The indication is that inflationary expectations have become entrenched and strongly rooted in world markets. As a result, the risk of global stagflation has become significant. A drawn-out inflationary process always precedes stagflation. Following the attritional effect of inflation, the economy starts to grow below its potential. It experiences a persistent output gap, rising unemployment, and increasingly entrenched inflationary expectations. Evaluate the claim that if “inflationary expectations” become strongly “entrenched” an economy will experience “a persistent output gap.”
> Refer to the following summarized income statement and additional selected information for Trumansburg, Inc.: Income Statement Revenues ………………………………………….$150,800 Cost of sales ………………………………………….55,500 Gross margin ………………………………………..95,300 Salary expense ……
> Refer to the information for Rodriguez Company in Exercise 8. Data given in Exercise 8: Rodriguez Company completed its income statement and comparative balance sheet for the current year and provided the following information: In addition, Rodriguez bo
> Refer to the information for Peak Heights Company in Exercise 7. Data from Exercise 7: The following information pertains to Peak Heights Company: Required: Present the operating activities section of the statement of cash flows for Peak Heights Compan
> An analysis of Courtney Corporation’s operational asset accounts provided the following information: a. Acquired a large machine that cost $36,000. Courtney paid for it by giving a $15,000, 12 percent interest-bearing note due at the end of two years and
> Gibraltar Industries is a Buffalo, New York–based manufacturer of high-value-added steel products. In a recent year, it reported the following activities: Acquisitions (investments in other companies) …………….…………….$(109,248) Increase in inventories ………………
> Computer Service and Repair was started five years ago by two college roommates. The company’s comparative balance sheets and income statement are presented below, along with additional information. Additional Data: a. Prepaid expenses
> Shallow Waters Company was started several years ago by two diving instructors. The company’s comparative balance sheets and income statement are presented below, along with additional information. Additional Data: a. Prepaid expenses r
> Oering’s Furniture Corporation is a Virginia-based manufacturer of furniture. In a recent year, it reported the following activities: Net income …………………………………………………………………….$ 5,135 Purchase of property, plant, and equipment ……………………….1,071 Borrowings unde
> Answer the questions below. Treat each case as being independent from the other cases. Case A: The charter for Rogers, Incorporated, authorized the following stock: Common stock, $10 par value, 103,000 shares authorized Preferred stock, 9 percent, $8 par
> A recent annual report for PepsiCo contained the following information for the period (dollars in millions): Net income …………………………………………………………….$6,462 Depreciation and amortization …………………………………...2,737 Increase in accounts receivable ……………………………………666 I
> During the period, Sanchez Company sold some excess equipment at a loss. The following information was collected from the company’s accounting records: From the Income Statement Depreciation expense …………………………….$ 1,500 Loss on sale of equipment ………………………
> During two recent years Perez Construction, Inc., disposed of the following plant and equipment: Required: 1. Determine the cash flow from the sale of property for each year that would be reported in the investing activities section of the cash flow sta
> Time Warner Inc. is a leading media and entertainment company with businesses in television networks, filmed entertainment, and publishing. The company’s recent annual report contained the following information (dollars in millions): Net loss………………………………
> Rodriguez Company completed its income statement and comparative balance sheet for the current year and provided the following information: In addition, Rodriguez bought a small service machine for $5,000. Required: 1. Present the operating activities s
> To compare statement of cash flows reporting under the direct and indirect methods, enter check marks to indicate which items are used with each method. STATEMENT OF CASH FLOWS METHOD Cash Flows (and Related Changes) Direct Indirect 1. Accounts payab
> Hewlett-Packard is a leading manufacturer of computer equipment for the business and home markets. For each of the following recent transactions, indicate whether net cash inflows (outflows) from operating activities (NCFO), investing activities (NCFI),
> Stanley Furniture Company is a Virginia-based furniture manufacturer. For each of the following firstyear transactions, indicate whether net cash inflows (outflows) from operating activities (NCFO), investing activities (NCFI), or financing activities (N
> Woolworths Limited is one of the largest retailers in Australia and New Zealand. Some of the items included in its recent annual consolidated statement of cash flows presented using the direct method are listed here. Indicate whether each item is disclos
> EMC Corporation helps store, manage, protect, analyze, and secure information for companies that use cloud computing. Some of the items included in its recent annual consolidated statement of cash flows presented using the direct method are listed here.
> Diageo is a major international company located in London, best known for its Smirnoff, Johnnie Walker, and Guinness brands of spirits. Its financial statements are accounted for under IFRS. A recent annual report contained the following information conc
> Reebok International Ltd. is a global company that designs and markets sports and fitness products, including footwear, apparel, and accessories. Some of the items included in its recent annual consolidated statement of cash flows presented using the ind
> Golf Universe is a regional and online golf equipment retailer. The company reported the following for the current year: Purchased a long-term investment for cash, $15,000. Paid cash dividend, $12,000. Sold equipment for $6,000 cash (cost, $21,000; accum
> Presented in alphabetical order below are the line items including the subtotals and totals from Pool Corporation’s recent statement of cash flows prepared using the indirect method. Using these line items, prepare Pool Corporation&acir
> Carlyle Golf, Inc., was formed in September of last year. The company designs, contracts for the manufacture of, and markets a line of men’s golf apparel. A portion of the statement of cash flows for Carlyle follows: CURRENT YEAR Cash flows from operatin
> Rocky Mountain Chocolate Factory manufactures an extensive line of premium chocolate candies for sale at its franchised and company-owned stores in malls throughout the United States. Its balance sheet for the first quarter of a recent year is presented
> In a February 19, 2004, press release, the Securities and Exchange Commission described a number of fraudulent transactions that Enron executives concocted in an effort to meet the company’s financial targets. One particularly well-known scheme is called
> Refer to the financial statements of American Eagle Outfitters in Appendix B and Urban Outfitters in Appendix C. Financial statements of American Eagle: Financial statements of Urban Outfitters: Required: 1. Compute the quality of income ratio for both
> Refer to the financial statements of Urban Outfitters in Appendix C at the end of this book Financial statements of Urban Outfitters: Required: 1. Does Urban Outfitters use the direct or indirect method to report cash flows from operating activities? 2
> Refer to the financial statements of American Eagle Outfitters in Appendix B at the end of this book. Financial Statement of American Eagle Outfitters: Required: 1. On the statement of cash flows, what was the largest item (in absolute value) listed und
> Use the information concerning Ingersol Construction Supply Company provided in Alternate Problem 1 to fulfill the following requirements. Data from Problem 1: Ingersol Construction Supply Company is developing its annual financial statements at Decembe
> On January 1 of the current year, Sheena Company purchased 30 percent of the outstanding common stock of Maryn Corporation at a total cost of $485,000. Management intends to hold the stock for the long term. On the current year’s December 31 balance shee
> Coke and Pepsi are well-known international brands. Coca-Cola sells more than $46 billion worth of products each year while annual sales of PepsiCo products exceed $67 billion. Compare the two companies as a potential investment based on the following ra
> Canada weathered the global financial crisis and recession better than many of its peers, principally as a result of the better policies and regulations already in place. Canada was in a much stronger position going into the recession thanks to its low a
> Suppose that capital income taxes are based (as they are in Canada and most countries) on nominal interest rates. If the inflation rate increases by 5 percent a year, explain and use appropriate graphs to illustrate the effect of the rise in inflation on
> Suppose that investment is $160 billion, saving is $140 billion, government expenditure on goods and services is $150 billion, exports are $200 billion, and imports are $250 billion. a. Is the government’s budget exerting a positive or negative impact on
> Suppose that investment is $160 billion, saving is $140 billion, government expenditure on goods and services is $150 billion, exports are $200 billion, and imports are $250 billion. What is the amount of tax revenue? What is the government budget balanc
> Eurozone unemployment rose to 10.7 percent. At the same time, Eurozone inflation unexpectedly rose to 2.7 percent a year, up from the previous month’s 2.6 percent a year. a. How does the Phillips curve model account for a very high unemployment rate? b.
> Suppose that the velocity of circulation of money is constant and real GDP is growing at 3 percent a year. a. To achieve an inflation target of 2 percent a year, at what rate would the central bank grow the quantity of money? b. At what growth rate of th
> The economy starts out on the curves labelled AD0 and SAS0 Some events occur and the economy is expected to experience inflation.What might those events have been? Describe their initial effects and what happens as an expected inflation proceeds. L
> The economy starts out on the curves labelled AD0 and SAS0. Some events occur and the economy experiences a cost-push inflation. What might those events have been? Describe their initial effects and explain how a cost-push inflation spiral develops.
> The economy starts out on the curves labelled AD0 and SAS0. Some events occur and the economy experiences a demand-pull inflation. What might those events have been? Describe their initial effects and explain how a demand-pull inflation spiral results.
> On top of rising energy prices, a severe drought, bad harvests, and a poor monsoon season in Asia have sent grain prices soaring. Globally, this is the third major food price shock in five years. Explain what type of inflation the news clip is describing
> How can deflation be ended?
> What is the cause of the high unemployment rate? One side says there is not enough government spending. The other says it’s a structural problem—people who can’t move to take new jobs because they are tied down to burdensome mortgages or firms that can’t
> If the expected inflation rate increases by 10 percentage points, how do the short-run Phillips curve and the long-run Phillips curve change?
> How would you use the Phillips curve to illustrate an unexpected change in inflation?
> The pace of German economic growth has weakened “markedly,” but the reason is the weaker global prospects. Although German policymakers worry about the country’s exposure to a fall in demand for its export goods, evidence is growing that the recovery is
> Answer the following questions. a. What are the macroeconomic problems in the Eurozone economy that the ECB is seeking to address? b. Is the European unemployment problem structural, cyclical, or both, and how can we determine its type? c. Explain which
> Despite higher-than-forecast inflation, Bank of Canada Governor Mark Carney said he may keep interest rates low beyond when full output is restored as the domestic recovery is hobbled by a weak economy in the United States, the nation’s biggest trade par
> The Reserve Bank of New Zealand signed an agreement with the New Zealand government in which the Bank agreed to maintain inflation inside a low target range. Failure to achieve the target would result in the governor of the Bank losing his job. Explain h
> The Reserve Bank of New Zealand signed an agreement with the New Zealand government in which the Bank agreed to maintain inflation inside a low target range. Failure to achieve the target would result in the governor of the Bank losing his job. Explain h
> An economy has an unemployment rate of 4 percent and an inflation rate of 5 percent a year at point A in the figure. Then some events occur that move the economy from A to B to D to C and back to A. In the graph, draw the sequence of the economyâ&
> What causes deflation?
> An economy has an unemployment rate of 4 percent and an inflation rate of 5 percent a year at point A in the figure. Then some events occur that move the economy from A to B to D to C and back to A. Describe the events that could create this sequence. H
> The United States is planning to push Europe towards new and more aggressive efforts to boost aggregate demand given a renewed risk of deflation in the Eurozone. a. Explain the process by which deflation occurs. b. How might Europe boost its aggregate de
> What are the consequences of deflation?
> John H. Cochrane, a professor of finance at the University of Chicago, thinks we face the risk of inflation, and if inflation does break out the Fed will not have the ability to stop it and it will “bring stagnation rather than prosperity.” The source of
> For most of the last century, wages and productivity— the key measure of the economy’s efficiency— have risen together, increasing rapidly through the 1950s and ’60s and far more slowly in the 1970s and ’80s. But in recent years, the productivity gains h
> Suppose that the Canadian business cycle is best described by RBC theory and that a new technology increases productivity. Explain the when-to-work decision when technology advances.
> Suppose that the Canadian business cycle is best described by RBC theory and that a new technology increases productivity. Draw a graph to show the effect of the new technology in the labour market.
> Suppose that the Canadian business cycle is best described by RBC theory and that a new technology increases productivity. Draw a graph to show the effect of the new technology in the market for loanable funds.
> How does the quantity theory of money help us to understand the process of deflation?
> How do real GDP and the price level change if the forecast of inflation is incorrect?
> What is deflation?
> How does expected inflation occur?
> What are the main criticisms of RBC theory and how do its supporters defend it?
> According to RBC theory, how does a fall in productivity growth influence investment demand, the market for loanable funds, the real interest rate, the demand for labour, the supply of labour, employment, and the real wage rate?
> What must happen to create a demand-pull inflation spiral?
> What are the four special forms of the mainstream theory of the business cycle and how do they differ?
> Explain the mainstream theory of the business cycle.
> Use the information on the Noth American wholesale market for roses in Problem 1. Who gains and who loses from this import quota? Information from Problem 1 is as follows: Wholesalers buy and sell roses in containers that hold 120 stems. The table prov
> Use the information on the Noth American wholesale market for roses in Problem 1 If an import quota of 5 million containers is imposed on roses, what happens to the North American price of roses, the quantity of roses bought, the quantity produced in Nor
> Use the information on the Noth American wholesale market for roses in Problem 1. Who gains and who loses from this tariff? Information from Problem 1 is as follows: Wholesalers buy and sell roses in containers that hold 120 stems. The table provides da
> What is offshore outsourcing? Who benefits from it and who loses?
> How does cost-push inflation begin?
> Explain the effects of an import quota on domestic production, consumption, and price.
> Explain the effects of a tariff on domestic production, the quantity bought, and the price.
> What are the tools that a country can use to restrict international trade?
> How is the gain from exports distributed between consumers and domestic producers?
> How is the gain from imports distributed between consumers and domestic producers?
> With free trade between Australia and Canada, Australia would export beef to Canada. But Canada imposes an import quota on Australian beef. Explain who in Canada gains from the quota on beef imports and who loses.
> With free trade between Australia and Canada, Australia would export beef to Canada. But Canada imposes an import quota on Australian beef. Explain how this quota influences the price that Canadian consumers pay for beef, the quantity of beef produced in
> Suppose that in response to huge job losses in the Canadian textile industry, the Canadian government imposes a 100 percent tariff on imports of textiles from China. Explain how the Canadian and Chinese gains from trade will change. Who in Canada will lo
> Suppose that in response to huge job losses in the Canadian textile industry, the Canadian government imposes a 100 percent tariff on imports of textiles from China. Explain how the tariff on textiles will change the price that Canadian buyers pay for te
> Suppose that in 2014 tomato growers in Ontario lobby the Canadian government to impose an import quota on Mexican tomatoes. Explain who in Canada would gain and who would lose from such an import quota.
> What is stagflation and why does cost-push inflation cause stagflation?
> Before 1995, trade between Canada and Mexico was subject to tariffs. In 1995, Mexico joined NAFTA and all Canadian and Mexican tariffs have gradually been removed. Explain how the quantity of Canadian exports to Mexico and the Canadian government’s tarif
> A semiconductor is a key component in your laptop, cellphone, and iPod. The table provides information about the market for semiconductors in Canada. Producers of semiconductors can get $18 a unit on the world market. a. With no international trade, wha
> What does the Bank of Canada do to determine whether the overnight loans rate should be raised, lowered, or left unchanged?
> If the Bank of Canada started to raise the overnight loans rate in 2015, explain the process by which this policy action would change real GDP.
> With low interest rates, business investment and trade are expected to bring growth through 2016. What actions might the Bank of Canada take to stimulate business investment further?
> With low interest rates, business investment and trade are expected to bring growth through 2016. Explain the effects of business investment on aggregate demand. Would you expect it to have a multiplier effect? Why or why not?
> Why was the U.S. recovery from the 2008–2009 recession so slow?
> What are the policy actions taken by central banks in response to the financial crisis?
> What are the three ingredients of a financial and banking crisis?
> How is the overnight rate determined in the market for bank reserves?
> What must happen to create a cost-push inflation spiral?
> What is the Bank of Canada’s record in achieving its inflation-control target?
> Inflation targeting promotes well-anchored inflation expectations, which facilitates more effective stabilization of output and employment. Thus inflation targeting can deliver good results with respect to output and employment as well as inflation. Expl
> What are the two parts of the inflation-control target?
