1. chapter: ©2009  Worth Publishers >> Krugman/Wells Macroeconomics: The Big Picture 6 CHECK YOUR UNDERSTANDING

2. Check Your Understanding 6-1 Question 1 Which of the following questions involve microeconomics and which involve macroeconomics?

3. 1.microeconomics 2.macroeconomics 1a) Why did consumers switch to smaller cars in 2008?

4. 1.microeconomics 2.macroeconomics 1b) Why did overall consumer spending slow down in 2008?

5. 1.microeconomics 2.macroeconomics 1c) Why did the standard of living rise more rapidly in the first generation after World War II than in the second?

6. 1.microeconomics 2.macroeconomics 1d) Why have starting salaries for students with geology degrees risen sharply of late?

7. 1.microeconomics 2.macroeconomics 1e) What determines the choice between rail and road transportation?

8. 1.microeconomics 2.macroeconomics 1f) Why has salmon gotten cheaper over the past 20 years?

9. 1.microeconomics 2.macroeconomics 1g) Why did inflation fall in the 1990s?

10. NEW CHECK YOUR UNDERSTANDING Check Your Understanding 6-1 Question 1*

11. NEW CHECK YOUR UNDERSTANDING 1.changing government spending and taxes. 2.changing the money supply and interest rates. 1a*) Monetary policy involves:

12. NEW CHECK YOUR UNDERSTANDING 1.changing government spending and taxes. 2.changing the money supply and interest rates. 1a*) Fiscal policy involves:

13. Check Your Understanding 6-1 Question 2 In 2008 problems in the financial sector led to a drying up of credit around the country: homebuyers were unable to get mortgages, students were unable to get loans, car buyers were unable to get car loans, etc.

14. 1.True 2.False 2a) Drying up of credit usually has little impact on the economy beyond the financial sector.

15. 1.True 2.False 2b) If you believed the economy was self-regulating, then you would advocate decreasing taxes in response to the slump.

16. 1.True 2.False 2c) If you believed in Keynesian economics, you would advocate monetary and/or fiscal policy in response to the slump.

17. Check Your Understanding 6-2 Questions 1 and 2

18. 1. We usually talk about business cycles for the whole economy rather than as ups and downs of particular industries. 1.True 2.False

19. 2. Inflation is the most harmful effect of a recession. 1.True 2.False

20. Check Your Understanding 6-3 Questions 1 and 2

21. 1. Countries with a high population growth rate: 1.typically have low unemployment rates. 2.benefit from an increase in the work force. 3.must experience above average output growth in order to increase the standard of living. 4.experience unprecedented rises in living standards.

22. 2. Argentina used to be as rich as Canada. Because Argentina is poorer than Canada now, Argentina is poorer now than it was in the past. 1.True 2.False

23. Check Your Understanding 6-4 Question 1 Which of these sound like inflation, which sound like deflation, and which are ambiguous?

24. 1a) Gasoline prices are up 10%, food prices are down 20%, and the prices of most services are up 1-2%. 1.inflation 2.deflation 3.ambiguous

25. 1b) Gas prices have doubled, food prices are up 50%, and most services seem to be up 5 or 10%. 1.inflation 2.deflation 3.ambiguous

26. 1c) Gas prices haven’t changed, food prices are way down, and services have gotten cheaper, too. 1.inflation 2.deflation 3.ambiguous

27. Check Your Understanding 6-5 Question 1 Which of the following reflect comparative advantage, and which reflect macroeconomic forces?

28. 1a) Thanks to the discovery of huge oil sands in Alberta, Canada, it has become an exporter of oil and an importer of manufactured goods. 1.comparative advantage 2.macroeconomic forces

29. 1b) Like many consumer goods, the Apple iPod is assembled in China, although many of the components are made in other countries. 1.comparative advantage 2.macroeconomic forces

30. 1c) Since 2002, China has been running huge trade surpluses, exporting much more than it imports. 1.comparative advantage 2.macroeconomic forces

31. 1d) The United States, which had roughly balanced trade in the early 1990s, began running large trade deficits later in the decade, as the technology boom took off. 1.comparative advantage 2.macroeconomic forces