Problem : Why do lenders require borrowers to pay interest?
Lenders require borrowers to pay interest for three reasons. First, when a person lends
money, he or she is unable to use this money to fund purchases. Second, the borrower
may default on the loa
The consumer price index or CPI is a more direct measure than per capita GDP of the
standard of living in a country. It is based on the overall cost of a fixed basket of goods and
services bought by a typical consumer, relative to price of the same basket
January 14, 2013
Problem Set for Chapter 1
1. Opportunity costs:
a. Instead of taking a full-time job and going to college instead, you lose lots of
money. You have to pay the amount of money it costs to attend the
Problem : Describe the basic functions of money.
There are four basic functions of money. First, money is a medium of exchange. Buyers
use a medium of exchange to compensate sellers in exchange for goods and services.
Second, money is a unit of account. A
Unemployment is a macroeconomic phenomenon that directly affects people. When a
member of a family is unemployed, the family feels it in lost income and a reduced standard
of living. There is little in the realm of macroeconomics more feared by the averag
The Gross Domestic Product measures the value of economic activity within a country.
Strictly defined, GDP is the sum of the market values, or prices, of all final goods and
services produced in an economy during a period of time. There are, however, thre
Problem : How do we calculate the nominal exchange rate?
To calculate the nominal exchange rate, determine the amount of foreign currency that
can be calculated for one unit of domestic currency.
Problem : How do we calculate the real exchange rate?
February 20, 2013
Ch. 7 & 8 Problem Set
1. GDP, GPI, N, or B?
b. GPI (B) both because GDP is included in GPI
d. N (GPI if she benefits from it since stocks are not in the market)
2. GDP Chart
a. Total co
February 13, 2013
Chapter 6 & 7 Problem Set
1. This is the paradox of thrift. It is good for an individual to increase saving, but if
everyone does, it will reduce the total spending in the circular flow, which can
Things cost more today than they used to. In the 1920's, a loaf of bread cost about a nickel.
Today it costs more than $1.50. In general, over the past 300 years in the United States the
overall level of prices has risen from year to year. This phenomenon