Figure 1.1 displays exogenous variables entering a model from which emerge endogenous variables. Yet, in the five-step process to develop an economic model, the macroeconomist specifies the endogenous variables first, then the exogenous variables
Which is the correct sequence? Explain.
Both are correct. The figure displays a model in use. The five steps describe how to develop and use a model. To develop a model, one begins with an interesting economic question. That question, that which is to be explained, is (are) the endogenous variable(s). The attempted explanation includes the suspected causes, which are the exogenous variables. The next step is to connect the exogenous causes to the endogenous effects. The model is the set of such connections. Now, to test or use the model, as displayed in Figure 1.1, the exogenous variables are set to specific values which the model uses to produce predicted values for the endogenous variables.
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Which of the following factors could lead to an upward movement along the demand curve as indicated by the arrow?
i. an increase in the U.S. interest rate ii. a decrease in the U.S. interest rate iii. an increase in the expected future U.S. exchange rate. A) i only B) ii only C) i and iii D) ii and iii E) None of the factors could lead to the upward movement illustrated by the arrow. The figure above shows demand curves for dollars in the foreign exchange market.
The underground economy — the informal sector — can be a significant drag on the economies of developing countries. Why are firms in the informal sector often less efficient than firms in the formal sector?
What will be an ideal response?
Suppose the official unemployment rate is 10 percent. We can conclude without question that
a. the same 10 percent of the people in the economy were out of work for the entire year b. one of every ten people in the labor force is currently unemployed c. the same 10 percent of the people in the labor force were out of work for the entire year d. every person in the labor force was out of work for 10 percent of the year e. 10 percent of the people in the economy were each out of work for 10 percent of the year
Price searchers can be expected to charge a price that
a. is the highest at which consumers will purchase any units. b. they expect to provide the largest possible flow of gross revenue. c. minimizes their per-unit costs of production. d. maximizes their profit.