Macroeconomics: Principles, Problems, & Policies 20th Edition

Price of Oranges Quantity of Oranges Inverse Relationship Chapter 01 Appendix Chapter 01 Appendix McConnell Brue Flynn 20e APPENDIX DISCUSSION QUESTIONS 1. Briefly explain the use of graphs as a way to represent economic relationships. What is an inverse relationship? How does it graph? What is a direct relationship? How does it graph? LO8 Answer: Graphs help

Chapter 01 Appendix 4. Construct a table from the data shown on the graph below. Which is the dependent variable and which the independent variable? Summarize the data in equation form. LO8 Answer: Study Time (hours) Exam Score (points) 0 10 2 30 4 506 708 90 4 506 708 90 4 50 6 70 8 90 The dependent

Chapter 01 - Limits, Alternatives, and Choices CHAPTER ONE LIMITS, ALTERNATIVES, AND CHOICES CHAPTER OVERVIEW This chapter begins with a discussion of the meaning and importance of economics. In this first chapter, however, we will not plunge into problems and issues; instead we consider some important preliminaries. We first look at the economic perspectivehow

Chapter 01 - Limits, Alternatives, and Choices I. Individuals Economizing Problem A. Individuals are confronted with the need to make choices because their wants exceed their means to satisfy them. B. Limited income everyone, even the most wealthy, has a finite amount of money to spend. C. Unlimited wants peoples wants are virtually unlimited. 1. Wants

Content Option for Instructors #1 The United States and the Global Economy Content Option for Instructors #1 The United States and the Global Economy McConnell Brue Flynn 20e DISCUSSION QUESTIONS 1. Describe the four major economic flows that link the U.S. with other nations. Provide a specific example to illustrate each flow. LO1 Answer: The

Chapter 01 - Limits, Alternatives, and Choices Chapter 01 - Limits, Alternatives, and Choices McConnell Brue Flynn 20e DISCUSSION QUESTIONS 1. What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greater opportunity cost: Allocating a square block in the heart

Chapter 01 - Limits, Alternatives, and Choices PROBLEMS 1. Potatoes cost Janice $1 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. If she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth

Chapter 10 - Basic Macroeconomic Relationships CHAPTER TEN BASIC MACROECONOMIC RELATIONSHIPS CHAPTER OVERVIEW The central purpose of this chapter is to introduce three basic macroeconomic relationships that will help us organize our thinking about macroeconomic theories and controversies: First, the focus is on the income-consumption and income-saving relationships. Second, the relationship between the interest rate

Chapter 10 - Basic Macroeconomic Relationships Chapter 10 - Basic Macroeconomic Relationships McConnell Brue Flynn 20e DISCUSSION QUESTIONS 1. Precisely how do the MPC and the APC differ? How does the MPC differ from the MPS? Why must the sum of MPC and the MPS equal 1? LO1 Answer: MPC refers to changes in spending

PROBLEMS 1. Refer to the incomplete table below. LO1 a. Fill in the missing numbers in the table. b. What is the break-even level of income in the table? What is the term that economists use for the saving situation shown at the $240 level of income? c. For each of the following items

Chapter 11 - The Aggregate Expenditures Model CHAPTER ELEVEN THE AGGREGATE EXPENDITURES MODEL CHAPTER OVERVIEW We have seen in Chapter 10 three basic relationships: how income relates to consumption and saving, how the interest rate affects investment spending, and how changes in spending work through the system to create larger changes in output. In

Chapter 11 - The Aggregate Expenditures Model Chapter 11 - The Aggregate Expenditures Model McConnell Brue Flynn 20e DISCUSSION QUESTIONS 1. What is an investment schedule and how does it differ from an investment demand curve? LO2 Answer: An investment schedule shows the level of investment spending for a given level of GDP. An

Chapter 11 - The Aggregate Expenditures Model PROBLEMS 1. Assuming the level of investment is $16 billion and independent of the level of total output, complete the accompanying table and determine the equilibrium levels of output and employment in this private closed economy. What are the sizes of the MPC and MPS? LO3

Chapter 12 Appendix Chapter 12 Appendix McConnell Brue and Flynn 20e DISCUSSION QUESTIONS 1. Explain carefully: A change in the price level shifts the aggregate expenditures curve but not the aggregate demand curve. LO7 Answer: A change in the price level does not shift the aggregate demand curve. It simply represents a movement along

Chapter 12 - Aggregate Demand and Aggregate Supply CHAPTER TWELVE AGGREGATE DEMAND AND AGGREGATE SUPPLY CHAPTER OVERVIEW The aggregate expenditures model developed in Chapter 12 is a fixed-price-level model. Its focus is on changes in real GDP, not on changes in the price level. This chapter introduces a variable-price model in which it is

Chapter 12 - Aggregate Demand and Aggregate Supply Chapter 12 - Aggregate Demand and Aggregate Supply McConnell, Brue, and Flynn 20e DISCUSSION QUESTIONS 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

Chapter 12 - Aggregate Demand and Aggregate Supply REVIEW QUESTIONS 1. Which of the following help to explain why the aggregate demand curve slopes downward? LO1 a. When the domestic price level rises, our goods and services become more expensive to foreigners. b. When government spending rises, the price level falls. c. There is an

Chapter 13 - Fiscal Policy, Deficits, and Debt CHAPTER THIRTEEN FISCAL POLICY, DEFICITS, AND DEBT CHAPTER OVERVIEW This chapter explores the tools of government stabilization policy in terms of the aggregate demand- aggregate (AD-AS) model. Next, the chapter examines fiscal policy measures that automatically adjust government expenditures and tax revenues when the economy moves through

Chapter 13 - Fiscal Policy, Deficits, and Debt Chapter 13 - Fiscal Policy, Deficits, and Debt 20e McConnell, Brue, and Flynn DISCUSSION QUESTIONS 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

Chapter 13 - Fiscal Policy, Deficits, and Debt REVIEW QUESTIONS 1. Which of the following would help a government reduce an inflationary output gap? LO1 a. Raising taxes. b. Lowering taxes. c. Increasing government spending. d. Decreasing government spending. Answer: a. Raising taxes; d. Decreasing government spending Answer: a. Raising taxes; d. Decreasing government spending

Chapter 14 - Money, Banking, and Financial Institutions CHAPTER FOURTEEN MONEY, BANKING, AND FINANCIAL INSTITUTIONS CHAPTER OVERVIEW Chapters 14, 15, 16, and 17 form part four of the text, a conventional unit on money and banking. These chapters provide the foundation for the discussion of modern monetary theory and for the discussion and

Chapter 14 - Money, Banking, and Financial Institutions Chapter 14 - Money, Banking, and Financial Institutions 20e McConnell Brue Flynn DISCUSSION QUESTIONS 1. What are the three basic functions of money? Describe how rapid inflation can undermine moneys ability to perform each of the three functions. LO1 Answer: Money is used as a medium

Chapter 15 - Money Creation CHAPTER FIFTEEN MONEY CREATION CHAPTER OVERVIEW The central topic of this chapter is the creation of checkable (demand) deposit money by commercial banks. First, a number of routine but significant introductory transactions are covered, followed by an assessment of the lending ability of a single commercial bank. Second, the

Chapter 15 - Money Creation Chapter 15 - Money Creation McConnell Brue Flynn 20e DISCUSSION QUESTIONS 1. 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

Chapter 15 - Money Creation REVIEW QUESTIONS 1. A goldsmith has $2 million of gold in his vaults. He issues $5 million in gold receipts. His gold holdings are what fraction of the paper money (gold receipts) he has issued? LO1 a. 1/10. b. 1/5. c. 2/5. d. 5/5. Answer: c. 2/5 Answer: c. 2/5 Answer:

Chapter 16 - Interest Rates and Monetary Policy CHAPTER SIXTEEN INTEREST RATES AND MONETARY POLICY CHAPTER OVERVIEW The objectives and the mechanics of monetary policy are covered in this chapter. It is organized around seven major topics: (1) interest rate determination; (2) the balance sheet of the Federal Reserve Banks; (3) the tools of

Chapter 16 - Interest Rates and Monetary Policy Chapter 16 - Interest Rates and Monetary Policy McConnell Brue Flynn 20e DISCUSSION QUESTIONS 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.

Chapter 16 - Interest Rates and Monetary Policy PROBLEMS 1. Assume that the following data characterize the hypothetical economy of Trance: money supply = $200 billion; quantity of money demanded for transactions = $150 billion; quantity of money demanded as an asset = $10 billion at 12 percent interest, increasing by $10

Chapter 17 - Financial Economics CHAPTER SEVENTEEN FINANCIAL ECONOMICS CHAPTER OVERVIEW This chapter provides an introduction to financial economics. It begins by distinguishing between economic investment and financial investment. Next the calculation and use of present value in decision- making is presented. An overview of stocks, bonds, and mutual funds is provided, followed by an

Chapter 17 - Financial Economics Chapter 17 - Financial Economics McConnell Brue Flynn 20e DISCUSSION QUESTIONS 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

Chapter 18 - Extending the Analysis of Aggregate Supply CHAPTER EIGHTEEN EXTENDING THE ANALYSIS OF AGGREGATE SUPPLY CHAPTER OVERVIEW This is the first chapter of Part nine, Extensions and Issues. This chapter explains the difference between long-run and short-run aggregate supply; it examines the unemployment-inflation relationship and assesses the effect of taxes on aggregate

Chapter 18 - Extending the Analysis of Aggregate Supply Chapter 18 - Extending the Analysis of Aggregate Supply McConnell Brue Flynn 20e DISCUSSION QUESTIONS 1. Distinguish between the short run and the long run as they relate to macroeconomics. Why is the distinction important? LO1 Answer: For macroeconomists the short run is a period

Chapter 19 - Current Issues in Macro Theory and Policy CHAPTER NINETEEN CURRENT ISSUES IN MACRO THEORY AND POLICY CHAPTER OVERVIEW One of the great traditions in scholarship is the challenge to mainstream thinking. Many such challenges to the conventional wisdom fail; either the new theories are not logical or they dont conform to

Chapter 19 - Current Issues in Macro Theory and Policy Chapter 19 - Current Issues in Macro Theory and Policy McConnell Brue Flynn 20e DISCUSSION QUESTIONS 1. 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

Chapter 02 - The Market System and the Circular Flow CHAPTER TWO THE MARKET SYSTEM AND THE CIRCULAR FLOW CHAPTER OVERVIEW This chapter begins with a brief comparison of the command and market systems, transitioning quickly to a discussion of the institutional framework of the American market system. Brief explanations are given for these characteristics

Chapter 02 - The Market System and the Circular Flow Chapter 02 - The Market System and the Circular Flow McConnell Brue Flynn 20e DISCUSSION QUESTIONS 1. Contrast how a market system and a command economy try to cope with economic scarcity. LO1 Answer: A market system allows for the private ownership of resources and

Chapter 20 - International Trade CHAPTER TWENTY INTERNATIONAL TRADE CHAPTER OVERVIEW This chapter builds provides analysis of international trade and protectionism. First, it reviews important facts about world trade. Second, it examines how international specialization based on comparative advantage can mutually benefit participating nations. Third, supply and demand analysis is used to help students

Chapter 20 - International Trade Chapter 20 - International Trade McConnell Brue Flynn 20e DISCUSSION QUESTIONS 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

Chapter 20 - International Trade 10. Suppose that the current international price of wheat is $6 per bushel and that the United States is currently exporting 30 million bushels per year. If the United States suddenly became a closed economy with respect to wheat, would the domestic price of wheat in

Chapter 21 - The Balance of Payments, Exchange Rates, and Trade Deficits CHAPTER TWENTY-ONE THE BALANCE OF PAYMENTS, EXCHANGE RATES, AND TRADE DEFICITS CHAPTER OVERVIEW This chapter addresses several important aspects of international trade. The chapter begins with a brief discussion about the balance of payments. Next, this balance of payments is explained and examined

Chapter 21 - The Balance of Payments, Exchange Rates, and Trade Deficits CHAPTER TWENTY-ONE THE BALANCE OF PAYMENTS, EXCHANGE RATES, AND TRADE DEFICITS CHAPTER OVERVIEW This chapter addresses several important aspects of international trade. The chapter begins with a brief discussion about the balance of payments. Next, this balance of payments is explained and examined

Chapter 21 - The Balance of Payments, Exchange Rates, and Trade Deficits Chapter 21 - The Balance of Payments, Exchange Rates, and Trade Deficits McConnell Brue Flynn 20e DISCUSSION QUESTIONS 1. Do all international financial transactions necessarily involve exchanging one nations distinct currency for another? Explain. Could a nation that neither imports goods and

Chapter 21 - The Balance of Payments, Exchange Rates, and Trade Deficits 4. A meal at a McDonalds restaurant in New York costs $8. The identical meal at a McDonalds restaurant in London costs 4. According to the purchasing-power-parity theory of exchange rates, the exchange rate between U.S. dollars and British

4. A meal at a McDonalds restaurant in New York costs $8. The identical meal at a McDonalds restaurant in London costs 4. According to the purchasing-power-parity theory of exchange rates, the exchange rate between U.S. dollars and British pounds should tend to move toward: LO3 a. $2 = 1. b.

Chapter 03 Appendix Chapter 03 Appendix McConnell Brue Flynn 20e APPENDIX DISCUSSION QUESTIONS 1. Why are shortages or surpluses more likely with preset prices, such as those on tickets, than flexible prices, such as those on gasoline? LO7 Answer: Preset prices, rather than responding to demand conditions, attempt to predict the level of demand

Chapter 03 - Demand, Supply, and Market Equilibrium CHAPTER THREE DEMAND, SUPPLY, AND MARKET EQUILIBRIUM CHAPTER OVERVIEW This chapter provides an introduction to demand and supply concepts. Both demand and supply are defined and illustrated; determinants of demand and supply are listed and explained. The concept of equilibrium and the effects of changes in

Chapter 03 - Demand, Supply, and Market Equilibrium I. Changes in Supply and Demand, and Equilibrium A. Changing demand with supply held constant: 1. Increase in demand will have effect of increasing equilibrium price and quantity (Figure 3.7a). 2. Decrease in demand will have effect of decreasing equilibrium price and quantity (Figure 3.7b). B. Changing

Chapter 03 - Demand, Supply, and Market Equilibrium Chapter 03 - Demand, Supply, and Market Equilibrium McConnell Brue Flynn 20e DISCUSSION QUESTIONS 1. Explain the law of demand. Why does a demand curve slope downward? How is a market demand curve derived from individual demand curves? LO2 Answer: As prices change, buyers will change

3. Refer to the expanded table below from review question 8. LO4 a. What is the equilibrium price? At what price is there neither a shortage nor a surplus? Fill in the surplus-shortage column and use it to confirm your answers. b. Graph the demand for wheat and the supply of

Chapter 04 Appendix Chapter 04 Appendix McConnell Brue Flynn 20e APPENDIX DISCUSSION QUESTIONS 1. Because medical records are private, an individual applying for health insurance will know more about his own health conditions than will the insurance companies to which he is applying for coverage. Is this likely to increase or decrease the insurance

Chapter 04 - Market Failures: Public Goods and Externalities CHAPTER FOUR MARKET FAILURES: PUBLIC GOODS AND EXTERNALITIES CHAPTER OVERVIEW Chapter 3 touched on how properly functioning, competitive markets achieve economic efficiency, but this chapter extends and deepens the analysis by including consumer and producer surplus along with efficiency losses (deadweight losses). The chapter examines

Chapter 04 - Market Failures: Public Goods and Externalities Chapter 04 - Market Failures: Public Goods and Externalities McConnell Brue Flynn 19e DISCUSSION QUESTIONS 1. Explain the two causes of market failures. Given their definitions, could a market be affected by both types of market failures simultaneously? LO1 Answer: A public good is one

2. Refer to Table 4.2. If the six people listed in the table are the only producers in the market and the equilibrium price is $6 (not the $8 shown), how much producer surplus will the market generate? LO2 Answer: $6 Answer: $6 Answer: $6 Feedback: Consider the following table as an example:

Chapter 05 Appendix Chapter 05 Appendix McConnell Brue Flynn 20e APPENDIX DISCUSSION QUESTIONS 1. Explain how affirmative and negative majority votes can sometimes lead to inefficient allocations of resources to public goods. Is this problem likely to be greater under a benefits received or an abilitytopay tax system? Use the information in Figures 1a

Chapter 05 - Government's Role and Government Failure CHAPTER FIVE GOVERNMENT'S ROLE AND GOVERNMENT FAILURE CHAPTER OVERVIEW The chapter begins by reviewing the topic of market failure and the important role that the government can play in (potentially) improving economic efficiency. The chapter then discusses the difficulties that democratic governments face when making specific laws

Chapter 05 - Government's Role and Government Failure Chapter 05 - Government's Role and Government Failure McConnell Brue Flynn 20e DISCUSSION QUESTIONS 1. Why might citizens interested in maximizing economic efficiency be happy to invest their government with the right to coerce them in at least some situations? LO1 Answer: The governments ability to

Chapter 06 - An Introduction to Macroeconomics CHAPTER SIX AN INTRODUCTION TO MACROECONOMICS CHAPTER OVERVIEW As you know from Chapter 1, macroeconomics studies the behavior of the economy as a whole. It is primarily concerned with two topics: long-run economic growth and the short-run uctuations in output and employment that are often referred to as

Chapter 06 - An Introduction to Macroeconomics Chapter 06 - An Introduction to Macroeconomics McConnell, Brue, and Flynn 20e DISCUSSION QUESTIONS 1. Why do you think macroeconomists focus on just a few key statistics when trying to understand the health and trajectory of an economy? Would it be better to try to make examine

Chapter 07 - Measuring Domestic Output and National Income CHAPTER SEVEN MEASURING DOMESTIC OUTPUT AND NATIONAL INCOME CHAPTER OVERVIEW News headlines frequently report the status of the nations economic conditions, but to many citizens the information is confusing or incomprehensible. This chapter acquaints students with the basic language of macroeconomics and national income accounting.

Chapter 07 - Measuring Domestic Output and National Income Chapter 07 - Measuring Domestic Output and National Income McConnell, Brue, and Flynn 20e DISCUSSION QUESTIONS 1. In what ways are national income statistics useful? LO1 Answer: National income accounting does for the economy as a whole what private accounting does for businesses. Firms measure

Chapter 07 - Measuring Domestic Output and National Income REVIEW QUESTIONS 1. Tina walks into Teds sporting goods store and buys a punching bag for $100 dollars. That $100 payment counts as ________________ for Tina and _______________ for Ted. LO1 a. Income; Expenditure. b. Value added; Multiple Counting. c. Expenditure; Income. d. Rents; Profits. Answer: c.

Chapter 08 - Economic Growth CHAPTER EIGHT ECONOMIC GROWTH CHAPTER OVERVIEW This chapter looks at the impact of economic growth in general. Although punctuated by periods of cyclical instability, economic growth in the United States has been impressive. For example, during the last half century, real output increased over 800 percent in absolute terms

Chapter 08 - Economic Growth Chapter 08 - Economic Growth McConnell, Brue, and Flynn 20e DISCUSSION QUESTIONS 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? LO1 Answer: Economists define

Chapter 09 - Business Cycles, Unemployment, and Inflation CHAPTER NINE BUSINESS CYCLES, UNEMPLOYMENT, AND INFLATION CHAPTER OVERVIEW This chapter discusses the business cycle, unemployment, and inflation. It sets the stage for the analytical presentation in later chapters. The business cycle is introduced in historical perspective and is presented in stylized form (Figure 9.1). While

Chapter 09 - Business Cycles, Unemployment, and Inflation Chapter 09 - Business Cycles, Unemployment, and Inflation McConnell, Brue, and Flynn 20e DISCUSSION QUESTIONS 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