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19 Cards in this Set
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REPEAT 1. *Explain whether each of the following events represents (i) a shift of the demand curve or (ii) a movement along the demand curve. (3.1 p70)
a. A store owner finds that customers are willing to pay more for umbrellas on rainy days. |
The quantity of umbrellas demanded is higher at any given price on a rainy day than on a dry day. This is a rightward shift of the demand curve, since at any given price the quantity demanded rises. This implies that any specific quantity can now be sold at a higher price.
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1. b. When XYZ Telecom, a long-distance telephone service provider, offered reduced rates
on weekends, its volume of weekend calling increased sharply. |
The quantity of weekend calls demanded rises in response to a price reduction. This is a movement along the demand curve for weekend calls.
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1.c. People buy more long-stem roses the week of Valentine’s Day, even though the prices
are higher than at other times during the year. |
The demand for roses increases the week of Valentine’s Day. This is a rightward shift of the demand curve.
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1. d. A sharp rise in the price of gasoline leads many commuters to join carpools in order to
reduce their gasoline purchases. |
The quantity of gasoline demanded falls in response to a rise in price. This is a movement along the demand curve.
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2. *Why do we talk about business cycles for the economy as a whole, rather than just talking about the ups and downs of particular industries? 6.2 p173
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We talk about business cycles for the economy as a whole because recessions and expansions are not confined to a few industries—they reflect downturns and upturns for the economy as a whole. In downturns, almost every sector of the economy reduces output and the number of people employed. Moreover, business cycles are an international phenomenon, sometimes moving in rough synchrony across countries.
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3. Who gets hurt in a recession? 6.2 p173
(not how..) |
Recessions cause a great deal of pain across the entire society. They cause large numbers of workers to lose their jobs and make it hard to find new jobs. Recessions hurt the standard of living of many families and are usually associated with a rise in the number of people living below the poverty line, an increase in the number of people who lose their houses because they can’t afford their mortgage payments, and a fall in the percentage of Americans with health insurance. Recessions also hurt the profits of firms.
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4. *Explain why the three methods of calculating GDP produce the same estimate of GDP. 7.1 p196
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Let’s start by considering the relationship between the total value added of all domestically produced final goods and services and aggregate spending on domestically produced final goods and services. These two quantities are equal because every final good and service produced in the economy is either purchased by someone or added to inventories. And additions to inventories are counted as spending by firms. Next, consider the relationship between aggregate spending on domestically produced final goods and services and total factor income. These two quantities are equal because all spending that is channeled to firms to pay for purchases of domestically produced final goods and services is revenue for firms. Revenues is paid out by firms in the forms of wages, profit, interest, and rent.
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5. *What are the various sectors to which firms make sales? 7.1 p196
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Firms make sales to other firms, households, the government, and the rest of the world. Households are linked to firms through the sale of factors of production to firms, through purchases from firms of final goods and services, and through lending funds to firms in the financial markets.
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6. *What are the various ways in which households are linked with other sectors of the economy? 7.1 p196
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Households are linked to the government through their payment of taxes, their receipt of transfers, and their lending of funds to the government via the financial markets. Finally, households are linked to the rest of the world through their purchases of imports and transactions with foreigners in financial markets.
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REPEAT 7. *In the following case is the worker counted as unemployed?
a. Rosa, an older worker who has been laid off and who gave up looking for work months ago. 8.1 p217 |
Rosa is not counted as unemployed because she is not actively looking for work, but she is counted in broader measures of labor underutilization as a discouraged worker.
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7. b. Anthony, a schoolteacher who is not working during his three-month summer break
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Anthony is not counted as unemployed; he is considered employed because he has a job.
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7. c. Grace, an investment banker who has been laid off and is currently searching for another position
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Grace is unemployed; she is not working and is actively looking for work.
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7. d. Sergio, a classically trained musician who can only find work playing for local parties
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Sergio is not unemployed, but underemployed; he is working part time for economic reasons. He is counted in broader measures of labor underutilization.
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7. e. Natasha, a graduate student who went back to school because jobs were scarce
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Natasha is not unemployed, but marginally attached. She is counted in broader measures of labor underutilization.
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8. *Although China and India currently have growth rates much higher than the U.S. growth rate, the typical Chinese or Indian household is far poorer than the typical American household. Explain why? 9.1 p244
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The United States began growing rapidly over a century ago, but China and India have begun growing rapidly only recently. As a result, the living standard of the typical Chinese or Indian household has not yet caught up with that of the typical American household.
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9. *Explain the link between a country’s growth rate, its investment spending as a percent of GDP, and its domestic savings. 9.3 p256
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A country that has high domestic savings is able to achieve a high rate of investment spending as a percent of GDP. This, in turn, allows the country to achieve a high growth rate.
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REPEAT 10.*Suppose that expected inflation rises from 3% to 6%.
a. How will the real interest rate be affected by this change? 10.1 p281 |
The real interest rate will not change. According to the Fisher effect, an increase in expected inflation drives up the nominal interest rate, leaving the real interest rate unchanged.
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10. b. How will the nominal interest rate be affected by this change?
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The nominal interest rate will rise by 3%. Each additional percentage point of expected inflation drives up the nominal interest rate by 1 percentage point.
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10. c. What will happen to the equilibrium quantity of loanable funds?
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As we saw in Figure 10-7, as long as inflation is expected, it does not affect the equilibrium quantity of loanable funds. Both the supply and demand curves for loanable funds are pushed upward, leaving the equilibrium quantity of loanable funds unchanged.
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