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dynamic macroeconomics

Principle Of Macroeconomics 4th Edition FRANK; Ben Bernanke; Kate L. Antonovics; Ori Heffetz - Solutions

A Bangladeshi worker who immigrates to America is likely to find that his average labor productivity is much higher in the United States than it was at home. The worker is, of course, the same person he was when he lived in Bangladesh. How can the simple act of moving to the United States increase
Why did medieval China stagnate economically?The Sung period in China (A.D. 960–1270) was one of considerable technological sophistication; its inventions included paper, waterwheels, water clocks, gunpowder, and possibly the compass. Yet no significant industrialization occurred, and in
A new kind of wrapping paper has been invented that makes candy wrapping quicker and easier. The use of this paper increases the number of candies a person can wrap by hand by 200 per hour, and the number of candies a person can wrap by machine by 300 per hour. Using the data from Examples 5.3 and
Will the introduction of a candy-wrapping machine make Lucy and Ethel more productive?Continuing with Example 5.3, suppose that Lucy and Ethel’s boss acquires an electric candy-wrapping machine, which is designed to be operated by one worker. Using this machine, an untrained worker can wrap 500
Why did West Germany and Japan recover so successfully from the devastation of World War II?Germany and Japan sustained extensive destruction of their cities and industries during World War II and entered the postwar period impoverished. Yet within 30 years, both countries not only had been
Suppose Ethel attends additional classes in candy wrapping and learns how to wrap 500 candies per hour. Find the output per week and output per hour for Lucy and Ethel, both individually and as a team.
Suppose that real GDP per capita in the United States had grown at 2.5 percent per year, as Japan’s did, instead of the actual 1.8 percent per year, from 1870 to 2010. How much larger would real GDP per person have been in the United States in 2010?
What is the difference between 2 percent interest and 6 percent interest, compounded annually?Refer to Example 14.1. What would your ancestor’s $10.00 deposit have been worth after 200 years if the annual interest rate had been 2 percent? 6 percent?
What is compound interest?In 1820, one of your ancestors deposited $10.00 in a checking account at 4 percent interest. Interest is compounded annually (so that interest paid at the end of each year receives interest itself in later years). Your ancestor’s will specified that the account be turned
List the determinants of average labor productivity within a particular country and use these concepts to analyze per capita GDP differences across countries.
The following table lists the actual per-gallon prices for unleaded regular gasoline for June of each year between 1978 and 1986, together with the values of the CPIs for those years. For each year from 1979 to 1986, find the CPI inflation rate and the change in the real price of gasoline, both
Imagine two economies, A and B. In Economy A, technological improvements are rare, and the basket of goods and services that households consume is essentially unchanged from one year to the next. In Economy B, technology improves fast, and every year households consume goods and services that are
A recent report found that the real entry-level wage for college graduates declined by 8 percent between 1990 and 1997. The nominal entry-level wage in 1997 was $13.65 per hour. Assuming that the findings are correct, what was the nominal entry-level wage in 1990? You will need to use data from
According to the U.S. Census Bureau (www.census.gov), nominal income for the typical family of four in the United States (median income) was $23,618 in 1985, $34,076 in 1995, $46,326 in 2005, and$49,276 in 2010. In purchasing power terms, how did family income compare in each of those four years?
Here are values of the CPI (multiplied by 100) for each year from 2000 to 2010. For each year beginning with 2001, calculate the rate of inflation from the previous year. What happened to inflation rates over the 2000s? (LO5) 2000 122.7 2001 128.21 2002 132.3 2003 136.5 2004 140.2 2005 144.4 2006
Government survey takers determine that typical family expenditures each month in the year designated as the base year are as follows:25 pizzas at $10 each Rent of apartment, $600 per month Gasoline and car maintenance, $100 Cell phone service, $50 In the year following the base year, the survey
Skyler is downloading labor market data for the most recent month, but her connection is slow and so far this is all she has been able to get.Find the labor force, the working-age population, the number of employed workers, and the number of unemployed workers. (LO4) Unemployment rate Participation
The following is a report from a BLS survey taker: “There were 65 people in the houses I visited, 10 of them children under 16; 25 people had full-time jobs, and 5 had part-time jobs. There were 10 retirees, 5 full-time homemakers, 5 full-time students over age 16, and 2 people who were disabled
The nation of Potchatoonie produces hockey pucks, cases of root beer, and sandals. The following table lists prices and quantities of the three goods in the years 2017 and 2020. (LO3)Assume that 2017 is the base year. Find nominal GDP and real GDP for both years. Pucks Root Beer Sandals Year
Calculate the four components of expenditure and GDP for the following economy using data from the following table Consumption expenditures Exports Government purchases of goods and services Construction of new homes and apartments Sales of existing homes and apartments Imports Beginning-of-year
For each of the following transactions, state the effect both on U.S.GDP and on the four components of aggregate expenditure. (LO2)Your mother-in-law buys a new car from a U.S. producer.Your mother-in-law buys a new car imported from Sweden.Your mother-in-law’s car rental business buys a new car
MNLogs harvested logs (with no inputs from other companies) from its property in northern Minnesota. It sold these logs to MNLumber for $1,500, and MNLumber cut and planed the logs into lumber.MNLumber then sold the lumber for $4,000 to MNFurniture.MNFurniture used the lumber to produce 100 tables
How would each of the following transactions affect the GDP of the United States? (LO1)The U.S. government pays $1 billion in salaries for government workers.The U.S. government pays $1 billion to Social Security recipients.The U.S. government pays a U.S. firm $1 billion for newly produced airplane
George and John, stranded on an island, use clamshells for money.Last year George caught 300 fish and 5 wild boars. John grew 100 bunches of bananas. In the two-person economy that George and John set up, fish sell for 3 clamshells each, boars sell for 10 clamshells each, and bananas go for 10
“It’s true that unexpected inflation redistributes wealth, from creditors to debtors, for example. But what one side of the bargain loses, the other side gains. So from the perspective of the society as a whole, there is no real cost.” Do you agree? Discuss. (LO8)
Give two reasons the official inflation rate may understate the “true”rate of inflation. Illustrate by examples. (LO7)
Why is it important to adjust for inflation when comparing nominal quantities (for example, workers’ average wages) at different points in time? What is the basic method for adjusting for inflation? (LO6)
Explain why changes in the cost of living for any particular individual or family may differ from changes in the official cost-ofliving index, the CPI. (LO5)
What are the costs of a high unemployment rate? Do you think providing more generous government benefits to the unemployed would increase these costs, reduce these costs, or leave them unchanged? Discuss. (LO4)
Sara’s Rock Painting Stand painted 1,000 rocks last year and 1,200 rocks this year. She charged $4 per rock last year and $5 this year. If last year is taken as the base year, find Sara’s contribution to both nominal GDP and real GDP in both years. Which measure would be better to use if you
Has the price of oil risen faster or slower than the price level?Suppose the value of the CPI is 1.20 in the year 2018, 1.32 in 2019, and 1.40 in 2020. Assume also that the price of oil increases 8 percent between 2018 and 2019 and another 8 percent between 2019 and 2020. What is happening to the
In 1950, the minimum wage prescribed by federal law was $0.75 per hour.In 2019, it was $7.25 per hour. The CPI was 0.24 in 1950 and 2.56 in 2019. The minimum wage is not indexed to inflation, but suppose it had been starting in 1950. What would the nominal minimum wage have been in 2019?
How much do workers get paid when they have an indexed contract?A labor contract provides for a first-year wage of $12.00 per hour and specifies that the real wage will rise by 2 percent in the second year of the contract and by another 2 percent in the third year. The CPI is 1.00 in the first
In 2001, Barry Bonds of the San Francisco Giants hit 73 home runs, breaking the previous single-season home run record and becoming the current record holder. Bonds earned $10.3 million in 2001. In that year the CPI was 1.77. How did Bonds’s real earnings compare to Ruth’s and Strasburg’s
Who earned more, Babe Ruth or Stephen Strasburg?In 1930, the great baseball player Babe Ruth earned a salary of $80,000.When it was pointed out to him that he had earned more than President Hoover, Ruth replied, with some justification, “I had a better year than he did.” In 2019, the
CPI values for the years 2015 to 2019 are shown here. Calculate the inflation rate for each year. Year CPI 2015 2.37 2016 2.40 2017 2.45 2018 2.51 2019 2.56
Following are CPI values for the years 1929 through 1933. Find the rates of inflation between 1929 and 1930, 1930 and 1931, 1931 and 1932, and 1932 and 1933.How did inflation rates in the 1930s differ from those of the 1970s? Year CPI 1929 0.171 1930 0.167 1931 0.152 1932 0.137 1933 0.130
The consumer price index captures the cost of living for the “typical” or average family. Suppose you were to construct a personal price index to measure changes in your own cost of living over time. In general, how would you go about constructing such an index? Why might changes in your
Returning to the three-good example in Tables 4.5 and 4.6, find the year 2020 CPI if the rent on the apartment falls from $750 in 2015 to $600 in 2020. The prices for hamburgers and movie tickets in the two years remain the same as in the two tables.
Following are November 2019 BLS U.S. employment data for African Americans.Find the labor force, the working-age population, the unemployment rate, and the participation rate for African Americans and compare your results to those in Table 4.4. Employed Unemployed 19.527 million 1.135 million Not
Suppose production and prices of pizzas and calzones in 2016 and 2020 are as follows.These data are the same as those in Table 4.3, except that pizza production has tripled rather than doubled between 2016 and 2020. Find real GDP in 2020 and 2016, and calculate the growth in real output over the
How much did real GDP grow over a four-year span?Using data from Table 4.3 and assuming that 2016 is the base year, find real GDP for the years 2020 and 2016. By how much did real output grow between 2016 and 2020?
Extending Example 4.7, suppose that 25,000 of the automobiles purchased by households are imported rather than domestically produced. Domestic production remains at 1,000,000 autos valued at $15,000 each. Once again, find GDP in terms of (a) the market value of production and (b) the components of
Do we get the same GDP using two different methods?An economy produces 1,000,000 automobiles valued at $15,000 each. Of these, 700,000 are sold to consumers, 200,000 are sold to businesses, 50,000 are sold to the government, and 25,000 are sold abroad. No automobiles are imported. The automobiles
Does the sale of an existing home count in GDP?A 20-year-old house is sold to a young family for $200,000. The seller pays the real estate agent a 6 percent commission, or $12,000. What is the contribution of this transaction to GDP?
Amy’s card shop receives a shipment of Valentine’s Day cards in December 2019. Amy pays the wholesale distributor of the cards a total of$500. In February 2020 she sells the cards for a total of $700. What are the contributions of these transactions to GDP in the years 2019 and 2020?
What is an intermediate good?Farmer Brown produces $100 worth of milk. He sells $40 worth of milk to his neighbors and uses the rest to feed his pigs, which he sells to his neighbors for $120. What is Farmer Brown’s contribution to the GDP?
How do we count a haircut in GDP?Your barber charges $10 for a haircut. In turn, the barber pays his assistant$2 per haircut in return for sharpening the scissors, sweeping the floor, and other chores. For each haircut given, what is the total contribution of the barber and his assistant, taken
How has GDP been affected by women joining the labor force?The percentage of adult American women working, or seeking work, outside the home increased dramatically in the second half of the twentieth century, from less than 35 percent in 1950 to about 60 percent in 2019 (see Figure 4.1). This trend
Suppose Orchardia produces the same quantities of the three goods at the same prices as in Example 4.1. In addition, it produces five oranges at$0.30 each. What is the GDP of Orchardia now?
What is Orchardia’s new GDP?Now suppose instead that Orchardia were to produce 3 apples, 3 bananas, and 4 pairs of shoes at the same prices as in the preceding example. What is its GDP now?
What is Orchardia’s GDP?In the imaginary economy of Orchardia, total production is 4 apples and 6 bananas. To find the total output of Orchardia, we could add the number of apples to the number of bananas and conclude that total output is 10 pieces of fruit. But what if this economy also produced
Discuss the quality adjustment bias in measuring inflation.
Explain how economists define an economy’s output
Which of the following would be studied by a macroeconomist? By a microeconomist? (LO3)The worldwide operations of General Motors.The effect of government subsidies on sugar prices.Factors affecting average wages in the U.S. economy.Inflation in developing countries.The effects of tax cuts on
Which of the following statements are positive and which are normative? (LO2)If the Federal Reserve raises interest rates, demand for housing is likely to fall.The Federal Reserve should raise interest rates to keep inflation at an acceptably low level.Stock prices are likely to fall over the next
The Bureau of Economic Analysis, or BEA, is a government agency that collects a wide variety of statistics about the U.S. economy.From the BEA’s website (www.bea.gov), find data for the most recent year available on U.S. exports and imports of goods and services. Is the United States running a
Is it possible for average living standards to rise during a period in which average labor productivity is falling? Discuss, using a numerical example for illustration.(LO1)
Over the next 50 years the Japanese population is expected to decline, while the fraction of the population that is retired is expected to increase sharply. What are the implications of these population changes for total output and average living standards in Japan, assuming that average labor
Baseball statistics, such as batting averages, are calculated and reported for each individual player, for each team, and for the league as a whole. What purposes are served by doing this? Relate to the idea of aggregation in macroeconomics. (LO3)
What type of macroeconomic policy (monetary, fiscal, structural)might include each of the following actions? (LO2)A broad government initiative to reduce the country’s reliance on agriculture and promote high-technology industries.A reduction in income tax rates.Provision of additional cash to
True or false: Differences of opinion about economic policy recommendations can always be resolved by objective analysis of the issues. Explain.(LO2)
True or false: Economic growth within a particular country generally proceeds at a constant rate. Explain.(LO1)
Why is average labor productivity a particularly important economic variable? (LO1)
Generally, how does the standard of living in the United States today compare to the standard of living in other countries? To the standard of living in the United States a century ago? (LO1)
How did the experience of the Great Depression motivate the development of the field of macroeconomics? (LO1)
How can we add together Kansas grain with Hollywood movies?The United States exports a wide variety of products and services to many different countries. Kansas farmers sell grain to Russia, Silicon Valley programmers sell software to France, and Hollywood movie studios sell entertainment the world
Is crime in the United States getting better or worse?To illustrate not only why aggregation is needed, but also some of the problems associated with it, consider an issue that is only partly economic:crime. Suppose policymakers want to know whether in general the problem of crime in the United
Which of the following questions would be studied primarily by macroeconomists? By microeconomists? Explain.Does increased government spending lower the unemployment rate?Does Google’s dominance of Internet searches harm consumers?Would a school voucher program improve the quality of education in
Which of the following statements are positive and which are normative?How can you tell?A tax increase is likely to lead to lower interest rates.Congress should increase taxes to reduce the inappropriately high level of interest rates.A tax increase would be acceptable if most of the burden fell on
The Congressional Budget Office (CBO) is the government agency that is charged with projecting the federal government’s surpluses or deficits.From the CBO’s home page (www.cbo.gov), find the most recent value of the federal government’s surplus or deficit and the CBO’s projected values for
Find the most recent unemployment rates for France, Germany, Spain, and the United Kingdom, and compare them to the most recent unemployment rate for the United States. A useful source is the home page of the Organization for Economic Cooperation and Development (OECD), an organization of
By how much did unemployment increase during five recent U.S. recessions?Using monthly data on the national civilian unemployment rate, find the increase in the unemployment rate between the onset of recession in November 1973, January 1980, July 1990, January 2001, and December 2007 and the peak
How do China’s productivity and output per person compare with those of the United States?According to data from the World Bank (http://data.worldbank.org), in 2018 the value of the output of the U.S. economy was about $20,494 billion. In the same year, the estimated value of the output of the
Identify the three major types of macroeconomic policy and discuss the difference between positive and normative analyses of macroeconomic policy.
Discuss the broad issues that macroeconomists study and the types of data they use and interpret.
Find the equilibrium price and quantity in a market whose supply and demand curves are given by P = 2Qs and P = 8 − 2Qd, respectively.
If the supply and demand curves for a market are given by P =4 + 4Qs and P = 16 − 2Qd, respectively, find the equilibrium price and quantity for this market.
For each of the following statements about a market equilibrium identify whether the statement is always true, never true, or sometimes true. (LO4)A market equilibrium maximizes total economic surplus.A market equilibrium exploits all gains achievable through collective action.A market equilibrium
Predict what will happen to the equilibrium price and quantity of oranges if the following events take place. (LO3)A study finds that a daily glass of orange juice reduces the risk of heart disease.The price of grapefruit falls drastically.The wage paid to orange pickers rises.Exceptionally good
State whether the following pairs of goods are complements, or substitutes, or both. (LO3)Washing machines and dryers.Tennis rackets and tennis balls.Birthday cake and birthday candles.Cloth diapers and disposable diapers.
Indicate how you think each of the following would shift demand in the indicated market. (LO1)The incomes of buyers in the market for Adirondack vacations increase.Buyers in the market for pizza read a study linking pepperoni consumption to heart disease.Buyers in the market for gas-powered cars
How would each of the following affect the U.S. market supply curve for corn? (LO1)A new and improved crop rotation technique is discovered.The price of fertilizer falls.The government offers new tax breaks to farmers.A tornado sweeps through Iowa.
Why was there a shortage of toilet paper during the COVID-19 pandemic?During the COVID-19 pandemic many consumers in search of toilet paper arrived at their local grocery stores only to be faced with empty shelves. If prices are supposed to adjust to equate the quantity supplied and the quantity
Why do the prices of some goods, like airline tickets to Europe, go up during the months of heaviest consumption, while others, like sweet corn, go down?
How do shifts in both demand and supply affect equilibrium quantities and prices?What will happen to the equilibrium price and quantity in the corn tortilla chip market if both of the following events occur: (1) researchers prove that the oils in which tortilla chips are fried are harmful to human
What will happen to the equilibrium price and quantity of skateboards if the price of fiberglass, a substance used for making skateboards, rises?Suppose the initial supply and demand curves for skateboards are as shown by the curves S and D in Figure 2.14, resulting in an equilibrium price and
What will happen to the equilibrium price and quantity of print ads as the price of digital ads falls?
Samples of points on the demand and supply curves of a pizza market are provided in Table 2.1. Graph the demand and supply curves for this market and find its equilibrium price and quantity.The points in the table are plotted in Figure 2.6 and then joined to indicate the supply and demand curves
In Figure 2.2, what is the marginal cost of a slice of pizza when the quantity of pizza sold is 10,000 slices per day? For the same supply curve, what will be the quantity of pizza supplied at a price of $3.50 per slice?
In Figure 2.1, what is the marginal buyer’s reservation price when the quantity of pizza sold is 10,000 slices per day? For the same demand curve, what will be the quantity of pizza demanded at a price of $2.50 per slice?
Suppose you are trying to choose between two electric scooter companies.If you choose Company 1, your bill will be computed according to the equation B = 0.20 + 0.40T (Company 1), where B is again your bill in dollars and T is the length of your ride in minutes. If you choose Company 2, your bill
Suppose you are trying to choose between two electric scooter companies, each with a different pricing plan. If you choose Company 1, your charges will be computed according to the equation B = 0.50 + 0.30T, where B is again your bill in dollars and T is the length of your ride in minutes. If you
The following table shows four points from a scooter billing plan.If all points on this billing plan lie on a straight line, find the vertical intercept of the corresponding equation without graphing it. What is the fee to unlock a scooter? What is the charge per minute? How much would the charges
Show how the billing plan whose graph is in Figure 1A.2 would change if the charge per minute were reduced from 10 cents to 5 cents.Self-Test 1A.4 illustrates the general rule that in an equation Y
Show how the billing plan whose graph is in Figure 1A.2 would change if the fee to unlock a scooter were increased from$2 to $3.An increase in the fee to unlock a scooter from $2 to $3 would increase the vertical intercept of the billing plan by $1 but would leave its slope unchanged. An increase
Write the equation for the billing plan shown in the accompanying graph.How much does it cost to unlock a scooter? What is the charge per minute? B($/ride) 4.50 1.50 3 0 10 T (minutes/ride) 20 C_Scooter bill
Construct a graph that portrays the scooter billing plan described in Example 1A.1, putting your total bill, in dollars, on the vertical axis and the length of your ride, in minutes, on the horizontal axis.
Under the scooter billing plan described in Example 1A.1, how much would you owe for a 22-minute ride?
You and your friend Jamal have identical tastes. At 2 p.m., you go to the local Ticketmaster outlet and buy a nonrefundable $30 ticket to a basketball game to be played that night in Syracuse, 50 miles north of your home in Ithaca. Jamal plans to attend the same game, but because he cannot get to

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