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business
micro economics

Economics 6th edition R. Glenn Hubbard - Solutions

a. Find the values for the most recent quarter and the values for the same quarter one year ago for nominal Gross Domestic Product (GDP) and Real Gross Domestic Product (GDPC1). b. Use these values to calculate the GDP price deflator for the most recent quarter and the GDP price deflator for the
a. Find the values for the most recent quarter and the same quarter one year ago for nominal Gross Domestic Product (GDP) and the GDP Implicit Price Deflator (GDPDEF) b. Use these values to calculate real GDP for the most recent quarter and for the quarter one year ago. c. Use the two real GDP
How is the unemployment rate measured? What are the three conditions someone needs to meet to be counted as unemployed?
In discussing the labor market during the recovery from the 2007-2009 recession, Federal Reserve Chair Janet Yellen noted that "the employment-to-population ratio has increased far less over the past several years than the unemployment rate alone would indicate, based on past experience." a. During
In early 2015, the employment-population ratio was increasing while the labor force participation rate remained largely unchanged. Shouldn't both of these data series move in the same direction? Briefly explain how it is possible that they didn't.
An article in the Wall Street Journal contained the following observation: "Every month, millions of workers leave the job market because of retirement, to care for children or aging parents, to pursue more education, or out of discouragement. Millions of others jump in after graduating." a. Are
An article in the Wall Street Journal noted that over a four month period in late 2014, employment in the state of Georgia "rose 1% even as the state's jobless rate climbed 1.2 percentage points." Briefly explain how the state's unemployment rate could have increased at the same time that
In his 2015 State of the Union address, President Barack Obama observed that "over the past five years, our businesses have created more than 11 million new jobs." Is it likely that the U.S. economy created only 11 million jobs during this time period? If not, what was President Obama referring to?
What are the problems in measuring the unemployment rate? In what ways does the official BLS measure of the unemployment rate understate the true degree of unemployment? In what ways does the official BLS measure overstate the true degree of unemployment?
Which groups tend to have above-average unemployment rates, and which groups tend to have below-average unemployment rates?
What does the labor force participation rate measure? Since 1950, how have the labor force participation rates of men and women changed?
What does the employment-population ratio measure? How does an unemployed person dropping out of the labor force affect the unemployment rate? How does it affect the employment-population ratio?
What is the difference between the household survey and the establishment survey? Which survey does many economists?
Fill in the blank cells in the following table of data collected in the household survey for June 2015: Working-age population Employment ....................................... 148,739,000 Unemployment Unemployment rate ............................... 5.3% Labor force Labor force participation
Homemakers are not included in the employment or labor force totals compiled in the BLS household survey. They are included in the working-age population totals. Suppose that homemakers were counted as employed and included in labor force statistics. How would that change affect the unemployment
In June 2015, the unemployment rate declined to 5.3 percent from 5.5 percent in May. The labor force participation rate also declined from May to June, from 62.9 percent to 62.6 percent. If the labor force participation rate had remained unchanged from May to June, would the unemployment rate for
What are the three types of unemployment? Which type of unemployment do you consider most likely to result in hardship for people who are unemployed? Briefly explain.
What is the relationship between frictional unemployment and job search?
What is the natural rate of unemployment? What is the relationship between the natural rate of unemployment and full employment?
Ford Motor Company employed fewer people in 2015 than it did in 1980. Is this decline in employment frictional, structural, cyclical, or some combination of these factors? What information would you need to arrive at a definite answer?
A politician makes the following argument: "The economy would operate more efficiently if frictional unemployment were eliminated. Therefore, a goal of government policy should be to reduce the frictional rate of unemployment to the lowest possible level." Briefly explain whether you agree with
BLS estimated that there were 2.7 million job "quits" in May 2015. The BLS defines a job quit as a "voluntary separation initiated by an employee." a. Economists distinguish three types of unemployment: frictional, structural, and cyclical. How would you classify unemployment caused by an increase
What effect does the payment of government unemployment insurance have on the unemployment rate? On the severity of recessions?
Discuss the effect of each of the following on the unemployment rate. a. The federal minimum wage law b. Labor unions c. Efficiency wages
Why has the unemployment rate in the United States typically been lower than the unemployment rates in Canada and the countries in Western Europe?
When Ségolène Royal was running unsuccessfully for president of France, she proposed that workers who lost their jobs would receive unemployment payments equal to 90 percent of their previous wages during their first year of unemployment. If this proposal had been enacted, what would the
Jared Bernstein, an economist at the Center on Budget and Policy Priorities, has stated: "I want to see receipt of unemployment insurance ... go up in recessions." If government unemployment insurance payments didn't go up, he explains, it "would be a sign that something's very wrong." What would
Discuss the likely effect of each of the following on the unemployment rate. a. The length of time workers are eligible to receive unemployment insurance payments doubles. b. The minimum wage is abolished. c. Most U.S. workers join labor unions. d. More companies make information about job openings
In 1914, Henry Ford increased the wage he paid workers in his car factory in Dearborn, Michigan, to $5 per day. This wage was more than twice as much as other car manufacturers were paying. Ford was quoted as saying, "The payment of five dollars a day for an eight-hour day was one of the finest
In 2015, an article on bloomberg.com noted that Walmart, Starbucks, TJ Maxx, IKEA, Gap, and several other big retailers had announced increases in the wages they were paying newly hired workers. The same article also noted that "[labor] turnover in the retail sector has been steadily rising and now
Briefly describe the three major measures of the price level.
An article in the Wall Street Journal notes that the BLS has changed the methods it uses to calculate the CPI with the result that the measured inflation rate is lower than it would have been if the BLS had still used the old methods. The article notes, "But this is not a massive conspiracy to hide
In the fall of 2015, Apple introduced a new model of its iPhone. The new model had a faster processor and a better camera than the previous model but sold for the same price. How was the CPI affected by the introduction of the new model of the iPhone?
Which price index does the government use to measure changes in the cost of living?
What potential biases exist in calculating the CPI? What steps has the Bureau of Labor Statistics taken to reduce the size of the biases?
What is the difference between the CPI and the PPI?
Briefly explain whether you agree with the following statement: "I don't believe the government price statistics. The CPI for 2014 was 237, but I know that the inflation rate couldn't have been as high as 137 percent in 2014."
An article in the Wall Street Journal asks the question "How can inflation below when everything is so expensive?" The article also notes that "the CPI shows that prices are the highest they've ever been." Is there a contradiction between a low inflation rate as measured by the CPI and the
Consider a simple economy that produces only three products: haircuts, hamburgers, and Blu-rays. Use the information in the following table to calculate the inflation rate for 2016, as measured by the CPI.
The Standard & Poor's/Case-Shiller Home Price Index is one of the leading indicators of housing price trends in the United States. The base year for the index is January 2000. The following table lists index numbers for April 2014 and April 2015 for five cities.a. In which of these five cities
Suppose the CPI of a country follows the path shown in the following figure.a. During which period did the country experience zero inflation? b. During which period did the country experience an increasing rate of inflation? c. During which period did the country experience a slowdown in inflation,
During a period of deflation, which is likely to increase faster: nominal average hourly earnings or real average hourly earnings? Briefly explain.
The Great Depression was the worst economic disaster in U.S. history in terms of declines in real GDP and increases in the unemployment rate. Use the data in the following table to calculate the percentage decline in real GDP between 1929 and 1933:
In 1924, the famous novelist F. Scott Fitzgerald wrote an article for the Saturday Evening Post titled "How to live on $36,000 a Year," in which he wondered how he and his wife had managed to spend all of that very high income without saving any of it. The CPI in 1924 was 17, and the CPI in 2014
Use the information in the following table to determine the percentage changes in the U.S. and French real minimum wages between 1957 and 2014. Does it matter for your answer that you have not been told the base year for the U.S. CPI or the French CPI? Was the percentage increase in the price level
In an article in the Wall Street Journal, a professor of financial planning noted the effect of rising prices on purchasing power: "Today, $2,000 a month seems reasonable [as an income for a retired person in addition to the person's Social Security payments], but 40 years from now that's going to
The table on the next page shows the top 10 films of all time through July 2015, measured by box office receipts in the United States, as well as several other notable films farther down the list.The CPI in 2015 was 238. Use this information and the data in the table to calculate the box office
If inflation is expected to increase, what will happen to the nominal interest rate? Briefly explain.
The chapter states that it is impossible to know whether a particular nominal interest rate is "high" or "low." Briefly explain why.
If the economy is experiencing deflation, will the nominal interest rate be higher or lower than the real interest rate?
The following appeared in a news article: "Inflation in the Lehigh Valley during the first quarter of ... [the year] was less than half the national rate. ... So, unlike much of the nation, the fear here is deflation-when prices sink so low the CPI drops below zero." Do you agree with the
Suppose you were borrowing money to buy a car. a. Which of these situations would you prefer: The interest rate on your car loan is 20 percent and the inflation rate is 19 percent, or the interest rate on your car loan is 5 percent and the inflation rate is 2 percent? Briefly explain. b. Now
In June 2014, the nominal interest rate on a one-year Treasury bill was 0.10 percent. From June 2014 to June 2015, the consumer price index rose from 237.3 to 237.8. If you bought the one-year Treasury bill in May 2014, calculate the real interest rate you earned over the following 12-month period.
Describing the situation in England in 1920, the historian Robert Skidelsky wrote the following: "Who would not borrow at 4 percent a year, with prices going up 4 percent a month?" What was the real interest rate paid by borrowers in this situation?
Suppose that the only good you purchase is hamburgers, and that at the beginning of the year, the price of a hamburger is $2.00. Suppose you lend $1,000 for one year at an interest rate of 5 percent. At the end of the year, a hamburger costs $2.08. What is the real rate of interest you earned on
Why do nominal incomes generally increase with inflation? If nominal incomes increase with inflation, does inflation reduce the purchasing power of an average consumer? Briefly explain.
During the late nineteenth century in the United States, many farmers borrowed heavily to buy land. During most of the period between 1870 and the mid-1890s, the United States experienced mild deflation: The price level declined each year. Many farmers engaged in political protests during these
How can inflation affect the distribution of income?
Which is a greater problem: anticipated inflation or unanticipated inflation? Briefly explain.
What are menu costs? What effect has the Internet had on the size of menu costs?
Suppose that the inflation rate turns out to be much higher than most people expected. In that case, would you rather have been a borrower or a lender? Briefly explain.
Suppose James and Frank both retire this year. For income during retirement, James will rely on a pension from his company that pays him a fixed $2,500 per month for as long as he lives. James hasn't saved anything for retirement. Frank has no pension but has saved a considerable amount, which he
Suppose that Apple and the investors buying the firm's bonds both expect a 2 percent inflation rate for the year. Given this expectation, suppose the nominal interest rate on the bonds is 6 percent and the real interest rate is 4 percent. Suppose that a year after the investors purchase the bonds,
During the spring of 2015, the United Kingdom experienced a brief period of deflation. According to an article in the Wall Street Journal, "The U.K.'s history of sticky and hard-to-control inflation suggests that a short period of falling prices will be taken as a reprieve for consumers, not as a
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/fred2/). a. Find values for the most recent month and for the same month one year earlier for the Consumer Price Index (CPIAUCSL). b. Use the values you found in part (a) to calculate the inflation rate for
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/fred2/). a. Find the most recent values for the 3-Month Treasury Bill: Secondary Market Rate (TB3MS) and the University of Michigan Inflation Expectation (MICH). b. Using the data you found in part (a),
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/fred2/). a. Find the values for the most recent month and for the month one year earlier for the Consumer Price Index for All Urban Consumers: All Items (CPIAUCNS) and Average Hourly Earnings of Production
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/fred2/).a. Locate the data for the Consumer Price Index (CPIAUCSL). Click on the "Download Data" link on the left of the page. Change the beginning date to six years prior to the most recent observation. You
In addition to the usual CPI, the BLS also calculates a CPI that does not include the prices of food and energy. Because the prices of food and energy tend to fluctuate more than other prices, some economists believe that omitting them provides a better measure of the long-run inflation rate. Go to
Calculating inflation rates for categories of goods and services in the CPI market basket (see page 673) can provide insight into inflation in different sectors of the economy. Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/fred2/). a. Find the most
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/fred2/). a. Find the most recent values for these three variables: (1) Unemployed (UNEMPLOY), (2) Civilian Labor Force (CLF16OV), and (3) Employment Level - Part Time for Economic Reasons, Slack Work or
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/fred2/). a. Find the most recent values for these four variables: (1) Unemployment Level - Men (LNS13000001), (2) Unemployment Level - Women (LNS13000002), (3) Civilian Labor Force Level - Men (LNS11000001),
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/fred2/). a. Find the most recent values for these three variables: (1) Unemployed (UNEMPLOY), (2) Civilian Employment (CE16OV), and (3) Not in Labor Force (LNS15000000). b. Using the values you found in part
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/fred2/). a. Find the value for the most recent month and for the same month two years earlier for the Civilian Unemployment Rate (UNRATE) and the Natural Rate of Unemployment (NROU). b. Using the values you
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/fred2/). a. Find the most recent values for these three variables: (1) Unemployed (UNEMPLOY), Civilian Employment (CE16OV), (2) Employment Level - Part-Time for Economic Reasons, All Industries
Briefly compare the severity of recessions before and after 1950. What explanations have economists offered for the period of relative macroeconomic stability from 1950 to 2007?
Briefly explain whether production of each of the following goods is likely to fluctuate more or less than real GDP does during the business cycle. a. Ford F-150 trucks b. McDonald's Big Macs c. Corning's screens for 4K televisions d. Huggies diapers e. Boeing passenger aircraft
The National Bureau of Economic Research, a private group, is responsible for declaring when recessions begin and end in the United States. Can you think of reasons the Bureau of Economic Analysis, part of the federal government, might not want to take on this responsibility?
As we have seen, some firms prosper by expanding during recessions. What risks do firms take when they pursue this strategy? Are there circumstances in particular industries that might cause firms to be more cautious during a recession? Briefly explain.
An article in the Wall Street Journal noted that at the end of 2014, "U.S. families' debt burdens have settled at their lowest level in over a decade." Does this information indicate that the U.S. economy was close to the end of an economic expansion in late 2014? Briefly explain.
Briefly explain whether you agree with this statement: "Real GDP in 2014 was $16.1 trillion. This value is a large number. Therefore, economic growth must have been high during 2014."
In its annual report for 2009, Corning noted declines in sales for most of its products. But it also said that these declines were "offset somewhat by an increase in sales of Gorilla glass, a protective cover glass that is optimized for portable display devices. Sales of Gorilla glass have
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/fred2/). a. Find the values for the most recent quarter for the following three variables: (1) Nominal Gross Domestic Product (GDP), (2) Real Gross Domestic Product (GDPC1), and (3) Real Potential Gross
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/fred2/).a. Find the most recent values and the values from the same quarter three years earlier for Gross Private Saving (GPSAVE) and Gross Government Saving (GGSAVE).b. Using the values found in part (a),
Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (research.stlouisfed.org/fred2/). a. Find the most recent value and the value from the same quarter four years earlier for Gross Government Saving (GGSAVE). b. Total saving in the economy is composed of private saving and government
By how much did real GDP per capita increase in the United States between 1900 and 2014? Discuss whether the increase in real GDP per capita is likely to be greater or smaller than the true increase in living standards.
The business consulting firm McKinsey & Company released a report on world economic growth that contained the observation "productivity needs to drive growth." Is it likely that McKinsey was referring to growth in real GDP or growth in real GDP per capita? Do you agree with this observation?
An article in the Wall Street Journal notes that "raising productivity in the long run is the most effective way to elevate standards of living." Do you agree? Briefly explain.
An article in the Economist notes, "For 60 years, from 1770 to 1830, growth in British wages, adjusted for inflation, was imperceptible because productivity growth was restricted to a few industries." Not until the late nineteenth, when productivity "gains had spread across the whole economy," did
Amartya Sen, a professor of economics at Harvard University and a Nobel Laureate, has argued, "For India to match China in its range of manufacturing capacity ... it needs a better-educated and healthier labor force at all levels of society." What role do education and health care play in economic
India's labor force has been gradually shifting out of the low-productivity agricultural sector into the higher-productivity service and industrial sectors. a. Briefly explain how this shift is affecting India's real GDP per capita. b. Is this shift likely to result in continuing increases in
What is the rule of 70? If real GDP per capita grows at a rate of 5 percent per year, how many years will it take to double?
Briefly discuss whether you would rather live in the United States of 1900 with an income of $1,000,000 per year or the United States of 2016 with an income of $50,000 per year. Assume that the incomes for both years are measured in 2016 dollars.
Based on what you read about economic growth in this chapter, discuss the importance of growth in GDP, particularly real GDP per capita, to the quality of life of a country's citizens.
Think about the relationship between economic prosperity and life expectancy. What implications does this relationship have for the size of an economy's health care sector? In particular, is this sector of the U.S. economy likely to expand or contract in coming years?
Use the following table to answer the questions.Year ___________________ Real GDP (billions of 2009 dollars)1990 ..............................................$8,9551991 ..............................................8,9481992 ..............................................9,2671993
As discussed in this chapter, real GDP per capita in the United States grew from about $6,000 in 1900 to about $50,010 in 2014, which represents an average annual growth rate of 1.9 percent. If the U.S. economy continues to grow at this rate, how many years will it take for real GDP per capita to
Match each of the following scenarios with the appropriate graph of the market for loanable funds.a. An increase in the real interest rate results in only a small increase in private saving by households. b. A decrease in the real interest rate results in a substantial increase in spending on
Use the following graph to answer the questions.a. Does the shift from S1 to S2 represent an increase or a decrease in the supply of loan able funds? b. With the shift in supply, what happens to the equilibrium quantity of loan able funds? c. With the change in the equilibrium quantity of loan able
Use the following graph to answer the questions.a. With the shift in the demand curve for loan able funds, what happens to the equilibrium real interest rate and the equilibrium quantity of loan able funds? b. How can the equilibrium quantity of loan able funds increase when the real interest rate

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