Macroeconomics Answers

In each of the following scenarios, explain and categorize the cost of inflation.

a. Because inflation has risen, the J. Crew clothing company decides to issue a new catalog monthly rather than quarterly.

b. Grandpa buys an annuity for $100,000 from an insurance company, which promises to pay him $10,000 a year for the rest of his life. After buying it, he is surprised that high inflation triples the price level over the next few years.

c. Maria lives in an economy with hyperinflation. Each day after being paid, she runs to the store as quickly as possible so she can spend her money before it loses value.

d. Gita lives in an economy with an inflation rate of 10 percent. Over the past year, she earned a return of $50,000 on her milliondollar portfolio of stocks and bonds. Because her tax rate is 20 percent, she paid $10,000 to the government.

e. Your father tells you that when he was your age, he worked for only $4 an hour. He suggests that you are lucky to have a job that pays $9 an hour

A newspaper article once reported that the U.S. economy was experiencing a low rate of

inflation. It said that “low inflation has a downside: 45 million recipients of Social Security and

other benefits will see their checks go up by just 2.8 percent next year.”

a. Why would policymakers link increases in Social Security and other benefits to inflation?

b. Is the small increase in benefits a “downside” of low inflation, as the article suggests?

Why or why not?

In case of intoxicated drivers is goverment concerned about efficiency or equality?

Explain in your own words what you understand by the following types of elasticity. Also write down whether the elasticity coefficient is positive or negative.

a. Cross-price elasticity for a substitute.

Explain in your own words what you understand by the following types of elasticity. Also write down the elasticity coefficient (value) for each type of elasticity.

b. Infinitely elastic or perfectly elastic demand

c. Completely or perfectly inelastic demand.

Refer to the IS-LM-BP model for an open economy

1. Draw a diagram that typically illustrates the IS-LM-BP model, with the slope of the BP curve flatter than that of the LM curve. Label the axes properly and reflect equilibrium.
2. How was the LM curve derived and defined, what does the slope of the curve depend on and what changes in what variables will shift the curve to the right?
3. How was the I|S curve derived and defined, what does the slope of the curve depend on and what changes in what variables will shift to the curve?
4. What does the BP curve reflect and what do points on, below and above the BP curve indicate?

For an accurate diagram that illustrates the influence of the price elasticity of demand upon the incidence of the tax.

• For an accurate diagram that illustrates the influence of the price elasticity of supply upon the incidence of the tax. 

Discuss each of the following statements from the standpoints of equality and efficiency. a. Everyone in society should be guaranteed the best healthcare possible. b. When workers are laid off, they should be able to collect unemployment benefits until they find a new job. 

1. Explain whether each of the following government activities is motivated by a concern about equality or a concern about efficiency. In the case of efficiency, discuss the type of market failure involved. a. regulating cable TV prices b. providing some poor people with vouchers that can be used to buy food c. prohibiting smoking in public places d. breaking up Standard Oil (which once owned 90 percent of all oil refineries) into several smaller companies e. imposing higher personal income tax rates on people with higher incomes f. instituting laws against driving while intoxicated 

1. The Global Insight (GI) forecasting firm predicted that the Canadian economy would bounce back by a stronger-than-expected 1.0 percent on an annualized basis in the third quarter of 2012 and with a further 0.1 percent in the fourth quarter of 2012. The firm also expected moderate growth overall in 2013.

(10 marks)

a.      What evidence did GI present to support the view that Canada had entered a recovery?

(2 marks)

b.     Use a short-run Phillips curve to explain why the inflation rate may have increased over the course of 2012.

(4 marks)

c.      Under what circumstances might the inflation rate not have increased during 2012?

(4 

Explain the difference between Real and Nominal GDP.