Essentials of Economics 9th Edition Schiller Solutions Manual

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  Chapter 02 - The U.S. Economy 2-1 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.  ANSWERS TO QUESTIONS FOR DISCUSSION AND PROBLEMS   QUESTIONS FOR DISCUSSION 1.    Americans already enjoy living standards that far exceed world averages. Do we have enough? Should we even try to produce more? LO: 2 AACSB: Ethics BT: Create The reality of human nature is that needs are culturally conditioned. There is never enough. Just to maintain living standards as population grows will require more output. 2. Why do we measure output in value terms rather than in physical terms? For that matter why do we bother to measure output at all? LO: 1 AACSB: Analytic BT: Analyze Our economy produces thousands of different items, ranging from paper clips to sophisticated electronic equipment. Value estimates are a common denominator for measuring all of these different things. In addition, in our complex and decentralized market economy, it is impossible to account for every item of output  produced. Sales records are more available for estimates of value than are output numbers across the economy. Measures of output provide benchmarks that show if growth is occurring and at what rate. 3. Why do people suggest that the United States needs to devote more resources to investment goods? Why not produce just consumption goods? LO: 3 AACSB: Reflective Thinking BT: Analyze  Investment goods are capital goods such as machines and factories that help us  produce more output. If we concentrated on only consumption goods, we would be unable to replace our machines as they wore out or to expand our productive capacity by producing more, and more efficient, machines. 4. The U.S. farm population has shrunk by over 25 million people since 1900. Where did they all go? Why did they move? LO: 4 AACSB: Analytic BT: Analyze They went to the cities to become factory workers and service workers because there were jobs available for them in those sectors of the economy. There were  fewer and fewer jobs in the agricultural sector because of the advances of technology in that sector. 5. Rich people have over 15 times as much income as poor people. Is that fair? How should output be distributed? Full file at https://testbankuniv.eu/Essentials-of-Economics-9th-Edition-Schiller-Solutions-Manual Full file at https://testbankuniv.eu/Essentials-of-Economics-9th-Edition-Schiller-Solutions-Manual  Chapter 02 - The U.S. Economy 2-2 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. LO: 5 AACSB: Ethics BT: Create  Fair is generally considered to be a relative term. On an individual basis, many would consider it ‘fair’ if they personally received more or if someone  else received less. In a market economy, the distribution of output (and therefore income) is determined primarily by the laws of supply and demand. This often results in an unequal distribution. However, in order to make sure that the distribution is not so unequal that we have people literally starving to death in the streets, the government steps in and lessens the degree of inequality through various programs and tax policies. Thus, at some point, fairness does become less subjective and more objective when the inequality causes lives being put at risk, which, once recognized, results in a redistribution of income.  6. If taxes were more progressive, would total output be affected? LO: 5 AACSB: Analytic BT: Analyze Taxes create a disincentive to engage in any activity that is being taxed. If taxes were more progressive, people who face the higher taxes would have less incentive to work. As a result, total output would decline. 7. Why might income inequalities diminish as an economy develops? LO: 5 AACSB: Analytic BT: Analyze  As an economy develops, more jobs become available and thus more people will work and earn incomes. There will also be more capital available and therefore labor productivity –  and income of workers –  will rise. Although incomes will not likely be equalized, on average there should be, and generally is, less income disparity. 8. Why is per capita GDP so much higher in the United States than in Mexico? LO: 3 AACSB: Analytic BT: Analyze  Per capita GDP in the U.S. was $49,000 in 2012, almost five times the world average, and more than three times  Mexico’s  per capita GDP. Thus, the average U.S. worker produces about three times as much, when measured in dollars, as the average Mexican worker. This is largely caused by the higher productivity capabilities of the U.S. workers resulting from more education, better technology and management practices. 9. Do we need more or less government intervention to decide WHAT, HOW, and FOR  WHOM? Give specific examples. LO: 4 AACSB: Reflective Thinking BT: Create Full file at https://testbankuniv.eu/Essentials-of-Economics-9th-Edition-Schiller-Solutions-Manual Full file at https://testbankuniv.eu/Essentials-of-Economics-9th-Edition-Schiller-Solutions-Manual  Chapter 02 - The U.S. Economy 2-3 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.  It really depends on the type of goods and services society would like to see  provided. Some products such as clean water and clean air are not usually  provided well by private markets and more government intervention might be desired. Other products such as computers, food, etc., are usually best provided by markets and less government intervention might be desired.  10. POLICY PERSPECTIVES  What can poor nations do to raise their living standards? LO: 3 AACSB: Reflective Thinking BT: Create This is a complicated issue. A few of the things that poor nations can do to raise their living standards include increasing their investment/consumption ratio, investing in human capital, and reducing illiteracy. Many believe that poor nations will need the assistance of the rich nations of the world to achieve this goal.   PROBLEMS   1. Draw a production-possibilities curve with consumer goods on one axis and investment goods on the other axis. (a) Identify the opportunity cost of increasing investment from I 1  to I 2 . (b) What will happen to future production possibilities if investment increases now? (c) What will happen to future production possibilities if only consumer goods are produced now?  Answers:   (a)   the reduced consumer goods of C 1  to C 2   (b) production possibilities will increase, shifting the ppc to the right   (c) production possibilities will decrease, shifting the ppc to the left   Full file at https://testbankuniv.eu/Essentials-of-Economics-9th-Edition-Schiller-Solutions-Manual Full file at https://testbankuniv.eu/Essentials-of-Economics-9th-Edition-Schiller-Solutions-Manual  Chapter 02 - The U.S. Economy 2-4 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Explanation: (a) The opportunity cost of increasing investment is the loss of consumer goods. Specifically, when investment increases from I 1  to I 2 consumption goods decrease from C 1  to C 2 .   (b) Investment goods include the plant, machinery, and equipment that are produced for use in the business sector. If investment increases it will improve our stock of capital, and will expand our production possibilities, shifting our curve to the right. (c) Consumer goods include everything consumers buy. If only consumer goods are produced, equipment and factories (for example) will not be replaced and production possibilities will diminish leading to a shift to the left in the curve.   LO 02-01 Topic: What America Produces  AACSB: Analytic Blooms: Level 4 Analyze 2.   Suppose the following data describe output in two different years: Item Year 1 Year 2  Apples 20,000 @ $0.25 each 30,000 @ $0.30 each Bicycles 700 @ $800 each 650 @ $900 each Movie rentals 10,000 @ $1.00 each 12,000 @ $1.50 each (a) Compute nominal GDP in each year. (b) By what percentage did nominal GDP increase between Year 1 and Year 2? (c) Now compute real GDP in Year 2 by using the prices of Year 1. (d) By what percentage did real GDP increase between Year 1 and Year 2?  Answers: (a) Year 1 = $575,000 Year 2 = $612,000 (b) 6% (c) $539,000 (d) 6%  Explanation: (a) Nominal GDP is the value of output measured in current prices. In Year 1 nominal GDP is $575,000 (= (20,000 x $0.25) + (700 x $800) + (10,000 x $1.00)). In Year 2 nominal GDP is $612,000 (= (30,000 x $0.30) + (650 x $900) + (12,000 x $1.50)). (b) Nominal GDP increased from $575,000 to $612,000, or 6% (= ($612,000 - $575,000) / $575,000). (c) Real GDP is the value of output measured in constant prices, or in this case the prices of Year 1. Real GDP in Year 2 is $539,500 (= (30,000 x $0.25) + (650 x $800) + (12,000 x $1.00)). (d) Real GDP decreased from $575,000 in Year 1 to $539,500 in Year 2, this is a decrease of 6% (= ($539,500 - $575,000) / $575,000).   Full file at https://testbankuniv.eu/Essentials-of-Economics-9th-Edition-Schiller-Solutions-Manual Full file at https://testbankuniv.eu/Essentials-of-Economics-9th-Edition-Schiller-Solutions-Manual
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