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Homework Practice Problems on Principles of Macroeconomics | ECO 230, Assignments of Introduction to Macroeconomics

Murray State UniversityIntroduction to Macroeconomics

Material Type: Assignment; Class: Principles of Macroeconomics; Subject: ECO Economics; University: Murray State University; Term: Unknown 1989;

Typology: Assignments

Pre 2010

Uploaded on 08/18/2009

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Eco 230: Homework Problems
Dr. Hassan
If you work on this questions and understand them, you will do really well on the supply and
demand question in the test! Guaranteed!
Work on all of the following problems corresponding to each chapter
Chapter 1:
1. What is economics?
2. What are the three (five in your textbook) questions every economy must answer?
3. What is the distinction between macroeconomics and microeconomics?
4. What is a theory, or a model, or hypothesis?
Chapter 2:
No question. All I ask from you is to feel comfortable with drawing and understanding graphs.
Chapter 3:
1. What are resources? Classify resources and briefly explain each of them.
2. What is scarcity?
3. Define the concept of opportunity cost and show it using some numbers and graphs.
4. Draw two types production possibility frontier curves and explain their differences.
Which of these graphs approximates the real world? Why?
5. What is the principle of increasing opportunity cost?
6. Draw production possibility curve indicating gun and food production and show the
following:
a. A technological improvement in gun production only;
b. A technological improvement in food production only;
c. A more technological improvement in gun production;
d. A more technological improvement in food production;
e. An equal technological improvement in both food and gun production.
f. What are the factors that shift the production possibility frontier curve?
7. What is comparative advantage?
8. What is an absolute advantage?
9. Solve problems # 1, 3, 5, 7, and 11 on pages 53-54. (Note: you can find the answers
to these questions towards the end of your textbook!)
10. What is the basis for trade?
11. During this presidential campaign, the two prominent presidential candidates promise
more than they can deliver: Vice president Gore promises prescription drugs for the
elderly, more spending on education, targeted tax cuts for the middle class, better
environmental safety standards, an increase in the minimum wage, etc. Governor
Bush promises huge tax cuts, better education and more spending for it, more
military spending (where is the peace dividend?), privatization of social security,
which will cost $trillion to set up, etc. What economic concept are the candidates
ignoring?
Chapter 4:
1. Explain the law of demand and the law of supply.
2. Solve problems #s 1, 2, and 3 on page 85 in your textbook.
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Download Homework Practice Problems on Principles of Macroeconomics | ECO 230 and more Assignments Introduction to Macroeconomics in PDF only on Docsity!

Eco 230: Homework Problems Dr. Hassan If you work on this questions and understand them, you will do really well on the supply and demand question in the test! Guaranteed! Work on all of the following problems corresponding to each chapter Chapter 1:

  1. What is economics?
  2. What are the three (five in your textbook) questions every economy must answer?
  3. What is the distinction between macroeconomics and microeconomics?
  4. What is a theory, or a model, or hypothesis? Chapter 2 : No question. All I ask from you is to feel comfortable with drawing and understanding graphs. Chapter 3 :
  5. What are resources? Classify resources and briefly explain each of them.
  6. What is scarcity?
  7. Define the concept of opportunity cost and show it using some numbers and graphs.
  8. Draw two types production possibility frontier curves and explain their differences. Which of these graphs approximates the real world? Why?
  9. What is the principle of increasing opportunity cost?
  10. Draw production possibility curve indicating gun and food production and show the following: a. A technological improvement in gun production only; b. A technological improvement in food production only; c. A more technological improvement in gun production; d. A more technological improvement in food production; e. An equal technological improvement in both food and gun production. f. What are the factors that shift the production possibility frontier curve?
  11. What is comparative advantage?
  12. What is an absolute advantage?
  13. Solve problems # 1, 3, 5, 7, and 11 on pages 53-54. (Note: you can find the answers to these questions towards the end of your textbook!)
  14. What is the basis for trade?
  15. During this presidential campaign, the two prominent presidential candidates promise more than they can deliver: Vice president Gore promises prescription drugs for the elderly, more spending on education, targeted tax cuts for the middle class, better environmental safety standards, an increase in the minimum wage, etc. Governor Bush promises huge tax cuts, better education and more spending for it, more military spending (where is the peace dividend?), privatization of social security, which will cost $trillion to set up, etc. What economic concept are the candidates ignoring? Chapter 4:
  16. Explain the law of demand and the law of supply.
  17. Solve problems #s 1, 2, and 3 on page 85 in your textbook.
  1. What is the distinction between the change in demand (or supply) and the change in the quantity demanded (or supplied)?
  2. What effect will each of the following have on the demand for product B? a. Product B becomes more fashionable. b. The price of substitute product C falls. c. A decline in incomes if B is an inferior good. d. Consumers anticipate the price of B will decline in the near future. e. The price of complementary good D falls.
  3. What effect will each of the following have on the supply of product B? a. a technological advance in the methods of producing B. b. a decline in the number of firms in industry B. c. an increase in the price of resources required in the production of B. d. the expectation that the equilibrium price of B will be lower in the near future than it is currently. e. A decline in the price of product A, a good whose production requires substantially the same techniques and resources as does the production of B. f. The levying of specific sales tax on B. g. The granting of a 50-percent per unit subsidy for each unit of B produced.
  4. (After you finish reading both supply and demand) "As a general rule, if both supply and demand increase or decrease, the change in price is indeterminate? Evaluate this statement and illustrate with diagram.
  5. (After you finish reading both supply and demand.) "As a general rule, if demand increase and supply decreases, or vice versa, the change in quantity will be indeterminate? Illustrate with diagram and evaluate this statement.
  6. (After you finish reading chapter 4 and you and I have gone thru it.) "Ticket scalping is a Bum Rap!" Evaluate this statement.
  7. How each of the following changes in demand/or supply affect equilibrium quantity and price in a competitive market; that is, how do price and quantity rise, fall, remain unchanged, or are the answers indeterminate, depending on the magnitudes of the shifts in supply and demand? You should rely on a supply and demand diagram to verify your answers. a. Supply decreases and demand remains constant. b. Demand decreases and supply remains 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. On National Income Accounting, Unemployment and Inflation On GDP and its calculation:
  8. Which of the following is included in deriving this year's GDP? Explain your answers in each case.

b) price stability with 8% unemployment rate, which would you select? Why?

  1. Evaluate as accurately as you can how each of the following individuals would be affected by unanticipated inflation of 10 percent per year. a. A pensioned relative of yours; b. A department-store clerk; c. A member of the UAW assembly-line worker (a member of the union); d. A heavily indebted farmer; e. The owner of an independent small-town department store. f. A retired business executive whose current income comes entirely from interest on government bonds. On Monetary and Fiscal Policies
  2. (5 points) When the Fed changes the money supply, the equilibrium level of income changes. Illustrate and explain how.
  3. (5 points) There are several tools the Fed uses to implement monetary policy. a. Briefly describe these tools. b. Explain how the Fed uses each tool in order to INCREASE the money supply.
  4. (10 points) If the Fed increases the money supply, what will happen to each of the following (other things being equal)? a. Interest rates. b. Money demand. c. Investment spending. d. Aggregate Demand. e. The equilibrium level of national income.
  5. (6 points) List the economic functions of financial intermediaries.
  6. (4 points) List the functions of money.
  7. (3 points) What are automatic stabilizers and how do they help mitigate economic fluctuations?
  8. (4 points) Why would a tax cut in a recession reduce the size of the recession?
  9. (3 points) Distinguish between the national debt and the deficit.

On Aggregate Demand, Aggregate Supply and Expenditure

  1. (11 points) What effects would each of the following have on aggregate demand and aggregate supply? In each case, use the diagram to show the expected effects on the equilibrium price level and level of real output. Assume that all other things remain constant. a. a widespread fear of depression on the part of consumers. b. A large purchase of U.S. wheat by Russia. c. A $1dollar per pack increase in the excise tax on cigarettes. d. A reduction in interest rates at each price level. e. The expectation of a rapid rise in the price level. f. The complete disintegration of OPEC (the cartel of oil producing countries). g. A 10% reduction in personal income taxes. h. An increase in labor productivity. i. Depreciation in the international value of the dollar. j. A sharp decline in the national incomes of our western European trading partners. k. A sizable increase in U.S. immigration.
  2. (5 points) Other things equal, what effect will each of the following have on the equilibrium price level and level of output? a. an increase in aggregate demand in the vertical (sometimes called classical or long- run) range of aggregate supply. b. An increase in both aggregate supply and aggregate demand. c. A reduction in AD in the horizontal (sometimes called the Keynesian) range of AS. d. An increase in AD and a decreases in AS. e. A decreases in AD in the intermediate range (up-sloping range) of AS.
  3. (14 points) Explain how each of the following will affect 1) the consumption function and saving schedule , 2) investment schedule and 3) equilibrium level of GDP , other things equal. a. a large increase in the value of real estate, including private houses.