wants to order 5000 snowboards made in the United States. The price per board is $200, the present exchange rate is 1 euro = $1, and payment is due in dollars when the boards are delivered in 3 months. Use a numerical example to explain why exchange-rate risk might make the French retailer hesitant to place the order. How might speculators absorb some of Super D’Hiver’s risk?
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 37. Textbook solutions
37.1 Quantitatively,
how important is international trade to the United States relative to
the importance of trade to other nations? What country is the United
States’ most important trading partner, quantitatively? With what
country does the United States have the largest trade deficit?
Get solution
37.2 Distinguish among land-, labor-, and capital-intensive goods, citing an example of each without resorting to book examples. How do these distinctions relate to international trade? How do distinctive products, unrelated to resource intensity, relate to international trade?
Get solution
37.3 Explain: “The United States can make certain toys with greater productive efficiency than can China. Yet we import those toys from China” Relate your answer to the ideas of Adam Smith and David Ricardo.
Get solution
37.4 Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60units of X and 60 units of Y. Assuming constant costs, in which product should each nation specialize? Explain why. What are the limits of the terms of trade between these two countries? How would rising costs (rather than constant costs) affect the extent of specialization and trade between these two countries?
Get solution
37.5 What is an export demand curve? What is an import supply curve? How do such curves relate to the determination of the equilibrium world price of a tradable good?
Get solution
37.6 Why is a quota more detrimental to an economy than a tariff that results in the same level of imports as the quota? What is the net outcome of either tariffs or quotas for the world economy?
Get solution
37.7 Draw a domestic supply-and-demand diagram for a product in which the United States does not have a comparative advantage. What impact do foreign imports have on domestic price and quantity? On your diagram show a protective tariff that eliminates approximately one-half of the assumed imports. What are the price-quantity effects of this tariff on (a) domestic consumers, (b) domestic producers, and (c) foreign exporters? How would the effects of a quota that creates the same amount of imports differ?
Get solution
37.8 “The potentially valid arguments for tariff Protection –military self–sufficiency, infant industry protection, and diversification for stability–are also the most easily abused.” Why are these arguments susceptible to abuse?
Get solution
37.9 Evaluate the effectiveness of artificial trade barriers, such as tariffs and import quotas, as a way to achieve and maintain full employment throughout the U.S. economy. How might such policies reduce unemployment in one U.S. industry but increase it in another U.S. industry?
Get solution
37.10 In 2007, manufacturing workers in the United States earned average compensation of $30.56 per hour. That same year manufacturing workers in Mexico earned average compensation of $3.91 per hour. How can U.S. manufacturers possibly compete? Why isn't all manufacturing done in Mexico and other low-wage countries?
Get solution
37.11 How might protective tariffs reduce both the imports and the exports of the nation that levies tariffs? In what wav do foreign firms that “dump” their products onto the U.S. rnarker ineffect provide bargains to American consumers? How might the import competition leadto quality improvements and cost reductions by American firms?
Get solution
37.12 Identify and state the significance of each of the following trade-related entities: (a) the WTO; (b) the EU; (c) the Euro Zone, and (d) NAFTA.
Get solution
37.13 What form does trade adjustment assistance take in the United States? Howdoes such assistance promote political support for free-trade agreements? Do you think workers who lose their jobs because of changes in trade laws deserve special treatment relative to workers who lose their jobs because of other changes in the economy, say, changes in patterns of government spending?
Get solution
37.14 what is offshoring of white-collar service jobs and how does that practice relate to international trade?Why has offshoring increased over the past few decades? Give an example (other than that in the textbook) of how offshoring can eliminate some American jobs while creating other American jobs.
Get solution
37.15 LASTWORD what was the central point that Bastiat was trying to make in his imaginary petition of the candlemakers?
Get solution
Get solution
37.2 Distinguish among land-, labor-, and capital-intensive goods, citing an example of each without resorting to book examples. How do these distinctions relate to international trade? How do distinctive products, unrelated to resource intensity, relate to international trade?
Get solution
37.3 Explain: “The United States can make certain toys with greater productive efficiency than can China. Yet we import those toys from China” Relate your answer to the ideas of Adam Smith and David Ricardo.
Get solution
37.4 Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60units of X and 60 units of Y. Assuming constant costs, in which product should each nation specialize? Explain why. What are the limits of the terms of trade between these two countries? How would rising costs (rather than constant costs) affect the extent of specialization and trade between these two countries?
Get solution
37.5 What is an export demand curve? What is an import supply curve? How do such curves relate to the determination of the equilibrium world price of a tradable good?
Get solution
37.6 Why is a quota more detrimental to an economy than a tariff that results in the same level of imports as the quota? What is the net outcome of either tariffs or quotas for the world economy?
Get solution
37.7 Draw a domestic supply-and-demand diagram for a product in which the United States does not have a comparative advantage. What impact do foreign imports have on domestic price and quantity? On your diagram show a protective tariff that eliminates approximately one-half of the assumed imports. What are the price-quantity effects of this tariff on (a) domestic consumers, (b) domestic producers, and (c) foreign exporters? How would the effects of a quota that creates the same amount of imports differ?
Get solution
37.8 “The potentially valid arguments for tariff Protection –military self–sufficiency, infant industry protection, and diversification for stability–are also the most easily abused.” Why are these arguments susceptible to abuse?
Get solution
37.9 Evaluate the effectiveness of artificial trade barriers, such as tariffs and import quotas, as a way to achieve and maintain full employment throughout the U.S. economy. How might such policies reduce unemployment in one U.S. industry but increase it in another U.S. industry?
Get solution
37.10 In 2007, manufacturing workers in the United States earned average compensation of $30.56 per hour. That same year manufacturing workers in Mexico earned average compensation of $3.91 per hour. How can U.S. manufacturers possibly compete? Why isn't all manufacturing done in Mexico and other low-wage countries?
Get solution
37.11 How might protective tariffs reduce both the imports and the exports of the nation that levies tariffs? In what wav do foreign firms that “dump” their products onto the U.S. rnarker ineffect provide bargains to American consumers? How might the import competition leadto quality improvements and cost reductions by American firms?
Get solution
37.12 Identify and state the significance of each of the following trade-related entities: (a) the WTO; (b) the EU; (c) the Euro Zone, and (d) NAFTA.
Get solution
37.13 What form does trade adjustment assistance take in the United States? Howdoes such assistance promote political support for free-trade agreements? Do you think workers who lose their jobs because of changes in trade laws deserve special treatment relative to workers who lose their jobs because of other changes in the economy, say, changes in patterns of government spending?
Get solution
37.14 what is offshoring of white-collar service jobs and how does that practice relate to international trade?Why has offshoring increased over the past few decades? Give an example (other than that in the textbook) of how offshoring can eliminate some American jobs while creating other American jobs.
Get solution
37.15 LASTWORD what was the central point that Bastiat was trying to make in his imaginary petition of the candlemakers?
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 36. Textbook solutions
36.1 First,
imagine that both input and output prices are fixed in the economy.
What does the aggregate supply curve look like? If AD decreases in this
situation, what will happen to equilibrium output and the price
level? Next, imagine that input prices are fixed, but output prices are
flexible. What does the aggregate supply curve look like? In this case,
if AD decreases, what will happen to equilibrium output and the price
level? Finally, if both input and output prices are fully flexible, what
does the aggregate supply curve look like? In this case, if AD
decreases, what will happen to equilibrium output and the price level?
(To check your answers, review Figures 29.3, 29.4, and 29.5 in Chapter
29).
Get solution
36.2 According to mainstream economists, what is the usual cause of macroeconomic instability? What role does the spending-income multiplier play in creating instability? How might adverse aggregate supply factors cause instability, according to mainstream economists?
Get solution
36.3 What is an efficiency-wage? How might payment of an above-market wage reduce shirking by employees and reduce worker turnover? How might efficiency wages contribute to downward wage inflexibility, at least for a time, when aggregate demand declines?
Get solution
36.4 How might relationships between so-called insiders and outsiders contribute to downward wage inflexibility?
Get solution
36.5 Briefly describe the difference between a so-called real business cycle and a more traditional “spending” business cycle.
Get solution
36.6 Craig and Kris were walking directly toward each other in a congested store aisle. Craig moved to his left to avoid Kris, and at the same time Kris moved to his right to avoid Craig. They bumped into each other. What concept does this example illustrate? How does this idea relate to macroeconomic instability?
Get solution
36.7 State and explain the basic equation of monetarism. What is the major cause of macroeconomic instability, as viewed by monetarists?
Get solution
36.8 Use the equation of exchange to explain the rationale for a monetary rule. Why will such a rule run into trouble if V unexpectedly falls because of, say, a drop in investment spending by businesses?
Get solution
36.9 Use an AD-AS graph to demonstrate and explain the price- level and real-output outcome of an anticipated decline in aggregate demand, as viewed by RET economists. (Assume that the economy initially is operating at its full-employment level of output.) Then demonstrate and explain on the same graph the outcome as viewed by mainstream economists.
Get solution
36.10 Explain the difference between "active" discretionary fiscal policy advocated by mainstream economists and “passive” fiscal policy advocated by new classical economists. Explain: “The problem with a balanced-budget amendment is that it would, in a sense, require active fiscal policy—but in the wrong direction—as the economy slides into recession.”
Get solution
36.11 Place “MON,” “RET,” or “MAIN” beside the statements that most closely reflect monetarist, rational expectations, or mainstream views, respectively:a. Anticipated changes in aggregate demand affect only the price level; they have no effect on real output.b. Downward wage inflexibility means that declines in aggregate demand can cause long-lasting recession.c. Changes in the money supply M increase PQ; at first only Q rises, because nominal wages are fixed, but once workers adapt their expectations to new realities, P rises and Q returns to its former level.d. Fiscal and monetary policies smooth out the business cycle.e. The Fed should increase the money supply at a fixed annual rate.
Get solution
36.12 You have just been elected president of the United States, and the present chairperson of the Federal Reserve Board has resigned. You need to appoint a new person to this position, as well as a person to chair your Council of Economic Advisers. Using Table 36.1 and your knowledge of macroeconomics, identify the views on macro theory and policy you would want your appointees to hold. Remember, the economic health of the entire nation— and your chances for reelection—may depend on your selections.
Get solution
36.13 LAST WORD Compare and contrast the Taylor rule for monetary policy with the older, simpler monetary rule advocated by Milton Friedman.
Get solution
Get solution
36.2 According to mainstream economists, what is the usual cause of macroeconomic instability? What role does the spending-income multiplier play in creating instability? How might adverse aggregate supply factors cause instability, according to mainstream economists?
Get solution
36.3 What is an efficiency-wage? How might payment of an above-market wage reduce shirking by employees and reduce worker turnover? How might efficiency wages contribute to downward wage inflexibility, at least for a time, when aggregate demand declines?
Get solution
36.4 How might relationships between so-called insiders and outsiders contribute to downward wage inflexibility?
Get solution
36.5 Briefly describe the difference between a so-called real business cycle and a more traditional “spending” business cycle.
Get solution
36.6 Craig and Kris were walking directly toward each other in a congested store aisle. Craig moved to his left to avoid Kris, and at the same time Kris moved to his right to avoid Craig. They bumped into each other. What concept does this example illustrate? How does this idea relate to macroeconomic instability?
Get solution
36.7 State and explain the basic equation of monetarism. What is the major cause of macroeconomic instability, as viewed by monetarists?
Get solution
36.8 Use the equation of exchange to explain the rationale for a monetary rule. Why will such a rule run into trouble if V unexpectedly falls because of, say, a drop in investment spending by businesses?
Get solution
36.9 Use an AD-AS graph to demonstrate and explain the price- level and real-output outcome of an anticipated decline in aggregate demand, as viewed by RET economists. (Assume that the economy initially is operating at its full-employment level of output.) Then demonstrate and explain on the same graph the outcome as viewed by mainstream economists.
Get solution
36.10 Explain the difference between "active" discretionary fiscal policy advocated by mainstream economists and “passive” fiscal policy advocated by new classical economists. Explain: “The problem with a balanced-budget amendment is that it would, in a sense, require active fiscal policy—but in the wrong direction—as the economy slides into recession.”
Get solution
36.11 Place “MON,” “RET,” or “MAIN” beside the statements that most closely reflect monetarist, rational expectations, or mainstream views, respectively:a. Anticipated changes in aggregate demand affect only the price level; they have no effect on real output.b. Downward wage inflexibility means that declines in aggregate demand can cause long-lasting recession.c. Changes in the money supply M increase PQ; at first only Q rises, because nominal wages are fixed, but once workers adapt their expectations to new realities, P rises and Q returns to its former level.d. Fiscal and monetary policies smooth out the business cycle.e. The Fed should increase the money supply at a fixed annual rate.
Get solution
36.12 You have just been elected president of the United States, and the present chairperson of the Federal Reserve Board has resigned. You need to appoint a new person to this position, as well as a person to chair your Council of Economic Advisers. Using Table 36.1 and your knowledge of macroeconomics, identify the views on macro theory and policy you would want your appointees to hold. Remember, the economic health of the entire nation— and your chances for reelection—may depend on your selections.
Get solution
36.13 LAST WORD Compare and contrast the Taylor rule for monetary policy with the older, simpler monetary rule advocated by Milton Friedman.
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 35. Textbook solutions
35.1 Distinguish between the short run and the long run as they relate to macroeconomics. Why is the distinction important?
Get solution
35.2 Which of the following statements are true? Which are false? Explain why the false statements are untrue.a. Short-run aggregate supply curves reflect an inverse relationship between the price level and the level of real output.b. The long-run aggregate supply curve assumes that nominal wages are fixed.c. In the long run, an increase in the price level will result in an increase in nominal wages.
Get solution
35.3 Suppose the full-employment level of real output (Q) for a hypothetical economy is $250 and the price level (P) initially is 100. Use the short-run aggregate supply schedules below to answer the questions that follow: LO1...a. What will be the level of real output in the short run if the price level unexpectedly rises from 100 to 125 because of an increase in aggregate demand? What if the price level unexpectedly falls from 100 to 75 because of a decrease in aggregate demand? Explain each situation, using numbers from the table.
b. What will be the level of real output in the long run when the price level rises from 100 to 125? When it falls from 100 to 75? Explain each situation.
c. Show the circumstances described in parts a and b on graph paper, and derive the long-run aggregate supply curve.
Get solution
35.4 Use graphical analysis to show how each of the following would affect, the economy first in the short run and then in the long run. Assume that the United States is initially operating at its full-employment level of output, that prices and wages are eventually flexible both upward and downward, and that there is no counteracting fiscal or monetary policy.a. Because of a war abroad, the oil supply to the United States is disrupted, sending oil prices rocketing upward.b. Construction spending on new homes rises dramatically, greatly increasing total U.S. investment spending.c. Economic recession occurs abroad, significantly reducing foreign purchases of U.S. exports.
Get solution
35.5 Between 1990 and 2009, the U.S. price level rose by about 64 percent while real output increased by about 62 percent. Use the aggregate demand-aggregate supply model to illustrate these outcomes graphically.
Get solution
35.6 Assume there is a particular short-run aggregate supply curve for an economy and the curve is relevant for several years. Use the AD-AS analysis to show graphically why higher rates of inflation over this period would be associated with lower rates of unemployment, and vice versa. What is this inverse relationship called?
Get solution
35.7 Suppose the government misjudges the natural rate of unemployment to be much lower than it actually is, and thus undertakes expansionary fiscal and monetary policies to try to achieve the lower rate. Use the concept of the short-run Phillips Curve to explain why these policies might at first succeed. Use the concept of the long-run Phillips Curve to explain the long-run outcome of these policies.
Get solution
35.8 What do the distinctions between short-run aggregate supply and long-run aggregate supply have in common with the distinction between the short-run Phillips Curve and the long-run Phillips Curve? Explain.
Get solution
35.9 What is the Laffer Curve, and how does it relate to supply- side economics? Why is determining the economy's location on the curve so important in assessing tax policy?
Get solution
35.10 Why might one person work more, earn more, and pay more income tax when his or her tax rate is cut, while another person will work less, earn less, and pay less income tax under the same circumstance?
Get solution
35.11 LAST WORD On average, does an increase in taxes raise or lower real GDP? If taxes as a percent of GDP go up 1 percent, by how much does real GDP change? Are the decreases in real GDP caused by tax increases temporary or permanent? Does the intention of a tax increase matter?
Get solution
Get solution
35.2 Which of the following statements are true? Which are false? Explain why the false statements are untrue.a. Short-run aggregate supply curves reflect an inverse relationship between the price level and the level of real output.b. The long-run aggregate supply curve assumes that nominal wages are fixed.c. In the long run, an increase in the price level will result in an increase in nominal wages.
Get solution
35.3 Suppose the full-employment level of real output (Q) for a hypothetical economy is $250 and the price level (P) initially is 100. Use the short-run aggregate supply schedules below to answer the questions that follow: LO1...a. What will be the level of real output in the short run if the price level unexpectedly rises from 100 to 125 because of an increase in aggregate demand? What if the price level unexpectedly falls from 100 to 75 because of a decrease in aggregate demand? Explain each situation, using numbers from the table.
b. What will be the level of real output in the long run when the price level rises from 100 to 125? When it falls from 100 to 75? Explain each situation.
c. Show the circumstances described in parts a and b on graph paper, and derive the long-run aggregate supply curve.
Get solution
35.4 Use graphical analysis to show how each of the following would affect, the economy first in the short run and then in the long run. Assume that the United States is initially operating at its full-employment level of output, that prices and wages are eventually flexible both upward and downward, and that there is no counteracting fiscal or monetary policy.a. Because of a war abroad, the oil supply to the United States is disrupted, sending oil prices rocketing upward.b. Construction spending on new homes rises dramatically, greatly increasing total U.S. investment spending.c. Economic recession occurs abroad, significantly reducing foreign purchases of U.S. exports.
Get solution
35.5 Between 1990 and 2009, the U.S. price level rose by about 64 percent while real output increased by about 62 percent. Use the aggregate demand-aggregate supply model to illustrate these outcomes graphically.
Get solution
35.6 Assume there is a particular short-run aggregate supply curve for an economy and the curve is relevant for several years. Use the AD-AS analysis to show graphically why higher rates of inflation over this period would be associated with lower rates of unemployment, and vice versa. What is this inverse relationship called?
Get solution
35.7 Suppose the government misjudges the natural rate of unemployment to be much lower than it actually is, and thus undertakes expansionary fiscal and monetary policies to try to achieve the lower rate. Use the concept of the short-run Phillips Curve to explain why these policies might at first succeed. Use the concept of the long-run Phillips Curve to explain the long-run outcome of these policies.
Get solution
35.8 What do the distinctions between short-run aggregate supply and long-run aggregate supply have in common with the distinction between the short-run Phillips Curve and the long-run Phillips Curve? Explain.
Get solution
35.9 What is the Laffer Curve, and how does it relate to supply- side economics? Why is determining the economy's location on the curve so important in assessing tax policy?
Get solution
35.10 Why might one person work more, earn more, and pay more income tax when his or her tax rate is cut, while another person will work less, earn less, and pay less income tax under the same circumstance?
Get solution
35.11 LAST WORD On average, does an increase in taxes raise or lower real GDP? If taxes as a percent of GDP go up 1 percent, by how much does real GDP change? Are the decreases in real GDP caused by tax increases temporary or permanent? Does the intention of a tax increase matter?
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 34. Textbook solutions
34.1 Suppose
that the city of New York issues bonds to raise money to pay for a new
tunnel linking New Jersey and Manhattan. An investor named Susan buys
one of the bonds on the same day that the city of New York pays a
contractor for completing the first stage of construction. Is Susan
making an economic or a financial investment? What about the city of New
York?
Get solution
34.2 What is compound interest? How does it relate to the formula: X dollars today = (1 + i)t X dollars in t years? What is present value? How does it relate to the formula: X/(1 + i)t dollars today = x dollars in t years?
Get solution
34.3 How do stocks and bonds differ in terms of the future payments that they are expected to make? Which type of investment (stocks or bonds) is considered to be more risky? Given what you know, which investment (stocks or bonds) do you think commonly goes by the nickname “fixed income”?
Get solution
34.4 What are mutual funds? What different types of mutual funds are there? And why do you think they are so popular with investors?
Get solution
34.5 Corporations often distribute profits to their shareholders in the form of dividends, which are simply checks mailed out to shareholders. Suppose that you have the chance to buy a share in a fashion company called Rogue Designs for $35 and that the company will pay dividends of $2 per year on that share every year. What is the annual percentage rate of return? Next, suppose that you and other investors could get a 12 percent per year rate of return by owning the stocks of other very similar fashion companies. If investors care only about rates of return, what should happen to the share price of Rogue Designs? (Hint: This is an arbitrage situation.)
Get solution
34.6 Why is it reasonable to ignore diversifiable risk and care only about nondiversifiable risk? What about investors who put all their money into only a single risky stock? Can they properly ignore diversifiable risk?
Get solution
34.7 If we compare the betas of various investment opportunities, why do the assets that have higher betas also have higher average expected rates of return?
Get solution
34.8 In this chapter we discussed short-term U.S. government bonds. But the U.S. government also issues longer-term bonds with horizons of up to 30 years. Why do 20-year bonds issued by the U.S. government have lower rates of return than 20-year bonds issued by corporations? And which would you consider more likely, that longer- term U.S. government bonds have a higher interest rate than short-term U.S. government bonds, or vice versa? Explain.
Get solution
34.9 What determines the vertical intercept of the Security Market Line (SML)? What determines its slope? And what will happen to an asset's price if it initially plots onto a point above the SML?
Get solution
34.10 Suppose that the Federal Reserve thinks that a stock market bubble is occurring and wants to reduce stock prices. What should it do to interest rates?
Get solution
34.11 Consider another situation involving the SML. Suppose that the risk-free interest rate stays the same, but that investors' dislike of risk grows more intense. Given this change, will average expected rates of return rise or fall? Next, compare what will happen to the rates of return on low-risk and high-risk investments. Which will have a larger increase in average expected rates of return, investments with high betas or investments with low betas? And will high-beta or low-beta investments show larger percentage changes in their prices?.
Get solution
34.12 LAST WORD Why is it so hard for actively managed funds to generate higher rates of return than passively managed index funds having similar levels of risk? Is there a simple way for an actively managed fund to increase its average expected rate of return?
Get solution
Get solution
34.2 What is compound interest? How does it relate to the formula: X dollars today = (1 + i)t X dollars in t years? What is present value? How does it relate to the formula: X/(1 + i)t dollars today = x dollars in t years?
Get solution
34.3 How do stocks and bonds differ in terms of the future payments that they are expected to make? Which type of investment (stocks or bonds) is considered to be more risky? Given what you know, which investment (stocks or bonds) do you think commonly goes by the nickname “fixed income”?
Get solution
34.4 What are mutual funds? What different types of mutual funds are there? And why do you think they are so popular with investors?
Get solution
34.5 Corporations often distribute profits to their shareholders in the form of dividends, which are simply checks mailed out to shareholders. Suppose that you have the chance to buy a share in a fashion company called Rogue Designs for $35 and that the company will pay dividends of $2 per year on that share every year. What is the annual percentage rate of return? Next, suppose that you and other investors could get a 12 percent per year rate of return by owning the stocks of other very similar fashion companies. If investors care only about rates of return, what should happen to the share price of Rogue Designs? (Hint: This is an arbitrage situation.)
Get solution
34.6 Why is it reasonable to ignore diversifiable risk and care only about nondiversifiable risk? What about investors who put all their money into only a single risky stock? Can they properly ignore diversifiable risk?
Get solution
34.7 If we compare the betas of various investment opportunities, why do the assets that have higher betas also have higher average expected rates of return?
Get solution
34.8 In this chapter we discussed short-term U.S. government bonds. But the U.S. government also issues longer-term bonds with horizons of up to 30 years. Why do 20-year bonds issued by the U.S. government have lower rates of return than 20-year bonds issued by corporations? And which would you consider more likely, that longer- term U.S. government bonds have a higher interest rate than short-term U.S. government bonds, or vice versa? Explain.
Get solution
34.9 What determines the vertical intercept of the Security Market Line (SML)? What determines its slope? And what will happen to an asset's price if it initially plots onto a point above the SML?
Get solution
34.10 Suppose that the Federal Reserve thinks that a stock market bubble is occurring and wants to reduce stock prices. What should it do to interest rates?
Get solution
34.11 Consider another situation involving the SML. Suppose that the risk-free interest rate stays the same, but that investors' dislike of risk grows more intense. Given this change, will average expected rates of return rise or fall? Next, compare what will happen to the rates of return on low-risk and high-risk investments. Which will have a larger increase in average expected rates of return, investments with high betas or investments with low betas? And will high-beta or low-beta investments show larger percentage changes in their prices?.
Get solution
34.12 LAST WORD Why is it so hard for actively managed funds to generate higher rates of return than passively managed index funds having similar levels of risk? Is there a simple way for an actively managed fund to increase its average expected rate of return?
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 33. Textbook solutions
33.1 What is the basic determinant of (a) the transactions demand and (b)
the asset demand for money? Explain how these two demands can be
combined graphically to determine total money demand. How is the
equilibrium interest rate in the money market determined? Use a graph to
show the effect of an increase in the total demand for money on the
equilibrium interest rate (no change in money supply), Use your general
knowledge of equilibrium prices to explain why the previous interest
rate is no longer sustainable.
Get solution
33.2 What is the basic objective of monetary policy? What are the major strengths of monetary policy? Why is monetary policy easier to conduct than fiscal policy?
Get solution
33.3 Use commercial bank and Federal Reserve Bank balance sheets to demonstrate the effect of each of the following transactions on commercial bank reserves:a. Federal Reserve Banks purchase securities from banks.b. Commercial banks borrow from Federal Reserve Banks at the discount rate.c. The Fed reduces the reserve ratio.d. Commercial banks borrow from Federal Reserve Banks after winning an auction held as part of the term auction facility.
Get solution
33.4 Distinguish between the Federal funds rate and the prime interest rate. Why is one higher than the other? Why do changes in the two rates closely track one another?
Get solution
33.5 Why is a decrease in the supply of Federal funds shown as an upshift of the supply curve in Figure 33.3, whereas an increase in Federal funds is shown as a downshift of the supply curve?
Get solution
33.6 Suppose that you are a member of the Board of Governors of the Federal Reserve System. The economy is experiencing a sharp rise in the inflation rate. What change in the Federal funds rate would you recommend? How would your recommended change get accomplished? What impact would the actions have on the lending ability of the banking system, the real interest rate, investment spending, aggregate demand, and inflation?
Get solution
33.7 Explain the links between changes in the nation's money supply, the interest rate, investment spending, aggregate demand, real GDP, and the price level.
Get solution
33.8 What do economists mean when they say that monetary policy can exhibit cyclical asymmetry? How does the idea of a liquidity trap relate to cyclical asymmetry? Why is this possibility of a liquidity trap significant to policymakers?
Get solution
33.9 LAST WORD What are the three main aggregate supply factors that determine a nation's potential (or full-employment) level of real output? What are the four main components of aggregate demand? Explain: "Aggregate supply factors determine a nation's potential GDP, whereas aggregate demand factors determine whether or not the nation achieves its full employment GDP." How does fiscal and monetary policy relate to aggregate demand?
Get solution
Get solution
33.2 What is the basic objective of monetary policy? What are the major strengths of monetary policy? Why is monetary policy easier to conduct than fiscal policy?
Get solution
33.3 Use commercial bank and Federal Reserve Bank balance sheets to demonstrate the effect of each of the following transactions on commercial bank reserves:a. Federal Reserve Banks purchase securities from banks.b. Commercial banks borrow from Federal Reserve Banks at the discount rate.c. The Fed reduces the reserve ratio.d. Commercial banks borrow from Federal Reserve Banks after winning an auction held as part of the term auction facility.
Get solution
33.4 Distinguish between the Federal funds rate and the prime interest rate. Why is one higher than the other? Why do changes in the two rates closely track one another?
Get solution
33.5 Why is a decrease in the supply of Federal funds shown as an upshift of the supply curve in Figure 33.3, whereas an increase in Federal funds is shown as a downshift of the supply curve?
Get solution
33.6 Suppose that you are a member of the Board of Governors of the Federal Reserve System. The economy is experiencing a sharp rise in the inflation rate. What change in the Federal funds rate would you recommend? How would your recommended change get accomplished? What impact would the actions have on the lending ability of the banking system, the real interest rate, investment spending, aggregate demand, and inflation?
Get solution
33.7 Explain the links between changes in the nation's money supply, the interest rate, investment spending, aggregate demand, real GDP, and the price level.
Get solution
33.8 What do economists mean when they say that monetary policy can exhibit cyclical asymmetry? How does the idea of a liquidity trap relate to cyclical asymmetry? Why is this possibility of a liquidity trap significant to policymakers?
Get solution
33.9 LAST WORD What are the three main aggregate supply factors that determine a nation's potential (or full-employment) level of real output? What are the four main components of aggregate demand? Explain: "Aggregate supply factors determine a nation's potential GDP, whereas aggregate demand factors determine whether or not the nation achieves its full employment GDP." How does fiscal and monetary policy relate to aggregate demand?
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 32. Textbook solutions
32.1 What
is the difference between an asset and a liability on a bank’s balance
sheet? How does net worth relate to each? Why must a balance sheet
always balance? What are the major assets and claims on a commercial
bank’s balance sheet?
Get solution
32.2 Explain why merchants accepted gold receipts as a means of payment even though the receipts were issued by goldsmiths, not the government. What risk did goldsmiths introduce into the payments system by issuing loans in the form of gold receipts?
Get solution
32.3 Why is the banking system in the United States referred to as a fractional reserve bank system? What is the role of deposit insurance in a fractional reserve system?
Get solution
32.4 Why does the Federal Reserve require commercial banks to have reserves? Explain why reserves are an asset to commercial banks but a liability to the Federal Reserve Banks. What are excess reserves? How do you calculate the amount of excess reserves held by a bank? What is the significance of excess reserves?
Get solution
32.5 “Whenever currency is deposited in a commercial bank, cash goes out of circulation and, as a result, the supply of money is reduced.” Do you agree? Explain why or why not.
Get solution
32.6 “When a commercial bank makes loans, it creates money; when loans are repaid, money is destroyed.” Explain.
Get solution
32.7 Suppose that Mountain Star Bank discovers that its reserves will temporarily fall slightly below those legally required. How might it temporarily remedy this situation through the Federal funds market? Now assume Mountain Star finds that its reserves will be substantially and permanently deficient. What remedy is available to this bank? (Hint: Recall your answer to question 6.)
Get solution
32.8 Explain why a single commercial bank can safely lend only an amount equal to its excess reserves but the commercial banking system as a whole can lend by a multiple of its excess reserves. What is the monetary multiplier, and how does it relate to the reserve ratio?
Get solution
32.9 How would a decrease in the reserve requirement affect the (a) size of the money multiplier, (b) amount of excess reserves in the banking system, and (c) extent to which the system could expand the money supply through the creation of checkable deposits via loans?
Get solution
32.10 LAST WORD Explain how the bank panics of 1930–1933 produced a decline in the nation’s money supply. Why are such panics highly unlikely today?
Get solution
Get solution
32.2 Explain why merchants accepted gold receipts as a means of payment even though the receipts were issued by goldsmiths, not the government. What risk did goldsmiths introduce into the payments system by issuing loans in the form of gold receipts?
Get solution
32.3 Why is the banking system in the United States referred to as a fractional reserve bank system? What is the role of deposit insurance in a fractional reserve system?
Get solution
32.4 Why does the Federal Reserve require commercial banks to have reserves? Explain why reserves are an asset to commercial banks but a liability to the Federal Reserve Banks. What are excess reserves? How do you calculate the amount of excess reserves held by a bank? What is the significance of excess reserves?
Get solution
32.5 “Whenever currency is deposited in a commercial bank, cash goes out of circulation and, as a result, the supply of money is reduced.” Do you agree? Explain why or why not.
Get solution
32.6 “When a commercial bank makes loans, it creates money; when loans are repaid, money is destroyed.” Explain.
Get solution
32.7 Suppose that Mountain Star Bank discovers that its reserves will temporarily fall slightly below those legally required. How might it temporarily remedy this situation through the Federal funds market? Now assume Mountain Star finds that its reserves will be substantially and permanently deficient. What remedy is available to this bank? (Hint: Recall your answer to question 6.)
Get solution
32.8 Explain why a single commercial bank can safely lend only an amount equal to its excess reserves but the commercial banking system as a whole can lend by a multiple of its excess reserves. What is the monetary multiplier, and how does it relate to the reserve ratio?
Get solution
32.9 How would a decrease in the reserve requirement affect the (a) size of the money multiplier, (b) amount of excess reserves in the banking system, and (c) extent to which the system could expand the money supply through the creation of checkable deposits via loans?
Get solution
32.10 LAST WORD Explain how the bank panics of 1930–1933 produced a decline in the nation’s money supply. Why are such panics highly unlikely today?
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 31. Textbook solutions
31.1 What
are the three basic functions of money? Describe how rapid inflation
can undermine money’s ability to perform each of the three functions.
Get solution
31.2 Which two of the following financial institutions offer checkable deposits included within the M1 money supply: mutual fund companies; insurance companies; commercial banks; securities firms; thrift Institutions? Which of the following items is not included in either M1 or M2: currency held by the public; checkable deposits; money market mutual fund balances; small-denominated (less than $100,000) time deposits; currency held by banks; savings deposits?
Get solution
31.3 What are the components of the M1 money supply? What is the largest component? Which of the components of M1 is legal tender? Why is the face value of a coin greater than its intrinsic value? What near-monies are included in the M2 money supply?
Get solution
31.4 Explain and evaluate the following statements:a. The invention of money is one of the great achievements of humankind, for without it the enrichment that comes from broadening trade would have been impossible.b. Money is whatever society says it is.c. In the United States, the debts of government and commercial banks are used as money.d. People often say they would like to have more money, but what they usually mean is that they would like to have more goods and services. .e. When the price of everything goes up, it is hot because everything is worth more but because the currency is worth less.f. Any central bank can create money; the trick is to create enough, but not too much, of it.
Get solution
31.5 What “backs” the money supply in the United States? What determines the value (domestic purchasing power) of money? How does the purchasing power of money relate to the price level? Who in the United States is responsible for maintaining money’s purchasing power?
Get solution
31.6 How is the chairperson of the Federal Reserve System selected? Describe the relationship between the Board of Governors of the Federal Reserve System and the 12 Federal Reserve Banks. What is the purpose of the Federal Open Market Committee (FOMC)? What is its makeup?
Get solution
31.7 The following are two hypothetical ways in which the Federal Reserve Board might be appointed. Would you favour either of these two methods over the present method? Why or why not?a. Upon taking office, the U.S. president appoints seven people to the Federal Reserve Board, including a chair. Each appointee must be confirmed by a majority vote of the Senate, and each serves the same 4-year term as the president.b. Congress selects seven members from its ranks (four from the House of Representatives and three from the Senate) to serve at congressional pleasure as the Board of Governors of the Federal Reserve System.
Get solution
31.8 What is meant when economists say that the Federal Reserve Banks are central banks, quasi-public banks, and bankers’ banks?
Get solution
31.9 Why do economists nearly uniformly support an independent’ Fed rather than one beholden directly to either the president or Congress?
Get solution
31.10 Identify three functions of the Federal Reserve -of your choice, other than its main role of controlling the Supply of money.
Get solution
31.11 How do each of the following relate to the financial crisis of 2007-2008: declines in real estate values, subprime mortgage loans, mortgage-backed securities, AIG.
Get solution
31.12 What is TARP and how was it funded? What is meant by the term “lender oflast resort” and how does it relate to the financial crisis of 2007-2008? How do government and Federal Reserve emergency loans relate to the concept of moral hazard?
Get solution
31.13 What are the major categories of firms that make up the U.S. financial services industry? Are there more or fewer banks today than before the start of the financial crisis of 2007-2008? Why are the lines between the categories of financial firms even more blurred than they were before the crisis? How did the Wall Street Reform and Consumer Protection Act of 2010 try to address some of the problems that helped cause the crisis?
Get solution
31.14 LAST WORDHow does a debit card differ from a credit card? How does a stored-value card differ from both? Suppose that a person has a credit card, debit card, and stored-value card. Create a fictional scenario in which the person uses all three cards in the same day. Explain the person’s logic for using one card rather than one of the others for each transaction. How do Fedwire and ACH transactions differ from credit card, debit card, and stored-value card transactions?
Get solution
Get solution
31.2 Which two of the following financial institutions offer checkable deposits included within the M1 money supply: mutual fund companies; insurance companies; commercial banks; securities firms; thrift Institutions? Which of the following items is not included in either M1 or M2: currency held by the public; checkable deposits; money market mutual fund balances; small-denominated (less than $100,000) time deposits; currency held by banks; savings deposits?
Get solution
31.3 What are the components of the M1 money supply? What is the largest component? Which of the components of M1 is legal tender? Why is the face value of a coin greater than its intrinsic value? What near-monies are included in the M2 money supply?
Get solution
31.4 Explain and evaluate the following statements:a. The invention of money is one of the great achievements of humankind, for without it the enrichment that comes from broadening trade would have been impossible.b. Money is whatever society says it is.c. In the United States, the debts of government and commercial banks are used as money.d. People often say they would like to have more money, but what they usually mean is that they would like to have more goods and services. .e. When the price of everything goes up, it is hot because everything is worth more but because the currency is worth less.f. Any central bank can create money; the trick is to create enough, but not too much, of it.
Get solution
31.5 What “backs” the money supply in the United States? What determines the value (domestic purchasing power) of money? How does the purchasing power of money relate to the price level? Who in the United States is responsible for maintaining money’s purchasing power?
Get solution
31.6 How is the chairperson of the Federal Reserve System selected? Describe the relationship between the Board of Governors of the Federal Reserve System and the 12 Federal Reserve Banks. What is the purpose of the Federal Open Market Committee (FOMC)? What is its makeup?
Get solution
31.7 The following are two hypothetical ways in which the Federal Reserve Board might be appointed. Would you favour either of these two methods over the present method? Why or why not?a. Upon taking office, the U.S. president appoints seven people to the Federal Reserve Board, including a chair. Each appointee must be confirmed by a majority vote of the Senate, and each serves the same 4-year term as the president.b. Congress selects seven members from its ranks (four from the House of Representatives and three from the Senate) to serve at congressional pleasure as the Board of Governors of the Federal Reserve System.
Get solution
31.8 What is meant when economists say that the Federal Reserve Banks are central banks, quasi-public banks, and bankers’ banks?
Get solution
31.9 Why do economists nearly uniformly support an independent’ Fed rather than one beholden directly to either the president or Congress?
Get solution
31.10 Identify three functions of the Federal Reserve -of your choice, other than its main role of controlling the Supply of money.
Get solution
31.11 How do each of the following relate to the financial crisis of 2007-2008: declines in real estate values, subprime mortgage loans, mortgage-backed securities, AIG.
Get solution
31.12 What is TARP and how was it funded? What is meant by the term “lender oflast resort” and how does it relate to the financial crisis of 2007-2008? How do government and Federal Reserve emergency loans relate to the concept of moral hazard?
Get solution
31.13 What are the major categories of firms that make up the U.S. financial services industry? Are there more or fewer banks today than before the start of the financial crisis of 2007-2008? Why are the lines between the categories of financial firms even more blurred than they were before the crisis? How did the Wall Street Reform and Consumer Protection Act of 2010 try to address some of the problems that helped cause the crisis?
Get solution
31.14 LAST WORDHow does a debit card differ from a credit card? How does a stored-value card differ from both? Suppose that a person has a credit card, debit card, and stored-value card. Create a fictional scenario in which the person uses all three cards in the same day. Explain the person’s logic for using one card rather than one of the others for each transaction. How do Fedwire and ACH transactions differ from credit card, debit card, and stored-value card transactions?
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 30. Textbook solutions
30.1 What
is the role of the Council of Economic Advisers (CEA) as it relates to
fiscal policy? Use an Internet search to find the names and university
affiliations of the present members of the CEA.
Get solution
30.2 What are government’s fiscal policy options for ending severe demand-pull inflation? Which of these fiscal options do you think might be favored by a person who wants to preserve the size of government? A person who thinks the public sector is too large? How does the “ratchet effect” affect anti-inflationary fiscal policy?
Get solution
30.3 (For students who were assigned Chapter 28) Use the aggregate expenditures model to show how government fiscal policy could eliminate either a recessionary expenditure gap or an inflationary expenditure gap (Figure 28.7). Explain how equal-size increases in G and T could eliminate a recessionary gap and how equal-size decreases in G and T could eliminate an inflationary gap. L01
Get solution
30.4 Some politicians have suggested that the United States enact a constitutional amendment requiring that the Federal government balance its budget annually. Explain why such an amendment, if strictly enforced, would force the government to enact a contractionary fiscal policy Whenever the economy experienced a server recession.
Get solution
30.5 Briefly state and evaluate the problem of time lags in enacting and applying fiscal policy. Explain the idea of a political business cycle. How might expectations of a near-term policy reversal weaken fiscal policy based on changes in tax rates? What is the crowding-out effect, and why might it be relevant to fiscal policy? In view of your answers, explain the following statement: “Although fiscal policy clearly is useful in combating the extremes of severe recession and demand-pull inflation, it is impossible to use fiscal policy to fine-tune the economy to the full-employment, noninflationary level of real GDP and keep the economy there indefinitely.”
Get solution
30.6 Explain how built-in (or automatic) stabilizers work. What are the differences between proportional, progressive, and regressive tax systems as they relate to an economy’s built-in stability?
Get solution
30.7 Define the cyclically adjusted budget, explain its significance, and state why it may differ from the actual budget. Suppose the full-employment, noninflationary level of real output is GDP3 (not GDP2) in the economy depicted in Figure 30.3. If the economy is operating at GDP2, instead of GDP3, what is the status of its cyclically adjusted budget? The status of its current fiscal policy? What change in fiscal policy would you recommend? How would you accomplish that in terms of the G and T lines in the figure?
Get solution
30.8 How do economists distinguish between the absolute and relative sizes of the public debt? Why is the distinction important? Distinguish between refinancing the debt and retiring the debt. How does an internally held public debt differ from an externally held public debt? Contrast the effects of retiring an internally held debt and retiring an externally held debt.
Get solution
30.9 True or false? If false, explain why.a. The total public debt is more relevant to an economy than the public debt as a percentage of GDP.b. An internally held public debt is like a debt of the left hand owed to the right hand.c. The Federal Reserve and Federal government agencies hold more than three-fourths of the public debt.d. The portion of the U.S. debt held by the public (and not by government entities) was larger as a percentage of GDP in 2009 than it was in 2000.e. As a percentage of GDP, the total U.S. public debt is the highest such debt among the world’s advanced industrial nations.
Get solution
30.10 Why might economists be quite concerned if the annual interest payments on the U.S. public debt sharply increased as a percentage of GDP? L04
Get solution
30.11 Trace the cause-and-effect chain through which financing and refinancing of the public debt might affect real interest rates, private investment, the stock of capital, and economic growth. How might investment in public capital and complementarities between public capital and private capital alter the outcome of the cause-effect chain?
Get solution
30.12 LAST WORD What do economists mean when they say Social Security and Medicare are “pay-as-you-go” plans? What are the Social Security and Medicare trust funds, and how long will they have money left in them? What is the key long-run problem of both Social Security and Medicare? Do you favor increasing taxes or do you prefer reducing benefits to fix the problem?
Get solution
Get solution
30.2 What are government’s fiscal policy options for ending severe demand-pull inflation? Which of these fiscal options do you think might be favored by a person who wants to preserve the size of government? A person who thinks the public sector is too large? How does the “ratchet effect” affect anti-inflationary fiscal policy?
Get solution
30.3 (For students who were assigned Chapter 28) Use the aggregate expenditures model to show how government fiscal policy could eliminate either a recessionary expenditure gap or an inflationary expenditure gap (Figure 28.7). Explain how equal-size increases in G and T could eliminate a recessionary gap and how equal-size decreases in G and T could eliminate an inflationary gap. L01
Get solution
30.4 Some politicians have suggested that the United States enact a constitutional amendment requiring that the Federal government balance its budget annually. Explain why such an amendment, if strictly enforced, would force the government to enact a contractionary fiscal policy Whenever the economy experienced a server recession.
Get solution
30.5 Briefly state and evaluate the problem of time lags in enacting and applying fiscal policy. Explain the idea of a political business cycle. How might expectations of a near-term policy reversal weaken fiscal policy based on changes in tax rates? What is the crowding-out effect, and why might it be relevant to fiscal policy? In view of your answers, explain the following statement: “Although fiscal policy clearly is useful in combating the extremes of severe recession and demand-pull inflation, it is impossible to use fiscal policy to fine-tune the economy to the full-employment, noninflationary level of real GDP and keep the economy there indefinitely.”
Get solution
30.6 Explain how built-in (or automatic) stabilizers work. What are the differences between proportional, progressive, and regressive tax systems as they relate to an economy’s built-in stability?
Get solution
30.7 Define the cyclically adjusted budget, explain its significance, and state why it may differ from the actual budget. Suppose the full-employment, noninflationary level of real output is GDP3 (not GDP2) in the economy depicted in Figure 30.3. If the economy is operating at GDP2, instead of GDP3, what is the status of its cyclically adjusted budget? The status of its current fiscal policy? What change in fiscal policy would you recommend? How would you accomplish that in terms of the G and T lines in the figure?
Get solution
30.8 How do economists distinguish between the absolute and relative sizes of the public debt? Why is the distinction important? Distinguish between refinancing the debt and retiring the debt. How does an internally held public debt differ from an externally held public debt? Contrast the effects of retiring an internally held debt and retiring an externally held debt.
Get solution
30.9 True or false? If false, explain why.a. The total public debt is more relevant to an economy than the public debt as a percentage of GDP.b. An internally held public debt is like a debt of the left hand owed to the right hand.c. The Federal Reserve and Federal government agencies hold more than three-fourths of the public debt.d. The portion of the U.S. debt held by the public (and not by government entities) was larger as a percentage of GDP in 2009 than it was in 2000.e. As a percentage of GDP, the total U.S. public debt is the highest such debt among the world’s advanced industrial nations.
Get solution
30.10 Why might economists be quite concerned if the annual interest payments on the U.S. public debt sharply increased as a percentage of GDP? L04
Get solution
30.11 Trace the cause-and-effect chain through which financing and refinancing of the public debt might affect real interest rates, private investment, the stock of capital, and economic growth. How might investment in public capital and complementarities between public capital and private capital alter the outcome of the cause-effect chain?
Get solution
30.12 LAST WORD What do economists mean when they say Social Security and Medicare are “pay-as-you-go” plans? What are the Social Security and Medicare trust funds, and how long will they have money left in them? What is the key long-run problem of both Social Security and Medicare? Do you favor increasing taxes or do you prefer reducing benefits to fix the problem?
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 29. Textbook solutions
29.1 Why
is the aggregate demand curve downsloping? Specify how your explanation
differs from the explanation for the downsloping demand curve for a
single product. What role does the multiplier play in shifts of the
aggregate demand curve?
Get solution
29.2 Distinguish between “real-balances effect” and “wealth effect,” as the terms are used in this chapter. How does each relate to the aggregate demand curve?
Get solution
29.3 What assumptions cause the immediate-short-run aggregate supply curve to be horizontal? Why is the long-run aggregate supply curve vertical? Explain the shape of the short-run aggregate supply curve. Why is the short-run curve relatively flat to the left of the full-employment output and relatively steep to the right?
Get solution
29.4 What effects would each of the following have on aggregate demand or aggregate supply, other things equal? In each case, use a diagram to show the expected effects on the equilibrium price level and the level of real output, assuming that the price level is flexible both upward and downward.a. A widespread fear by consumers of an impending economic depression.b. A new national tax on producers based on the value added between the costs of the inputs and the revenue received from their output.c. A reduction in interest rates at each price level.d. A major increase in spending for health care by the Federal government.e. The general expectation of coming rapid inflation.f. The complete disintegration of OPEC, causing oil prices to fall by one-half.g. A 10 percent across-the-board reduction in personal income tax rates.h. A sizable increase in labor productivity (with no change in nominal wages).i. A 12 percent increase in nominal wages (with no change in productivity).j. An increase in exports that exceeds an increase in imports (not due to tariffs).
Get solution
29.5 Assume that (a) the price level is flexible upward but not downward and (b) the economy is currently operating at its full-employment output. Other things equal, how will each of the following affect the equilibrium price level and equilibrium level of real output in the short run?a. An increase in aggregate demand.b. A decrease in aggregate supply, with no change in aggregate demand.c. Equal increases in aggregate demand and aggregate supply.d. A decrease in aggregate demand.e. An increase in aggregate demand that exceeds an increase in aggregate supply.
Get solution
29.6 Explain how an upsloping aggregate supply curve weakens the realized multiplier effect from an initial change in investment spending.
Get solution
29.7 Why does a reduction in aggregate demand in the actual economy reduce real output, rather than the price level? Why might a full-strength multiplier apply to a decrease in aggregate demand?
Get solution
29.8 Explain: “Unemployment can be caused by a decrease of aggregate demand or a decrease of aggregate supply.” In each case, specify the price-level outcomes.
Get solution
29.9 Use shifts of the AD and AS curves to explain (a) the U.S. experience of strong economic growth, full employment, and price stability in the late 1990s and early 2000s and (b) how a strong negative wealth effect from, say, a precipitous drop in house prices could cause a recession even though productivity is surging.
Get solution
29.10 In early 2001 investment spending sharply declined in the United States. In the two months following the September 11, 2001, attacks on the United States, consumption also declined. Use AD-AS analysis to show the two impacts on real GDP.
Get solution
29.11
Get solution
Get solution
29.2 Distinguish between “real-balances effect” and “wealth effect,” as the terms are used in this chapter. How does each relate to the aggregate demand curve?
Get solution
29.3 What assumptions cause the immediate-short-run aggregate supply curve to be horizontal? Why is the long-run aggregate supply curve vertical? Explain the shape of the short-run aggregate supply curve. Why is the short-run curve relatively flat to the left of the full-employment output and relatively steep to the right?
Get solution
29.4 What effects would each of the following have on aggregate demand or aggregate supply, other things equal? In each case, use a diagram to show the expected effects on the equilibrium price level and the level of real output, assuming that the price level is flexible both upward and downward.a. A widespread fear by consumers of an impending economic depression.b. A new national tax on producers based on the value added between the costs of the inputs and the revenue received from their output.c. A reduction in interest rates at each price level.d. A major increase in spending for health care by the Federal government.e. The general expectation of coming rapid inflation.f. The complete disintegration of OPEC, causing oil prices to fall by one-half.g. A 10 percent across-the-board reduction in personal income tax rates.h. A sizable increase in labor productivity (with no change in nominal wages).i. A 12 percent increase in nominal wages (with no change in productivity).j. An increase in exports that exceeds an increase in imports (not due to tariffs).
Get solution
29.5 Assume that (a) the price level is flexible upward but not downward and (b) the economy is currently operating at its full-employment output. Other things equal, how will each of the following affect the equilibrium price level and equilibrium level of real output in the short run?a. An increase in aggregate demand.b. A decrease in aggregate supply, with no change in aggregate demand.c. Equal increases in aggregate demand and aggregate supply.d. A decrease in aggregate demand.e. An increase in aggregate demand that exceeds an increase in aggregate supply.
Get solution
29.6 Explain how an upsloping aggregate supply curve weakens the realized multiplier effect from an initial change in investment spending.
Get solution
29.7 Why does a reduction in aggregate demand in the actual economy reduce real output, rather than the price level? Why might a full-strength multiplier apply to a decrease in aggregate demand?
Get solution
29.8 Explain: “Unemployment can be caused by a decrease of aggregate demand or a decrease of aggregate supply.” In each case, specify the price-level outcomes.
Get solution
29.9 Use shifts of the AD and AS curves to explain (a) the U.S. experience of strong economic growth, full employment, and price stability in the late 1990s and early 2000s and (b) how a strong negative wealth effect from, say, a precipitous drop in house prices could cause a recession even though productivity is surging.
Get solution
29.10 In early 2001 investment spending sharply declined in the United States. In the two months following the September 11, 2001, attacks on the United States, consumption also declined. Use AD-AS analysis to show the two impacts on real GDP.
Get solution
29.11
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 28. Textbook solutions
28.1 What is an investment schedule and how does it differ from an investment demand curve?
Get solution
28.2 Why does equilibrium real GDP occur where C + Ig = GDP in a private closed economy? What happens to real GDP when C =Ig exceeds GDP? When C = Ig is less than GDP? What two expenditure components of real GDP are purposely excluded in a private closed economy?
Get solution
28.3 Why is saving called a leakage? Why is planned investment called an injection? Why must saving equal planned investment at equilibrium GDP in the private closed economy? Are unplanned changes in inventories rising, falling, or constant at equilibrium GDP? Explain.
Get solution
28.4 Other things equal, what effect will each of the following changes independently have on the equilibrium level of real GDP in the private closed economy?a. A decline in the real interest rate.b. An overall decrease in the expected rate of return on investment.c. A sizable, sustained increase in stock prices.
Get solution
28.5 Depict graphically the aggregate expenditures model for a private closed economy. Now show a decrease in the aggregate expenditures schedule and explain why the decline in real GDP in your diagram is greater than the decline in the aggregate expenditures schedule. What is the term used for the ratio of a decline in real GDP to the initial drop in aggregate expenditures?
Get solution
28.6 Assuming the economy is operating below its potential output, what is the impact of an increase in net exports on real GDP? Why is it difficult, if not impossible, for a country to boost its net exports by increasing its tariffs during a global recession?
Get solution
28.7 Explain graphically the determination of equilibrium GDP for a private economy through the aggregate expenditures model. Now add government purchases (any amount you choose) to your graph, showing its impact on equilibrium GDP. Finally, add taxation (any amount of lump-sum tax that you choose) to your graph and show its effect on equilibrium GDP. Looking at your graph, determine whether equilibrium GDP has increased, decreased, or stayed the same given the sizes of the government purchases and taxes that you selected.
Get solution
28.8 What is a recessionary expenditure gap? An inflationary expenditure gap? Which is associated with a positive GDP gap? A negative GDP gap?
Get solution
28.9 LAST WORD What is Say’s law? How does it relate to the view held by classical economists that the economy generally will operate at a position on its production possibilities curve (Chapter 1)? Use production possibilities analysis to demonstrate Keynes's view on this matter.
Get solution
Get solution
28.2 Why does equilibrium real GDP occur where C + Ig = GDP in a private closed economy? What happens to real GDP when C =Ig exceeds GDP? When C = Ig is less than GDP? What two expenditure components of real GDP are purposely excluded in a private closed economy?
Get solution
28.3 Why is saving called a leakage? Why is planned investment called an injection? Why must saving equal planned investment at equilibrium GDP in the private closed economy? Are unplanned changes in inventories rising, falling, or constant at equilibrium GDP? Explain.
Get solution
28.4 Other things equal, what effect will each of the following changes independently have on the equilibrium level of real GDP in the private closed economy?a. A decline in the real interest rate.b. An overall decrease in the expected rate of return on investment.c. A sizable, sustained increase in stock prices.
Get solution
28.5 Depict graphically the aggregate expenditures model for a private closed economy. Now show a decrease in the aggregate expenditures schedule and explain why the decline in real GDP in your diagram is greater than the decline in the aggregate expenditures schedule. What is the term used for the ratio of a decline in real GDP to the initial drop in aggregate expenditures?
Get solution
28.6 Assuming the economy is operating below its potential output, what is the impact of an increase in net exports on real GDP? Why is it difficult, if not impossible, for a country to boost its net exports by increasing its tariffs during a global recession?
Get solution
28.7 Explain graphically the determination of equilibrium GDP for a private economy through the aggregate expenditures model. Now add government purchases (any amount you choose) to your graph, showing its impact on equilibrium GDP. Finally, add taxation (any amount of lump-sum tax that you choose) to your graph and show its effect on equilibrium GDP. Looking at your graph, determine whether equilibrium GDP has increased, decreased, or stayed the same given the sizes of the government purchases and taxes that you selected.
Get solution
28.8 What is a recessionary expenditure gap? An inflationary expenditure gap? Which is associated with a positive GDP gap? A negative GDP gap?
Get solution
28.9 LAST WORD What is Say’s law? How does it relate to the view held by classical economists that the economy generally will operate at a position on its production possibilities curve (Chapter 1)? Use production possibilities analysis to demonstrate Keynes's view on this matter.
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 27. Textbook solutions
27.1 What are the variables (the items measured on the axes) in a graph of the (a) consumption schedule and (b)
saving schedule? Are the variables inversely (negatively) related or
are they directly (positively) related? What is the fundamental reason
that the levels of consumption and saving in the United States are each
higher today than they were a decade ago?
Get solution
27.2 Precisely how do the MPC and the APC differ? How does the MPC differ from the MPS? Why must the sum of the MPC and the MPS equal 1?
Get solution
27.3 In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal?a. A large decrease in real estate values, including private homes.b. A sharp, sustained increase in stock prices.c. A 5-year increase in the minimum age for collecting Social Security benefits.d. An economy-wide expectation that a recession is over and that a robust expansion will occur.e. A substantial increase in household borrowing to finance auto purchases.
Get solution
27.4 Why does a downshift of the Consumption schedule typically involve an equal upshift of the saving schedule? What is the exception to this relationship?
Get solution
27.5 Why will a reduction in the real interest rate increase investment spending, other things equal?
Get solution
27.6 In what direction will each of the following occurrences shift the investment demand curve, other things equal?a. An increase in unused production capacity occurs.b. Business taxes decline.c. The costs of acquiring equipment fall.d. Widespread pessimism arises about future business conditions and sales revenues.e. A major new technological breakthrough creates prospects for a wide range of profitable new products.
Get solution
27.7 How is it possible for investment spending to increase even in a period in which the real interest rate rises?
Get solution
27.8 Why is investment spending unstable?
Get solution
27.9 Is the relationship between changes in spending and changes in real GDP in the multiplier effect a direct (positive) relationship or is it an inverse (negative) relationship? How does the size of the multiplier relate to the size of the MPC? The MPS? What is the logic of the multiplier-MPC relationship?
Get solution
27.10 Why is the actual multiplier in the U.S. economy less than the multiplier in this chapter's example?
Get solution
27.11 LAST WORD What is the central economic idea humorously illustrated in Art Buchwald's piece, "Squaring the Economic Circle"? How does the central idea relate to economic recessions, on the one hand, and vigorous economic expansions, on the other?
Get solution
Get solution
27.2 Precisely how do the MPC and the APC differ? How does the MPC differ from the MPS? Why must the sum of the MPC and the MPS equal 1?
Get solution
27.3 In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal?a. A large decrease in real estate values, including private homes.b. A sharp, sustained increase in stock prices.c. A 5-year increase in the minimum age for collecting Social Security benefits.d. An economy-wide expectation that a recession is over and that a robust expansion will occur.e. A substantial increase in household borrowing to finance auto purchases.
Get solution
27.4 Why does a downshift of the Consumption schedule typically involve an equal upshift of the saving schedule? What is the exception to this relationship?
Get solution
27.5 Why will a reduction in the real interest rate increase investment spending, other things equal?
Get solution
27.6 In what direction will each of the following occurrences shift the investment demand curve, other things equal?a. An increase in unused production capacity occurs.b. Business taxes decline.c. The costs of acquiring equipment fall.d. Widespread pessimism arises about future business conditions and sales revenues.e. A major new technological breakthrough creates prospects for a wide range of profitable new products.
Get solution
27.7 How is it possible for investment spending to increase even in a period in which the real interest rate rises?
Get solution
27.8 Why is investment spending unstable?
Get solution
27.9 Is the relationship between changes in spending and changes in real GDP in the multiplier effect a direct (positive) relationship or is it an inverse (negative) relationship? How does the size of the multiplier relate to the size of the MPC? The MPS? What is the logic of the multiplier-MPC relationship?
Get solution
27.10 Why is the actual multiplier in the U.S. economy less than the multiplier in this chapter's example?
Get solution
27.11 LAST WORD What is the central economic idea humorously illustrated in Art Buchwald's piece, "Squaring the Economic Circle"? How does the central idea relate to economic recessions, on the one hand, and vigorous economic expansions, on the other?
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 26. Textbook solutions
26.1 What
are the four phases of the business cycle? How long do business cycles
last? Why does the business cycle affect output and employment in
capital goods industries and consumer durable goods industries more
severely than in industries producing consumer nondurables?
Get solution
26.2 How, in general, can a financial crisis lead to a recession? How, in general, can a major new invention lead to an expansion?
Get solution
26.3 How is the labor force defined and who measures it? How is the unemployment rate calculated? Does an increase in the unemployment rate necessarily mean a decline in the size of the labor force? Why is a positive unemployment rate—one more than zero percent—fully compatible with full employment?
Get solution
26.4 How, in general, do unemployment rates vary by race and ethnicity, gender, occupation, and education? Why does the average length of time people are unemployed rise during a recession?
Get solution
26.5 Why is it difficult to distinguish between frictional, structural, and cyclical unemployment? Why is unemployment an economic problem? What are the consequences of a negative GDP gap? What are the noneconomic effects of unemployment?
Get solution
26.6 Because the United States has an unemployment compensation program that provides income for those out of work, why should we worry about unemployment?
Get solution
26.7 What is the Consumer Price Index (CPI) and how is it determined each month? How does the Bureau of Labor Statistics calculate the rate of inflation from one year to the next? What, effect does inflation have on the purchasing power of a dollar? How does it explain differences between nominal and real interest rates? How does deflation differ from inflation?
Get solution
26.8 Distinguish between demand-pull inflation and cost-push inflation. Which of the two types is most likely to be associated with a negative GDP gap? Which with a positive GDP gap, in which actual GDP exceeds potential GDP? What is core inflation? Why is it calculated?
Get solution
26.9 Explain how an increase in your nominal income and a decrease in your real income might occur simultaneously. Who loses from inflation? Who gains?
Get solution
26.10 Explain how hyperinflation might lead to a severe decline in total output.
Get solution
26.11 LAST WORD Suppose that stock prices were to fall by 10 percent in the stock market. All else equal, would the lower stock prices be likely to cause a recession? How might lower stock prices help predict a recession?
Get solution
Get solution
26.2 How, in general, can a financial crisis lead to a recession? How, in general, can a major new invention lead to an expansion?
Get solution
26.3 How is the labor force defined and who measures it? How is the unemployment rate calculated? Does an increase in the unemployment rate necessarily mean a decline in the size of the labor force? Why is a positive unemployment rate—one more than zero percent—fully compatible with full employment?
Get solution
26.4 How, in general, do unemployment rates vary by race and ethnicity, gender, occupation, and education? Why does the average length of time people are unemployed rise during a recession?
Get solution
26.5 Why is it difficult to distinguish between frictional, structural, and cyclical unemployment? Why is unemployment an economic problem? What are the consequences of a negative GDP gap? What are the noneconomic effects of unemployment?
Get solution
26.6 Because the United States has an unemployment compensation program that provides income for those out of work, why should we worry about unemployment?
Get solution
26.7 What is the Consumer Price Index (CPI) and how is it determined each month? How does the Bureau of Labor Statistics calculate the rate of inflation from one year to the next? What, effect does inflation have on the purchasing power of a dollar? How does it explain differences between nominal and real interest rates? How does deflation differ from inflation?
Get solution
26.8 Distinguish between demand-pull inflation and cost-push inflation. Which of the two types is most likely to be associated with a negative GDP gap? Which with a positive GDP gap, in which actual GDP exceeds potential GDP? What is core inflation? Why is it calculated?
Get solution
26.9 Explain how an increase in your nominal income and a decrease in your real income might occur simultaneously. Who loses from inflation? Who gains?
Get solution
26.10 Explain how hyperinflation might lead to a severe decline in total output.
Get solution
26.11 LAST WORD Suppose that stock prices were to fall by 10 percent in the stock market. All else equal, would the lower stock prices be likely to cause a recession? How might lower stock prices help predict a recession?
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 25. Textbook solutions
25.1 How
is economic growth measured? Why is economic growth important? Why
could the difference between a 2.5 percent and a 3 percent annual growth
rate be of great significance over several decades?
Get solution
25.2 When and where did modern economic growth first happen? What are the major institutional factors that form the foundation for modern economic growth? What do they have in common?
Get solution
25.3 Why are some countries today much poorer than other countries? Are today's poor countries destined to always be poorer than today's rich countries? If so, explain why. If not explain how today's poor countries can catch or even pass today's rich countries.
Get solution
25.4 What are the four supply factors of economic growth? What is the demand factor? What is the efficiency factor? Illustrate these factors in terms of the production possibilities curve.
Get solution
25.5 Suppose that Alpha and Omega have identically sized working-age populations but that total annual hours of work are much greater in Alpha than in Omega. Provide two possible reasons for this difference.
Get solution
25.6 What is growth accounting? To what extent have increases in U.S. real GDP resulted from more labor inputs? From greater labor productivity? Rearrange the following contributors to the growth of productivity in order of their quantitative importance: economies of scale, quantity capital, improved resource allocation, education and training, and technological advance.
Get solution
25.7 True or false? If false, explain why.a. Technological advance, which to date has played a relatively small role in U.S. economic growth, is destined to play a more important role in the future.b. Many public capital goods are complementary to private capital goods.c. Immigration has slowed economic growth in the United States.
Get solution
25.8 Explain why there is such a close relationship between changes in a nation's rate of productivity growth and changes in its average real hourly wage.
Get solution
25.9 Relate each of the following to the recent increase in the trend rate of productivity growth:a. Information technology.b. Increasing returns.c. Network effects.d. Global competition.
Get solution
25.10 What, if any, are the benefits and costs of economic growth, particularly as measured by real GDP per capita?
Get solution
25.11 LAST WORD Based on the information in this chapter, contrast the economic growth rates of the United States and China over the last 25 years. How does the real GDP per capita of China compare with that if the United States? Why is there such a huge disparity of per capita income between China’s coastal cities and its interior regions?
Get solution
Get solution
25.2 When and where did modern economic growth first happen? What are the major institutional factors that form the foundation for modern economic growth? What do they have in common?
Get solution
25.3 Why are some countries today much poorer than other countries? Are today's poor countries destined to always be poorer than today's rich countries? If so, explain why. If not explain how today's poor countries can catch or even pass today's rich countries.
Get solution
25.4 What are the four supply factors of economic growth? What is the demand factor? What is the efficiency factor? Illustrate these factors in terms of the production possibilities curve.
Get solution
25.5 Suppose that Alpha and Omega have identically sized working-age populations but that total annual hours of work are much greater in Alpha than in Omega. Provide two possible reasons for this difference.
Get solution
25.6 What is growth accounting? To what extent have increases in U.S. real GDP resulted from more labor inputs? From greater labor productivity? Rearrange the following contributors to the growth of productivity in order of their quantitative importance: economies of scale, quantity capital, improved resource allocation, education and training, and technological advance.
Get solution
25.7 True or false? If false, explain why.a. Technological advance, which to date has played a relatively small role in U.S. economic growth, is destined to play a more important role in the future.b. Many public capital goods are complementary to private capital goods.c. Immigration has slowed economic growth in the United States.
Get solution
25.8 Explain why there is such a close relationship between changes in a nation's rate of productivity growth and changes in its average real hourly wage.
Get solution
25.9 Relate each of the following to the recent increase in the trend rate of productivity growth:a. Information technology.b. Increasing returns.c. Network effects.d. Global competition.
Get solution
25.10 What, if any, are the benefits and costs of economic growth, particularly as measured by real GDP per capita?
Get solution
25.11 LAST WORD Based on the information in this chapter, contrast the economic growth rates of the United States and China over the last 25 years. How does the real GDP per capita of China compare with that if the United States? Why is there such a huge disparity of per capita income between China’s coastal cities and its interior regions?
Get solution
Economics - McConnell Flynn - 19 edition. Chapter 24. Textbook solutions
24.1 In what ways are national-income statistics useful?
Get solution
24.2 Why do national income accountants compare the market value of the total outputs in various years rather than actual physical volumes of production? What problem is posed by any comparison over time of the market values of various total outputs? How is this problem resolved?
Get solution
24.3 Which of the following goods are usually intermediate goods and which are usually final goods: running shoes; cotton fibers; watches; textbooks; coal; sunscreen lotion; lumber?
Get solution
24.4 Why do economists include only final goods and services in measuring GDP for a particular year? Why don’t they include the value of the stocks and bonds bought and sold? Why don’t they include the value of the used furniture bought and sold?
Get solution
24.5 Explain why an economy’s output, in essence, is also its income.
Get solution
24.6 Provide three examples of each: consumer durable; goods, consumer nondurable goods, and services.
Get solution
24.7 Why are changes in inventories included as part of investment spending? Suppose inventories declined by $1 billion during 2010. How would this affect the size of gross private domestic investment and gross domestic product in 2010? Explain.
Get solution
24.8 What is the difference between gross private domestic investment and net private domestic investment? If you were to determine net domestic product (NDP) through the expenditures approach, which of these two measures of investment spending would be appropriate? Explain.
Get solution
24.9 Use the concepts of gross investment and net investment to distinguish between an economy that has a rising stock of capital and one that has a falling stock of capital. Explain: “Though net investment can be positive, negative, or zero, it is impossible for gross investment to be less than zero.
Get solution
24.10 Define net exports. Explain how U.S. exports and imports each affect domestic production. How are net exports determined? Explain how net exports might be a negative amount.
Get solution
24.11 Contrast the ideas of nominal GDP and real GDP. Why is one more reliable than the other for comparing changes in the standard of living over a series of years? What is the GDP price index and what is its role in differentiating nominal GDP and real GDP?
Get solution
24.12 Which of the following are included or excluded in this year's GDP? Explain your answer in each case.a. Interest received on an AT&T corporate bond.b. Social Security payments received by a retired factory worker.c. Unpaid services of a family member in painting the family home.d. Income of a dentist from the dental services provided.e. A monthly allowance a college student receives from home.f. Money received by Josh when he resells his nearly brand-new Honda automobile to Kim.g. The publication and sale of a new college textbook.h. An increase in leisure resulting from a 2-hour decrease in the length of the workweek, with no reduction in pay.i. A $2 billion increase in business inventories.j. The purchase of 100 shares of Google common stock.
Get solution
24.13 LAST WORD What government agency compiles the U.S. NIPA tables? In what U.S. department is it located? Of the several specific sources of information, name one source for each of the four components of GDP: consumption, investment, government purchases, and net exports.
Get solution
Get solution
24.2 Why do national income accountants compare the market value of the total outputs in various years rather than actual physical volumes of production? What problem is posed by any comparison over time of the market values of various total outputs? How is this problem resolved?
Get solution
24.3 Which of the following goods are usually intermediate goods and which are usually final goods: running shoes; cotton fibers; watches; textbooks; coal; sunscreen lotion; lumber?
Get solution
24.4 Why do economists include only final goods and services in measuring GDP for a particular year? Why don’t they include the value of the stocks and bonds bought and sold? Why don’t they include the value of the used furniture bought and sold?
Get solution
24.5 Explain why an economy’s output, in essence, is also its income.
Get solution
24.6 Provide three examples of each: consumer durable; goods, consumer nondurable goods, and services.
Get solution
24.7 Why are changes in inventories included as part of investment spending? Suppose inventories declined by $1 billion during 2010. How would this affect the size of gross private domestic investment and gross domestic product in 2010? Explain.
Get solution
24.8 What is the difference between gross private domestic investment and net private domestic investment? If you were to determine net domestic product (NDP) through the expenditures approach, which of these two measures of investment spending would be appropriate? Explain.
Get solution
24.9 Use the concepts of gross investment and net investment to distinguish between an economy that has a rising stock of capital and one that has a falling stock of capital. Explain: “Though net investment can be positive, negative, or zero, it is impossible for gross investment to be less than zero.
Get solution
24.10 Define net exports. Explain how U.S. exports and imports each affect domestic production. How are net exports determined? Explain how net exports might be a negative amount.
Get solution
24.11 Contrast the ideas of nominal GDP and real GDP. Why is one more reliable than the other for comparing changes in the standard of living over a series of years? What is the GDP price index and what is its role in differentiating nominal GDP and real GDP?
Get solution
24.12 Which of the following are included or excluded in this year's GDP? Explain your answer in each case.a. Interest received on an AT&T corporate bond.b. Social Security payments received by a retired factory worker.c. Unpaid services of a family member in painting the family home.d. Income of a dentist from the dental services provided.e. A monthly allowance a college student receives from home.f. Money received by Josh when he resells his nearly brand-new Honda automobile to Kim.g. The publication and sale of a new college textbook.h. An increase in leisure resulting from a 2-hour decrease in the length of the workweek, with no reduction in pay.i. A $2 billion increase in business inventories.j. The purchase of 100 shares of Google common stock.
Get solution
24.13 LAST WORD What government agency compiles the U.S. NIPA tables? In what U.S. department is it located? Of the several specific sources of information, name one source for each of the four components of GDP: consumption, investment, government purchases, and net exports.
Get solution
Subscribe to:
Posts (Atom)