Problems For Macro Chapter 1-10

A mathematical approximation called the rule of 70 tells us how long it will take for something to double in size if it grows at a constant rate. The doubling time is approximately equal to the number 70 divided by the percentage rate of growth. Thus, if Panama's real GDP per person is growing at 7 percent per year, it will take about 10 years (= 70/7) to double. Apply the rule of 70 to solve the following problem: Real GDP per person in Panama in 2017 was about $15,000 per person, while it was about $60,000 per person in the United States. If real GDP per person in Panama grows at the rate of 5 percent per year, about how long will it take Panama's real GDP per person to reach the level that the United States was at in 2017? (Hint: How many times would Panama's 2017 real GDP per person have to double to reach the United States' 2017 real GDP per person?)

28 years 70/5 =14 double 14 (14+14) =28

Pham can work as many or as few hours as she wants at the college bookstore for $12 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or at other potential jobs. One potential job, at a café, will pay her $15 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her $13 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $11.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?

4 5+6=11 15-11=4

With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources for producing those loaves is 5 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. Assume the firm can sell these 400 loaves at $2 per unit.

Firm's Total Revenue: To calculate total revenue multiply the selling price by the number of units sold. Total revenue equals $2 (price) multiplied by 400 (loaves of bread sold). So, total revenue equals $800. Total Cost: To calculate total cost multiply each input usage (number of units employed) by the price of the input and then add these values together. Total cost equals 10 × $20 (cost of labor) + 7 × $60 (cost of land) + 4 × $40 (cost of capital) + 3 × $20 (cost of entrepreneurial ability) = $840. The firm generates an economic profit of $40 (800-760 =40) Will it continue to produce banana bread? Yes If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good? Toward

The two market diagrams below show the market for public and private colleges.

How will an increase in state subsidies to public colleges affect the market for public and private colleges? a. In the market for public colleges: supply will shift to the right. b. In the market for private colleges: demand will shift to the left.

The following table shows the data for a hypothetical economy in a specific year. All figures are in billions of dollars. Personal consumption expenditures :$50 Purchases of stocks and bonds:30 Net exports :-10 Government purchases :20 Sales of secondhand items :8 Gross investment :25

What is the country's GDP for the year? 85 million C+I+G+ Xn (50+25+20+(-10))= 85

Suppose that businesses buy a total of $100 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $60 billion in wages, $10 billion in rent, and $20 billion in interest, how much are households paid for providing entrepreneurial ability?

a. 10 billion b. If households spend $55 billion on goods and $45 billion on services, how much in revenues do businesses receive in the product market?$100 bill ( 45+55)

Suppose that Glitter Gulch, a gold mining firm, increased its sales revenues on newly mined gold from $100 million to $200 million between one year and the next.

a. Assuming that the price of gold increased by 100 percent over the same period, by what percentage did Glitter Gulch's real output change? 0 b. If the price of gold had not changed, what would have been the change in value of Glitter Gulch's real output? $100 million

Using the following national income accounting data, compute (a) GDP, (b) NDP, and (c) NI. All figures are in billions. Compensation of employees :$194.2 U.S. exports of goods and services :$17.8 Consumption of fixed capital: $11.8 Government purchases:$59.4 Taxes on production and imports:$14.4 Net private domestic investment:$52.1 Transfer payments:$13.9 U.S. imports of goods and services:$16.5 Personal taxes:$40.5 Net foreign factor income:$2.2 Personal consumption expenditures:$219.1 Statistical discrepancy:$0.0

a. GDP = $ 343.7 billion GDP: 219.1+52.1+11.8+59.4+17.8-16.5=343.7 b. NDP = $ 331.9 billion = 343.7-11.8=331.9 c. NI = $ 334.1 billion =331.9-0+2.2=334.1

Refer to the following production possibilities table for consumer goods (automobiles) and capital goods (forklifts): Automobiles : 0 2. 4 6. 8 Forklifts: 30. 27. 21. 12. 0

a. Show these data graphically ( plot the coordinates from table E-A) Upon what specific assumptions is this production possibilities curve based? Full employment, fixed supplies of resources, fixed technology, and two goods b.) If the economy is at point C, whats is the (opportunity) cost of 2 more automobiles? 9 What is the (opportunity) cost of 6 more forklifts? 2 Which characteristic of the production possibilities curve reflects the law of increasing opportunity costs: its shape or its length? Shape C). If the economy characterized by this production possibilities table and curve is producing 3 automobiles and 20 forklifts, what could you conclude about its use of available resources? The economy is underutilizing its available resources. D.) is production at a point outside the production possibilities curve currently possible?No Could a future advance in technology allow production beyond the current production possibilities curve?Yes Could international trade allow a country to consume beyond its current production possibility curve? Yes

Suppose that the natural rate of unemployment in a particular year is 5 percent and the actual unemployment rate is 9 percent.

a. Use Okun's law to determine the size of the GDP gap in percentage-point terms.8% 9-5=4 4*2=8 b. If potential GDP is $500 billion in that year, how much output is forgone because of cyclical unemployment? $40 billion (0.08*500)=40

Linear equations for the consumption and saving schedules take the general form C = a + bY and S = −a + (1 − b)Y, where C, S, and Y are consumption, saving, and national income, respectively. The constant a represents the vertical intercept, and b represents the slope of the consumption schedule. a. Use the following data to substitute specific numerical values for a and b in the consumption and saving equations. National In. Consumption $0. $80. 100 140 200 200 300 260 400 320

a.) C=80+0.6Y ( MPC= consumption/income: 60/100=0.6)S= -80+0.4Y (MPS= (1-b):1-0.6=04= saving/income 40/100=0.4) b. What is the economic meaning of b? MPC What is the economic meaning of (1 - b)? MPS c. Suppose that the amount of saving that occurs at each level of national income falls by $20 but that the values of b and (1 - b) remain unchanged. Restate the saving and consumption equations inserting the new numerical values. C= 100+0.6Y S=-100+0.4Y Which of these factors might have caused this change? An increase in the stock market's value

How long would it take for the price level to double if inflation persisted at the following percentages?

a. 2 percent per year: 35 years (70/2) b. 5 percent per year: 14 years (70/5) c. 10 percent per year: 7 years (70/10)

Assume that a grower of flower bulbs sells its annual output of bulbs to an Internet retailer for $70,000. The retailer, in turn, brings in $160,000 from selling the bulbs directly to final customers. What amount would these two transactions add to personal consumption expenditures and thus to GDP during the year?

$160,000 =retailer's income + grower's income (160,000-70,000)+70,000 = 160,000

Assume that a leader country has real GDP per capita of $40,000, whereas a follower country has real GDP per capita of $20,000. Next suppose that the growth of real GDP per capita falls to zero percent in the leader country and rises to 7 percent in the follower country. If these rates continue for long periods of time, how many years will it take for the follower country to catch up to the living standard of the leader country?

10 years 70/7=10

Suppose Natasha currently makes $60,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000. She estimates the costs for the necessary land, labor, and capital to be $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year and revenues of $3,275,000 per year.

A. Yes B. The organic soap company

Suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000. She estimates the costs for the necessary land, labor, and capital to be $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year and revenues of $3,275,000 per year.

A. Yes, she should quit her job to become an entrepreneur B. She would pursue the soap business

Refer to the table below.

Fill in the surplus-shortage column (gray-shaded cells) and use it to confirm your answers. To find the surplus or shortage take 1st Column of Bushel Demanded - 2nd Column of Bushel demand = Surplus or Shortage a.What is the equilibrium price in this market?$4.00 per bushelAt what price is there neither a shortage nor a surplus?$4.00 per bushel b. Graph the demand for wheat and the supply of wheat. Be sure to locate the equilibrium price and equilibrium quantity. Demand Graph : ( 1st Column of Bushels Demand, Price per Bushel highest to low)Supply Graph ( 2nd column, price per bushel, low to high) c. How big is the surplus or shortage at $3.40?There is a shortage of 23 thousand bushels. How big is the surplus or shortage at $4.90?There is a surplus of 18 thousand bushels. How big a surplus or shortage results if the price is 60 cents higher than the equilibrium price?There is a surplus of 14 thousand bushels How big a surplus or shortage results if the price is 30 cents lower than the equilibrium price? There is a shortage of 10 thousand bushel

Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bags and bags of peanuts. Candy bars cost $0.75 each while bags of peanuts cost $1.50 each.

a. Candy Bars: 0, 4, 8 12, 16 20 Bags of peanuts: 10,8,6,4, 2, 0 B. graph the coordinates (part a) What is the opportunity cost of one more candy bag?0.5 Do these opportunity cost rise, fall, or remain constant as additional units are purchased? Remain constant C. Does the budget line tell you which of the available combinations of candy bars and bags of peanuts to buy? No D. Suppose that you had won $30 on your ticket, not $15, is the slope of a new budget line flatter, steeper, or the same as in the same diagram above?The same Has the number of available combinations increased or decreased? Increased

Suppose there are three buyers of candy in a market: Tex, Dex, and Rex. The market demand and the individual demands of Tex, Dex, and Rex are shown in the following table.

a. Fill in the missing values (gray-shaded cells) in the table.Add the individual quantities demanded First Row: 3+1+0= 4 TQD 2nd Row: 8+2+2=12 TQD Row 3: 12+3+4= 19TQD 4th Row: 17+4+6=27 TQD 5th row: 23+5+8=36 TQD b. Which buyer demands the least at a price of $5? Dex The most at a price of $7? Tex c. Which buyer's quantity demanded increases the most when the price decreases from $7 to $6? Tex d. In which direction would the market demand curve shift if Tex withdrew from the market? To the left What if Dex doubled his purchases at each possible price?To the right e. Suppose that at a price of $6, the total quantity demanded increases from 19 to 38. Is this a "change in the quantity demanded" or a "change in demand"? Change in demand

Refer to the figures below and assume that price is fixed at $37,000 and that Buzzer Auto needs 5 workers for every 1 automobile produced.

a. If demand is DM and Buzzer wants to perfectly match its output and sales, how many cars will Buzzer produce? 900 (4,500/5) How many workers will it hire? 4,500 b. If, instead, demand unexpectedly falls from DM to DL, how many fewer cars will Buzzer sell? 200 (900-700) How many fewer workers will it need if it decides to match production to these lower sales? 1000 (4,500-3,500)

Use the table below to solve this problem.Suppose the wealth effect is such that $10 changes in wealth produce $1 changes in consumption at each level of income.

a. If real estate prices tumble such that wealth declines by $80, what will be the new level of consumption at the $340 billion level of disposable income? $316 b. What will be the new level of saving? $24 (340-316)

Refer to the figure below and assume that the values for points a, b, and c (the combined value of consumer goods and capital goods) are $10 billion, $20 billion, and $18 billion, respectively.

a. If the economy moves from point a to point b over a 10-year period, what must have been its annual rate of economic growth? 7% Rate of growth = (70/ years to double)The economy moves from point a to point b over a 10-year period, then rate of growth = 70/10 = 7% b. If, instead, the economy was at point c at the end of the 10-year period, by what percentage did it fall short of its production capacity? 10% Actual production is at point c, $18 billion, short of production capacity = ( amount short/ $20 billion) = $2/20 = 10%

Suppose that the annual rates of growth of real GDP in Econoland over a five-year period were as follows: Year: Growth Rate (%) 1. 3 2. 1 3 -2 4 4 5. 5

a. What was the average of these growth rates in Econoland over these five years?((3+1-2+4+5)/5)= 2.2 b. What term would economists use to describe what happened in year 3?Recession c. If the growth rate in year 3 had been a positive 2 percent rather than a negative 2 percent, what would have been Econoland's average growth rate over the five years?((3+1+2+4+5)/5)= 3

The figure below shows the supply curve for tennis balls, S1, for Drop Volley Tennis, a producer of tennis equipment. Use the figure and the table below to give your answers to the following questions.

a. Use the figure to fill in the quantity supplied given supply curve S1 for each price in the following table (second column, gray-shaded cells). S1 Quantity Supplied: 15, 10,5 ( look at the first graph)Change in Quantity Supplied ( Subtract S1-S2= -Change in Quantity Supplied) b. If production costs were to increase, the quantities supplied at each price would be as shown by the third column of the table ("S2 Quantity Supplied"). Use those data to draw supply curve S2 using the graph below. ( Use S2 first then Price) to graph S2 c. In the fourth column (gray-shaded cells) of the table in part a, enter the amount by which the quantity supplied at each price changes due to the increase in product costs. (Use positive numbers for increases and negative numbers for decreases.) d. Did the increase in production costs cause a "decrease in supply" or a "decrease in quantity supplied"? A decrease in supply

Below is a list of domestic output and national income figures for a certain year. All figures are in billions. The questions that follow ask you to determine the major national income measures by both the expenditures and the income approaches. Personal Consumptions expenditures : $245 Net foreign factor income: $4 Transfer payments: $12 Rents: $14 Consumptions of fixed capital (depreciation): $27 Statistical discrepancy: $8 Social Security contributions:$20 Interest: $ 13 Proprietors' income: $33 Net Exports: 11 Personal Saving: $20 Dividends: $16 Compensation of employees: $223 Taxes on production and imports: $18 Undistributed corporate profits:$21 Person taxes: $26 Corporate income taxes: $19 Corporate profits: $56 Government purchases: $72 Net private domestic investment: $33

a. Using the above data, determine GDP by both the expenditures approach and the income approach. Then determine NDP. GDP using the expenditures approach = $ 388 billion245+33+27+72+11= $388 GDP using the income approach = $ 388billion223+14+13+33+56+18+27+8-4= 388 NDP = $ 361 billion (NDP: GDP- Consumption of fixed capital)=388-27= 361 b. Now determine NI in two ways: first, by making the required additions or subtractions from NDP (method 1); and second, by adding up the types of income and taxes that make up NI (method 2). Method 1 = $ 357 billion NI= 361-8+4= 357 Method 2 = $ 357 billion NI:223+14+13+33+56+18= 357 c. Adjust NI (from part b) as required to obtain PI. PI = $ 291 billion PI= 357-18-20-19-21+12= 291 d. Adjust PI (from part c) as required to obtain DI. DI= $ 265 billion DI- 291-26= 265

Suppose that work hours in New Zombie are 200 in year 1, and productivity is $8 per hour worked.

a. What is New Zombie's real GDP? $1,600 (200*$8)=1600 b. If work hours increase to 210 in year 2 and productivity rises to $10 per hour, what is New Zombie's rate of economic growth? 31.25% GDP year 2 (2100-1600)/1600*100

Assume that a national restaurant chain called BBQ builds 10 new restaurants at a cost of $1 million per restaurant. It outfits each restaurant with an additional $200,000 of equipment and furnishings. To help partially defray the cost of this expansion, BBQ issues and sells 200,000 shares of stock at $30 per share.

a. What is the amount of economic investment that has resulted from BBQ's actions? $12 million (10 mil+ 2mil). 2 mil= (200,000*10) b. How much purely financial investment took place? 6 mil(200,000 *30)= 6mil

Suppose that disposable income, consumption, and saving in some country are $200 billion, $150 billion, and $50 billion, respectively. Next, assume that disposable income increases by $20 billion, consumption rises by $18 billion, and saving goes up by $2 billion.

a. What is the economy's MPC? 0.9 MPC= changing in consumption/ change in disposable income(18/200)=0.9 What is its MPS? 0.10 MPS= changing in saving/ change in disposable income2/20=0.10 b. What was the APC before the increase in disposable income? 0.75 APC= Consumption/ Disposable income150/200=0.75 What was the APC after the increase? 0.764 200+20=220150+18=168 APC= New consumption/ new disposable income168/220=0.764

Suppose a handbill publisher can buy a new duplicating machine for $500 and the duplicator has a 1-year life. The machine is expected to contribute $550 to the year's net revenue.

a. What is the expected rate of return? r=( expected revenue-cost/cost)*100 = (550-500/500)*100%=10% b. If the real interest rate at which funds can be borrowed to purchase the machine is 8 percent, will the publisher choose to invest in the machine? Yes Will it invest in the machine if the real interest rate is 9 percent? Yes If it is 11 percent? No

Suppose an economy's real GDP is $30,000 in year 1 and $31,200 in year 2.

a. What is the growth rate of its real GDP?4% ( 31,200-30,000)/30,000) =4% GDP per capita in year 1 = $300 (=$30,000/100). GDP per capita in year 2 = $305.88 (= $31,200/102) b. Assume that the population is 100 in year 1 and 102 in year 2. What is the growth rate of real GDP per capita? 1.96% ($305.88 - $300)/300).

Assume the following data for a country: Total population: 500 million Population under 16 years of age or institutionalized : 120 Not in the labor force: 150 Unemployed : 23 Part-time workers looking for full- time jobs: 10

a. What is the size of the labor force? 230 million (500-120-150)= 230 b. What is the official unemployment rate?10% 23/230*100= 10%

Suppose the CPI was 110 last year and is 121 this year.

a. What is this year's inflation rate? 10% (121-110)/110*100 b. In contrast, suppose that the CPI was 110 last year and is 108 this year. What is this year's inflation rate? -1.8 percent (108-110)/110*100 c. What term do economists use to describe this second outcome? Deflation

The table below contains information on three techniques for producing $15 worth of bar soap. Assume that we said "$15 worth of bar soap" because soap cost $3 per bar and all three techniques produce 5 bars of soap ($15 = $3 per bar 3 x 5 bars). So you know each technique produces 5 bars of soap.

a. What technique will you want to use if the price of a bar of soap falls to $2.75? Technique 2 Which technique will you use if the price of a bar of soap rise to $4? Technique 2 Which technique will you use if the price of a bar soap rise to $5? Technique 2 b. How many bars of soap will you want to produce if the price of a bar soap falls to $2.00? Zero: its not profitable to produce bars of soap at this selling price c. Suppose that the price of soap is again $3 per bar but that the prices of all four resources are now $1 per unit. Which is now the least-profitable technique? Technique 3 d. If the resource prices return to their original levels (those shown in the table) but a new technique is invented that can produce 3 bars of soap (yes,3 bars, not 5) using1 unit of each of the four resources will firms prefer the new technique? No, they will still prefer technique 2

Suppose that a country's annual growth rates over a 10-year period were as follows: Year. Growth Rate 1 5% 2 3 3 4 4 -1 5. -2 6 2 7 3 8 4 9 6 10 3

a. What was the country's trend rate of growth over this period? 2.7% (5+3+4-1-2+2+3+4+6+3)/10=2.7 b. Which set of years most clearly demonstrates an expansionary phase of the business cycle? Years 6-9 c. Which set of years best illustrates a recessionary phase of the business cycle? Years 4-5

The annual output and prices of a three-good economy are shown in the table below. Quarts of ice cream$4.00 3. $4.00 5 Bottles of shampoo $3.00 1 $3.00 2 Jars of peanut butter $2.00 3 $2.00 2

a. What was the economy's nominal GDP in year 1? (43)+(31)+(2*3)= 21 b. What was its nominal GDP in year 2? (45)+(32)+(2*2)

The per-unit cost of an item is its average total cost (= total cost/quantity). Suppose that a new smartphone app costs $100,000 to develop and only $0.50 per unit to deliver to each smartphone customer.

a. What will be the per-unit cost of the app if it sells 100 units? $1,000.50 =[$100,000 + {$0.50 x 100}] / 100) b. What will be the per-unit cost of the app if it sells 1,000 units?$100.50 [$100,000 + {$0.50 x 1000}] / 1000) c. What will be the per-unit cost of the app if it sells 1 million units?$0.60 = (($100,000 + ($0.50 x 1,000,000)) / 1,000,000).

Because investment and capital goods are paid for with savings, higher savings rates reflect a decision to consume fewer goods in the present and more goods in the future. Households in China save 40 percent of their annual incomes each year, whereas U.S. households save less than 5 percent. At the same time, production possibilities are growing at roughly 7 percent per year in China but only about 3.0 percent in the United States. Use the graphical analysis of "present goods" versus "future goods" to explain the difference between China's growth rate and the U.S. growth rate.

a. Which point, A or B, best represents the combination of present and future goods in the United States? Point A b. Which production possibilities curve best represents future growth in the United States? PPC2 c. Which point, A or B, best represents the combination of present and future goods in China?Points B d. Which production possibilities curve best represents future growth in China? PPC3

Refer to the figure below. Suppose that the cost of cheese falls, so that the marginal cost of producing pizza decreases.

a. Will the MC curve shift up or down? MC will shift down b. Will the optimal amount of pizza increase or decrease? The optimal amount of pizza will increase

ADVANCED ANALYSIS Suppose that the linear equation for consumption in a hypothetical economy is C = 40 + 0.8Y.Also suppose that income (Y) is $400. Determine the values for the following: a. MPC = b. MPS = c. Level of consumption = $ d. APC = e. Level of saving = $ f. APS =

a.) 0.8 b.) 0.2 =(1-0.8) c.) 360=(40+0.8*400) d.) 0.9=(360/400) e.) 40= (400-360) f.) 0.1 =(40/400)

How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market? That is, do price and quantity rise, fall, or remain unchanged, or are the answers indeterminate because they depend on the magnitudes of the shifts? a. Supply decreases and demand is constant .b. Demand decreases and supply is constant. c. Supply increases and demand is constant. d. Demand increases and supply increases. e. Demand increases and supply is constant. f. Supply increases and demand decreases. g. Demand increases and supply decreases. h. Demand decreases and supply decreases.

a.) Price increases and quantity decreases b.) Price decreases and quantity decreases c.) Price decreases and quantity increases d.) Price is indeterminate and quantity increases e.) Prices increases and quantity increases f.) Price decreases and quantity is indeterminate .g.) Price increases and quantity is indeterminate h.) Price is indeterminate and quantity decreases