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Textbook Site for: Economics , Fourth Edition John B. Taylor, Stanford University Parallel Problems Chapter 2: Observing and Explaining the Economy Identify whether the following issues are macroeconomic or microeconomic and explain why you categorized them in that way. The growth rate of real GDP. A government policy which guarantees a minimum price of agricultural goods. A tax on restaurant meals. A government policy to affect the increase in the overall price level. Identify whether the following statements are positive or normative economic statements, and explain why you categorized them in that way. "The best way to improve the economic situation would be to decrease the unemployment rate by decreasing the interest rate." "The government increased taxes in order to decrease the budget deficit and improve economic growth." "The tax on business decreased production in some industries in the short run." "The government should pursue a low-inflation policy by restraining the growth of the money supply." Interpret the following data on spending for clothing and shoes in the U.S. by filling in the table and answering the following questions. Source: Economic Report of the President, 1994. What has happened to spending on clothing and shoes in the U.S. over this thirty-year period? What has happened to spending on clothing and shoes in the U.S. as a share of GDP? How does this compare to the increase in health care spending as a share of GDP discussed in the text? What has happened to the relative price of clothing and shoes over this period? How does this compare to the increase in the relative price of health care discussed in the text? Draw a diagram like Figure 2.6 for the market for computers and give examples of capital, labor, and firms in that market. Show how there is a complete circular flow of funds and goods in the economy as a whole. What problems would arise if economists did not make ceteris paribus assumptions when making predictions? Consider an economic model of CD production. Show how to represent this model graphically, algebraically, and verbally. What is the difference between the price of gasoline and its relative price? Which information is more useful if you are interested in the change in spending on gasoline? Analyze the following statements, indicating (i) the type of correlation implied, and (ii) what would be necessary to show causation. "The relative price of rubber and the relative price of tires vary directly." "There is a direct relationship between the number of hours I study and the grade that I receive on the exam." "The sales of hot cocoa vary inversely with the temperature outside."