Question 1

Suppose you read in the newspaper that a large decline in business spending has occurred. Explain how this could cause real GDP to fall. Could the decline in business spending also cause potential GDP to decline? Explain.

Accepted Answer

The answer of Suppose you read in the newspaper that...

Question 2

You will earn more interest from a given amount of bank saving deposit after 10 years with the compounding effect than without the compounding effect.

Accepted Answer

With compounding effect, the interest earned from the deposit is added to the principal amount, resulting in a higher balance on which further interest can be earned. This cycle continues, resulting in a higher overall interest earned over a longer period of time, such as 10 years. Without compounding effect, the interest earned remains the same each year and is calculated based only on the initial principal amount.

Question 3

Exhibit 17-5 
-Exhibit 17-5 shows real GDP from March 2015 through December 2017 for country A. Would the move from point A to point B be officially labeled a recession? Explain briefly.

Accepted Answer

The answer of Exhibit 17-5 
-Exhibit 17-5 shows real GDP...

Question 4

Suppose there is a permanent decrease in capital in a particular country. How does this change affect that economy's potential GDP? What economic policies can the government use to offset this decline?

Accepted Answer

The answer of Suppose there is a permanent decrease in...

Question 5

Between 1980 and 2000, China's GDP grew at an annual rate of 9.7 percent. China's GDP in 2006 was estimated to be $2.5 trillion. If China continues to grow at the same rate as it did between 1980 and 2000, what will its GDP be in 2026? How many years will it take for China's GDP to be twice as large as it was in 2006?

Accepted Answer

The answer of Between 1980 and 2000, China's GDP grew...

Question 6

How long will it take a $100 deposit to increase to $200 if the rate of interest is 2 percent?

Accepted Answer

The rule of 72 is a simple way to estimate the number of years required to double the investment at a given annual rate of return. By dividing 72 by the annual rate of interest, we get the approximate number of years for doubling. Here, 72 divided by 2 percent equals 36 years.

Question 7

Is it a good idea for the government to encourage workers to retire early and give them incentives to do so? How would this policy affect the economy's potential GDP?

Accepted Answer

The answer of Is it a good idea for the...

Question 8

Suppose, when you retire 40 years from now, you will want to live on what is $5,000 per month at today's prices. How much will this be 40 years from now if the average annual rate of inflation is the same as that between 1970 and 2015? In 1970, the CPI was 29.9; in 2015, the CPI was 201.6.

Accepted Answer

The answer of Suppose, when you retire 40 years from...

Question 9

Suppose real GDP per capita grows at a rate of 3 percent. How many years will it take for it to double? What if the growth in real GDP per capita were 2 percent?

Accepted Answer

The answer of Suppose real GDP per capita grows at...

Question 10

Describe the behavior of real GDP, the unemployment rate, and the inflation rate over the long term and the short term for the U.S. economy during the past 50 years. In what ways are movements in the three variables related?

Accepted Answer

The answer of Describe the behavior of real GDP, the...

Question 11

Suppose the CPI in 2015 was 188.9. In 1985, it was 49.3. What was the average annual rate of inflation over this 30-year period?

Accepted Answer

The answer of Suppose the CPI in 2015 was 188.9....

Question 12

The following table gives some recent data on rates of inflation for two hypothetical countries. How does the inflation rate in the United States over this same time period compare with the inflation rate in these two countries?

Accepted Answer

The answer of The following table gives some recent data...

Question 13

Exhibit 17-5 
-Exhibit 17-5 shows real GDP from March 2010 through September 2012 for a certain country. Of points A, B, and C, indicate where the rate of inflation is rising, staying constant, and declining.

Accepted Answer

The answer of Exhibit 17-5 
-Exhibit 17-5 shows real GDP...

Question 14

Suppose the U.S. economy is currently recovering from a recession. What is the relationship between real and potential GDP? Is it likely that real GDP will stay in this position for a long period of time, say, 10 years? Briefly explain.

Accepted Answer

The answer of Suppose the U.S. economy is currently recovering...

Question 15

Suppose you have $1,000, which you can put in two different types of accounts at a bank. One account pays interest of 9 percent per year; the other pays an interest rate of 3 percent per year plus the rate of inflation. Calculate the amount of money you will have at the end of one year if the inflation rate is 5 percent. What is the real rate of return in each case? Which account would you prefer if you expected inflation to be 8 percent?

Accepted Answer

The answer of Suppose you have $1,000, which you can...

Question 16

Suppose you have savings deposited in an account at an interest rate of 4 percent and your father tells you he earned 8 percent 10 years ago. Use the concept of the real interest rate to answer the following questions.

Accepted Answer

The answer of Suppose you have savings deposited in an...

Question 17

Suppose you deposit $100 in the bank and leave it there for 10 years. At the end of 10 years, how much will be in my account if the annual rate of interest is 5 percent?

Accepted Answer

The amount of money in the account after 10 years can be calculated using the formula A=P(1+r)^t where A is the amount, P is the principal (initial deposit), r is the rate of interest per year, and t is the number of years.

Plugging in the values, we get
A = 100(1+0.05)^10
A = $162.89

Rounding up to the nearest cent, the answer is $163. Therefore choice B is correct.

Question 18

Why would it be a good idea to plot time-series data on a ratio scale instead of a regular scale? What is the difference between the two types of graphs?

Accepted Answer

The answer of Why would it be a good idea...

Question 19

The purpose of a ratio scale is

Accepted Answer

A ratio scale is designed so that equal percentage changes in a variable are represented by equal vertical distances on the graph, allowing for a consistent visual representation of proportional changes.

Quiz 17: Macroeconomics: the Big Picture