The chapter notes that the rise in the U.S. trade deficit during the 1980s was due largely to the rise in the U.S. budget deficit. On the other hand, the popular press sometimes claims that the increased trade deficit resulted from a decline in the quality of U.S. products relative to foreign products. a. Assume that U.S. products did decline in relative quality during the 1980s. How did this affect net exports at any given exchange rate? b. Draw a three-panel diagram to show the effect of this shift in net exports on the U.S. real exchange rate and trade balance. c. Is the claim in the popular press consistent with the model in this chapter? Does a decline in the quality of U.S. products have any effect on our standard of living? (Hint: When we sell our goods to foreigners, what do we receive in return?)
> What might shift the aggregate-supply curve to the left? Use the model of aggregate demand and aggregate supply to trace through the short-run and long-run effects of such a shift on output and the price level.
> The economy begins in long-run equilibrium. Then one day, the president appoints a new chair of the Federal Reserve. This new chairman is well known for her view that inflation is not a major problem for an economy. a. How would this news affect the pric
> Suppose the United States decides to subsidize the export of U.S. agricultural products, but it does not increase taxes or decrease any other government spending to offset this expenditure. Using a three- panel diagram, show what happens to national savi
> A can of soda costs $1.25 in the United States and 25 pesos in Mexico. What is the peso–dollar exchange rate (measured in pesos per dollar) if purchasing- power parity holds? If a monetary expansion caused all prices in Mexico to double, so that soda ros
> If inflation is less than expected, who benefits— debtors or creditors? Explain.
> Recall that money serves three functions in the economy. What are those functions? How does inflation affect the ability of money to serve each of these functions?
> Bank A has a leverage ratio of 10, while Bank B has a leverage ratio of 20. Similar losses on bank loans at the two banks cause the value of their assets to fall by 7 percent. Which bank shows a larger change in bank capital? Does either bank remain solv
> Your bank account pays an interest rate of 8 percent. You are considering buying a share of stock in XYZ Corporation for $110. After 1, 2, and 3 years, it will pay a dividend of $5. You expect to sell the stock after 3 years for $120. Is XYZ a good inves
> The Fed conducts a $10 million open-market purchase of government bonds. If the required reserve ratio is 10 percent, what are the largest and smallest possible increases in the money supply that could result? Explain.
> List and discuss three key facts about economic fluctuations.
> Explain four ways in which a firm might increase its profits by raising the wages it pays.
> Using a diagram of the labor market, show the effect of an increase in the minimum wage on the wage paid to workers, the number of workers supplied, the number of workers demanded, and the amount of unemployment.
> Explain the view of those economists who are skeptical of the efficient markets hypothesis.
> A company faces two kinds of risk. A firm-specific risk is that a competitor might enter its market and take some of its customers. A market risk is that the economy might enter a recession, reducing sales. Which of these two risks would more likely caus
> From 2008 to 2012, the ratio of government debt to GDP in the United States a. increased markedly. b. decreased markedly. c. was stable at a historically high level. d. was stable at a historically low level.
> Give three examples of how our society discourages saving. What are the drawbacks of eliminating these disincentives?
> Explain two ways in which a government budget deficit hurts a future worker.
> Suppose the federal government cuts taxes and increases spending, raising the budget deficit to 12 percent of GDP. If nominal GDP is rising 5 percent per year, are such budget deficits sustainable forever? Explain. If budget deficits of this size are mai
> The ability of insurance to spread risk is limited by a. risk aversion and moral hazard. b. risk aversion and adverse selection. c. moral hazard and adverse selection. d. risk aversion only.
> Advocates of taxing consumption rather than income argue that a. a consumption tax is a better automatic stabilizer. b. taxing consumption does not cause any deadweight losses. c. the rich consume a higher fraction of income than the poor. d. the curren
> Suppose the Federal Reserve’s policy is to maintain low and stable inflation by keeping unemployment at its natural rate. However, the Fed believes that the natural rate of unemployment is 4 percent when the actual natural rate is 5 percent. If the Fed b
> Name two macroeconomic variables that decline when the economy goes into a recession. Name one macroeconomic variable that rises during a recession.
> From one year to the next, inflation rises from 4 to 5 percent, while unemployment rises from 6 to 7 percent. Which of the following events could be responsible for this change? a. The central bank increases the growth rate of the money supply. b. The g
> In the early 1980s, new legislation allowed banks to pay interest on checking deposits, which they could not do previously. a. If we define money to include checking deposits, what effect did this legislation have on money demand? Explain. b. If the Fede
> Which of the following is an example of an automatic stabilizer? When the economy goes into a recession, a. more people become eligible for unemployment insurance benefits. b. stock prices decline, particularly for firms in cyclical industries. c. Congre
> What might shift the aggregate-demand curve to the left? Use the model of aggregate demand and aggregate supply to trace through the short-run and long-run effects of such a shift on output and the price level.
> For each of the three theories for the upward slope of the short-run aggregate-supply curve, carefully explain the following: a. how the economy recovers from a recession and returns to its long-run equilibrium without any policy intervention b. what det
> The idea that economic downturns result from an inadequate aggregate demand for goods and services is derived from the work of which economist? a. Adam Smith b. David Hume c. David Ricardo d. John Maynard Keynes
> A senator renounces his past support for protectionism: “The U.S. trade deficit must be reduced, but import quotas only annoy our trading partners. If we subsidize U.S. exports instead, we can reduce the deficit by increasing our competitiveness.” Using
> What is investment? How is it related to national saving in a closed economy?
> If business leaders in Great Britain become more confident in their economy, their optimism will induce them to increase investment, causing the British pound to ________ and pushing the British trade balance toward ________. a. appreciate, deficit b. ap
> What is happening to the U.S. real exchange rate in each of the following situations? Explain. a. The U.S. nominal exchange rate is unchanged, but prices rise faster in the United States than abroad. b. The U.S. nominal exchange rate is unchanged, but pr
> The theory of purchasing-power parity says that higher inflation in a nation causes the nation’s currency to ________, leaving the ________ exchange rate unchanged. a. appreciate, nominal b. appreciate, real c. depreciate, nominal d. depreciate, real
> Suppose the economy is in a long-run equilibrium. a. Draw a diagram to illustrate the state of the economy. Be sure to show aggregate demand, short-run aggregate supply, and long-run aggregate supply. b. Now suppose that a stock market crash causes aggre
> What are the costs of inflation? Which of these costs do you think are most important for the U.S. economy?
> If the tax rate is 40 percent, compute the before-tax real interest rate and the after-tax real interest rate in each of the following cases. a. The nominal interest rate is 10 percent, and the inflation rate is 5 percent. b. The nominal interest rate is
> If an economy always has inflation of 10 percent per year, which of the following costs of inflation will it NOT suffer? a. shoeleather costs from reduced holdings of money b. menu costs from more frequent price adjustment c. distortions from the taxatio
> Why don’t banks hold 100-percent reserves? How is the amount of reserves banks hold related to the amount of money the banking system creates?
> Happy Bank starts with $200 in bank capital. It then accepts $800 in deposits. It keeps 12.5 percent (1/8th) of deposits in reserve. It uses the rest of its assets to make bank loans. a. Show the balance sheet of Happy Bank. b. What is Happy Bank’s lever
> In a system of fractional-reserve banking, even with-out any action by the central bank, the money supply declines if households choose to hold ________ currency or if banks choose to hold ________ excess reserves. a. more, more b. more, less c. less, mo
> Suppose GDP is $8 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and public saving is $0.2 trillion. Assuming this economy is closed; calculate consumption, government purchases, national saving, and investment.
> Suppose that a fall in consumer spending causes a recession. a. Illustrate the immediate change in the economy using both an aggregate-supply/aggregate- demand diagram and a Phillips-curve diagram. On both graphs, label the initial long-run equilibrium a
> The government of a country increases the growth rate of the money supply from 5 percent per year to 50 percent per year. What happens to prices? What happens to nominal interest rates? Why might the government be doing this?
> Explain the three reasons the aggregate-demand curve slopes downward. Give an example of an event that would shift the aggregate-demand curve. In which direction would this event shift the curve?
> List and explain the three reasons the aggregate-demand curve slopes downward.
> Suppose an economy is in long-run equilibrium. a. Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short-run and long-run aggregate supply. b. The central bank raises
> A change in the expected price level shifts a. the aggregate-demand curve. b. the short-run aggregate-supply curve, but not the long-run aggregate-supply curve. c. the long-run aggregate-supply curve, but not the short-run aggregate-supply curve. d. bot
> Suppose that Americans decided to spend a smaller fraction of their incomes. What would be the effect on saving, investment, interest rates, the real exchange rate, and the trade balance?
> Suppose that a textile workers’ union encourages people to buy only American-made clothes. What would this policy do to the trade balance and the real exchange rate? What is the impact on the textile industry? What is the impact on the auto industry?
> The government in an open economy cuts spending to reduce the budget deficit. As a result, the interest rate ________, leading to a capital ________ and a real exchange rate ________. a. falls, outflow, appreciation b. falls, outflow, depreciation c. fal
> Over the past 20 years, Mexico has had high inflation and Japan has had low inflation. What do you predict has happened to the number of Mexican pesos a person can buy with a Japanese yen?
> If a Japanese car costs 1,500,000 yen, a similar American car costs $30,000, and a dollar can buy 100 yen, what are the nominal and real exchange rates?
> Explain how an increase in the price level affects the real value of money.
> In June 2009, at the trough of the Great Recession, the Bureau of Labor Statistics announced that of all adult Americans, 140,196,000 were employed, 14,729,000 were unemployed, and 80,729,000 were not in the labor force. Use this information to calculate
> Define an internal transaction and provide an example.
> Define depreciation as it relates to a van you bought for your business.
> Why is it necessary to make an adjustment if wages for work performed for the pay period Monday through Friday are paid on Friday and the accounting period ends on a Wednesday?
> In which column of the work sheet—Income Statement (IS) or Balance Sheet (BS)—would the adjusted balances of the following accounts appear? Account IS or BS? Account IS or BS? a. Prepaid Insurance e. Accumulated D
> What is a mixed account? A contra account? Give an example of each.
> Although you printed the trial balance and financial statements to get an idea of how All About You Spa is doing financially, some accounts are not accurate. You need to make adjusting entries to provide a clearer picture of how the spa is doing. HOW TO
> Determine on which financial statement each account listed below is reported. Use the following abbreviations: Income Statement (IS), Statement of Owner’s Equity (OE), and Balance Sheet (BS). a. M. James, Capital b. Cash c. Rent Expense d. Accumulated De
> Why is it necessary to journalize and post adjusting entries?
> Your supervisor just finished a work sheet for the month of June, but all of the columns except those shown below were left unreadable because of a spilled latte. You have been asked to journalize the adjusting entries using the surviving partial work sh
> You are the bookkeeper for a small but thriving business. You have asked the owner for the information you need to make adjusting entries for depreciation, supplies, insurance, and wages. He says that he’s really busy and that what you’ve done so far is
> Your client is preparing financial statements to show the bank. You know that he has incurred a refrigeration repair expense during the month, but you see no such expense on the books. When you question the client, he tells you that he has not yet paid t
> Ride the Ducks of Seattle may seem like an unlikely name for a thriving business—but it is the name of a real business! The year-round Seattle tour company uses vehicles that can be providing a road tour one minute and plying the waters of Elliott Bay th
> The trial balance of The New Decors for the month ended September 30 is as follows: Data for the adjustments are as follows: a. Expired or used-up insurance, $425. b. Depreciation expense on equipment, $2,750. c. Wages accrued or earned since the last
> The completed work sheet for Juarez Design for the month of March is in your Working Papers, CengageNow or CLGL. Required 1. Journalize the adjusting entries. 2. Prepare an income statement. 3. Prepare a statement of owner’s equity. Assume that no addit
> What is the purpose of adjusting entries?
> The trial balance of Clayton Cleaners for the month ended September 30 is as follows: Data for the adjustments are as follows: a. Expired or used-up insurance, $800. b. Depreciation expense on equipment, $2,700. c. Wages accrued or earned since the las
> The completed work sheet for Chelsey Decorators for the month of March is in the Working Papers, CengageNow or CLGL. Required 1. Journalize the adjusting entries. 2. If using CLGL, prepare an adjusted trial balance. 3. Prepare an income statement. 4. Pr
> Journalize the following adjusting entries that were included on the work sheet for the month ended December 31. Dec. 31 Salaries for three days are unpaid at December 31, $2,700. Salaries are $4,500 for a five-day week. 31 Insurance was bought on Septem
> Journalize the adjusting entries from the partial work sheet for Newkirk Practice Exercise 4 Company as of September 30. B D. Newkirk Company Work Sheet 3 For Month Ended September 30, 20- 4 TRIAL BALANCE ADJUSTMENTS ACCOUNT NAME Cash Supplies Prepa
> Journalize the adjusting entries from the partial work sheet below for Brady Company for the month ended May 31. A H J K Brady Company Work Sheet 1 2 3 For Month Ended May 31, 20-- 4 INCOME STATEMENT BALANCE SHEET DEBIT 6 ACCOUNT NAME DEBIT CREDIT C
> Complete the work sheet for Ramey Company, dated December 31, 20--, through the adjusted trial balance using the following adjustment information: a. Expired or used-up insurance, $460. b. Depreciation expense on equipment, $870. (Remember to credit the
> A partial work sheet for Marge’s Place is shown below. Prepare the following adjustments on this work sheet for the month ended June 30, 20--. a. Expired or used-up insurance, $450. b. Depreciation expense on equipment, $750. c. Wages a
> Place a check mark next to any account(s) requiring adjustment. Explain why those accounts must be adjusted. Account Name (in trial balance order) Reason for Adjusting This Account a. Cash b. Prepaid Insurance c. Equipment d. Accumulated Depreciatio
> Classify each of the accounts listed below as assets (A), liabilities (L), owner’s equity (OE), revenue (R), or expenses (E). Indicate the normal debit or credit balance of each account. Indicate whether each account will appear in the
> List the following classifications of accounts in all of the columns in which they appear on the work sheet, with the exception of the Adjustments columns. (Example: Assets) Assets Accumulated Depreciation (with previous balance) Liabilities Capital Dra
> What is the purpose of a work sheet?
> 1. Hospital room charges for telephone and television rentals should be classified as: a Patient service revenues b Other operating revenues c Nonoperating gains d Premium fees 2. A hospital bills patients at gross rates and provides for courtesy allowa
> What are the characteristics of a government?
> Does the calculation of the federal estate tax permit any deductions?
> 1. A principal source of revenue for hospitals is from patient services. Patient services revenue for hospitals is recorded at: a Amounts actually billed to patients b The hospital’s full established rates for services provided c Amounts actually receive
> Mr. Chuck Rainy dies on May 21, 2015, and leaves his entire estate, with a fair value of $7,200,000 (after settlement of all estate expenses and liabilities) to be equally divided among his sole surviving family members, his daughters Emily and Laura, an
> Prepare journal entries to record the following transactions in the appropriate funds of a nongovernmental not-for-profit university: 1. Tuition and fees assessed total $6,000,000. Eighty percent is collected by year-end, scholarships are granted for $20
> 1. Which of the following statements is not required for nongovernmental voluntary health and welfare organizations that issue financial statements in accordance with GAAP? a Balance sheet b Statement of support, revenues, and expenses, and changes in re
> Mr. Dogbert dies on March 1, 2015, and leaves his entire estate, with a fair value of $10,600,000 (after settlement of all estate expenses and liabilities) to his sole surviving family member, his daughter Emily. REQUIRED: 1. Calculate the federal tax o
> You serve as the trustee for the Josephine Frederick testamentary income trust. The trust was created by the will of her late husband, John. Under the terms of John’s will, all assets are transferred to the trust to cover living expense
> What is the purpose of a statement of affairs, and how are assets valued in this statement?
> You serve as the trustee for the Lisa Wyatt Trust. The following transactions occur during June and July 2015: June 1 Open the trust account, depositing the $1,000,000 transferred from the estate of Cheri James into a non-in
> Use information from E 23-6 to prepare a charge and discharge statement for the trust for the period September 15, 2015 through December 31, 2015. Information from E 23-6 You serve as the trustee for the Sooner XXV trust. The following transactions occ
> You serve as the trustee for the Sooner XXV trust. The following transactions occur during 2015: September 15 Open the Sooner XXV trust account, depositing the $100,000 transferred from the estate of Jeff Carpenter. Septe
> What is the accounting equation for a governmental fund?
> K.T. Tim has been appointed to serve as executor for the estate of Ms. Lisa Triciao, who passed away on August 15, 2015. Ms. Triciao’s assets consisted of the following: The probate court has ruled that other personal effects may be e
> Distinguish between governmental funds, proprietary funds, and fiduciary funds. Which funds are classified as governmental funds?
> For nongovernmental NFP, how is the expiration of a time restriction recognized?
> 1. When a temporary restriction on resources of a nongovernmental not-for-profit entity is met by the incurrence of an expense for the restricted purpose: a The expense is reported in the statement of activities as an increase in unrestricted net assets.
> For nongovernmental NFP, explain the difference between a conditional promise to give and an unconditional promise to give.
> The following information was taken from the accounts and records of the Community Society, a nongovernmental not-for-profit organization. The balances are as of December 31, 2016, unless otherwise stated: Unrestricted support—contributions.............
