1. The U.S. gross federal debt was $5,674.2 in 2010 and $14,025.2 billion in 2020. The GDP was $9,872.9 billion in 2010 and $14,871 billion in 2020. The consumer price index (based on 1982–1984 = 100) was 174.0 in 2010 and 219.2 in 2020. The population was 281.4 million in 2010 and 308.7 million in 2020. These are all year-end figures. Calculate and discuss the following:
a) the rate of growth of the national debt over the decade.
b) the rate of growth of the national debt in constant dollars.
c) the rate of growth of the ratio of debt to GDP.
d) the rate of growth of the debt, in constant dollars, per person.
e) Comparing these rates, does it appear to you that the debt grew quickly, moderately, or slowly over the decade between 2010 and 2020?
2. The money supply is $800 billion, the required reserve ratio is one-sixth, and the simple money multiplier applies to any increases in reserves. The government runs a deficit of $150 billion. What will the percentage increase in the money supply be if the Fed monetizes: Briefly discuss results.
a) the deficit?
b) 10 percent of the deficit?
Chapter 33:
3. Draw diagrams to explain how shifts in aggregate supply and demand are likely to lead to changes in output and inflation when: Briefly discuss.
a) the government cuts income tax rates
b) the Fed sells government securities
c) the Fed lowers banks’ required reserve ratios
d) OPEC triples oil prices
e) the government institutes an effective job training program for high school
dropouts
f) floods in the Midwest causes farm output to fall
Chapter 34:
4. Only two goods are produced in the world’s two countries, Japan and Taiwan. In Japan, one worker can produce 50 pairs of shoes or 50 electronic calculators. In Taiwan, one worker can produce 40 pairs of shoes or 20 calculators.
a) In the absence of trade, what is the opportunity cost (i) of Japanese shoes, (ii) of Taiwanese shoes, (iii) of Japanese calculators, and (iv) of Taiwanese calculators?
b) Assuming each country has the same number of workers, draw the production possibility curves for each country, on separate diagrams.
c) Which country has the absolute advantage in the production of each good? The comparative advantage?
d) Suppose trade is opened up between the two countries. What is a likely price ratio of shoes and calculators in the single international market?
e) On the Japanese diagram, after trade has been opened, show consumption, production, imports, and exports of both goods.
f) How would the comparative advantage change if a Japanese worker could produce (i) 75 pairs of shoes, (ii) 125 pairs of shoes, while the other production possibilities remained constant?
5. A car can be produced by 20 workers in the United States, and by 10 workers in Germany. A 1,000 chickens can be produced by 25 workers in the United States, and by 20 workers in Germany.
a) Which country has the absolute and comparative advantages in the production of each good?
b) In the absence of trade, what are the price ratios between the two goods in each country?
c) Show how a shift of workers toward one of the two industries in the United States, coupled with a shift of workers toward the other in Germany, could result in increased total production of both goods in the two countries.
d) Suppose that when trade opens, the international price ratio settles at the former German price ratio. Using diagrams, show what happens to production, consumption, exports, and imports (i) in the United States and (ii) in Germany.
Chapter 35:
6. Using supply and demand curves for both the U.S. dollar and the Japanese yen, show how the following events would affect the exchange rate between the two currencies, under a system of floating rates. That is to say, show the exchange rate changes from both the Japanese and the American perspectives. Briefly discuss.
a) The Japanese GDP grows faster than the American.
b) The American inflation rate exceeds the Japanese,
c) Responding to new models, American consumers shift their preferences from imported Japanese automobiles to domestically produced automobiles.
d) The Bank of Japan tightens its monetary policy to raise interest rates.
e) There is an increased flow of Japanese investment funds into the United States.
f) Responding to American pressure, the Japanese reduce their barriers to imports.