Macroeconomics For Today 7th Edition Irvin B. Tucker - Solutions

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Use appropriate annual data for the United States to compute the time series (1948–2009) for total factor productivity (A), labor productivity, and capital productivity. (Assume that the labor share is constant at α = 0.67.)Compute the average rate of growth of each (compound annual rates). What
Consider a production function that is like the Cobb-Douglas production function except that the exponents on the factors of production need not add up to one:Y = ALαKβ(Notice that if α + β = 1, this is exactly the same as a Cobb-Douglas production function.) Show that, if α + β > 1, this
Use a diagram similar to Figure 9.4 or 9.5 to analyze the effects of a 20-percent increase in both capital and labor when production is subject to decreasing returns to scale. Particularly note the effects on labor and capital productivity.
Use a Cobb-Douglas production function for the United States, calibrated to the values of 2008 (see data in equation (9.17′)), to predict ceteris paribus the quantitative effects of a 10-percent fall in the capital stock on(i) the level of GDP; (ii) labor productivity; and (iii) capital
Imagine that Florida was an independent country and that a series of hurricanes destroyed 10 percent of its capital stock (while miraculously not harming any person). Use production function diagrams to show what this disaster would imply for (i) the level of GDP; (ii) labor productivity; and
Suppose that uncovered interest-parity holds and that the U.S.5-year Treasury bond rate is 6 percent and the 5-year Danish government bond rate is 7 percent. If the current exchange rate is 6 Danish kroner/dollar, what exchange rate should be expected to hold five years from now?
Suppose that uncovered interest-parity holds and that the euro/U.S. dollar exchange rate is expected to rise by 10 percent over a year.If the 1-year Treasury bond rate for the United States is 4 percent, what is the 1-year German government bond rate?
Use the internet to find data on the interest rates on 1-year government bonds (Treasury-bill rates or other official rates) of similar maturity for this month a year ago for the United States, Canada, Germany, Japan, and the United Kingdom (3.45), as well as the exchange rates for the currencies
Use the internet to find data on effective exchange rates for the United States (be careful to document your source). Based on this data, how much has the U.S. dollar appreciated or depreciated over the past year? Five years? Ten years?
Would either the Lexus in Problem 8.13 or the Coca-Cola in Problem 8.14 provide an adequate standard for judging overall deviations from purchasing-power parity? Could any single good provide a reasonable standard?
Suppose that the U.S./United Kingdom exchange rate is 1.64 dollars/pound sterling, and a Coca-Cola costs 50p (i.e., £0.50) in England and 75 cents in the United States. Based on this one item, by how much (percentage)is the British pound overvalued or undervalued relative to the dollar?
Suppose that a Lexus automobile costs $45,000 in the United States and ¥4,914,000 in Japan. The exchange rate is 91 yen/dollar. Based on this one item, by how much (percentage) is the Japanese yen overvalued or undervalued relative to the dollar?
The euro was introduced in 1999. Consider the following pairs of members of the European Union:(a) Germany (deutsche mark before 1999; euro thereafter) and Italy (lira before 1999; euro thereafter);(b) Germany (deutsche mark before 1999; euro thereafter) and the United Kingdom (pound sterling
Using quarterly data, create graphs testing purchasing-power parity (similar to Figure 8.4) for:(a) United States and Canada;(b) United States and Australia;(c) Australia and Canada.In each case, comment on the success or failure of the purchasing-power parity hypothesis.
Using data for United States and the United Kingdom, create a graph of the U.S./U.K. real exchange rate similar to that for the United States and Japan in Figure 8.5. Does your graph tell the same story as the graph testing U.S./U.K. purchasing-power parity in Figure 8.4? Explain in detail.
Using data for the United States and Japan, create a graph testing purchasing-power parity similar to that for the United States and United Kingdom in Figure 8.4. Does your graph tell the same story as the graph of the U.S./Japanese real exchange rate in Figure 8.5? Explain in detail.
Consider the following data:assumption that purchasing-power parity held in 2005 were true, did it hold in 2008? What evidence would be needed to convince us that the initial assumption was true?
The same paperback best-selling novel can be purchased in the Toronto airport for C$19.99 and in the Fort Lauderdale airport for US$15.99.What is the implied Canadian dollar/U.S. dollar real exchange rate?
(a) If one Indian rupee purchases 0.015 euros, what is the rupee/euro exchange rate?(b) Starting with the rupee/euro rate as in (a), if the rupee appreciates 20 percent against the euro, what is the rupee/euro exchange rate?(c) Taking the rupee/euro rate as in (a), if the rupee/dollar exchange rate
If the exchange rate between the South African rand and the U.S.dollar is 7.39 rand/dollar and the exchange rate between the Mexican peso and the U.S. dollar is 12.66 pesos/dollar, what do you expect the peso/rand exchange rate to be? Explain why it makes sense to compute the peso/rand rate based
A U.S. bank buys British pounds sterling at 1.64 dollars/pound and sells at 1.68 dollars/pound. What is its profit as a percentage of its initial outlay if it exchanges $100 for pounds and then converts the same quantity back into dollars?
A U.S. bank buys Russian rubles at 30 rubles/dollar and sells rubles at 28 rubles/dollar. What is its profit as a percentage of its initial outlay if it exchanges $100 for rubles and then sells the same quantity of rubles in exchange for dollars?
Here are some data for France in 2008: exports = $770 billion; net income from abroad = $36 billion; net transfer payments from abroad = −$35; capital payments to foreigners = $373 billion; and the capital-account balance =$64 billion. Using your knowledge of the balance of payments, find the
Refer to Table 8.2 and indicate ceteris paribus which entries in the capital account would change and by how much under the following scenarios(recall that like all T-accounts both sides must always balance):(a) The U.S. imports increase by $15 billion and the foreign recipients of these payments
what is the
9. Because they are poor countries with low GDP per capita, they lack domestic savings to invest in capital; and lacking investment, they remain poor. The rich in these poor countries often put their savings abroad because of the fear
7. Economic growth and development are complicated because there is no single prescription that a country can follow. The chapter presents a multidimensional model with fi ve basic categories:natural resources, human resources, capital, technological progress, and political environment. Because an
5. The average growth rate of GDP per capita for IACs exceeds the GDP per capita growth rate for LDCs. This evidence is consistent with the argument. The argument is oversimplifi ed because there is considerable diversity among the LDCs. In a given year, a LDC may have a GDP per capita growth rate
3.a. Based only on GDP per capita, you would conclude that Alpha is a better place to live because this country produces a greater output of goods and services per person.b. Based on the additional evidence, you would change your mind and prefer to live in Beta because the quality-of-life data
1. The difference between IACs and LDCs is based on GDP per capita. This classifi cation is somewhat arbitrary. A country with a high GDP per capita and narrow industrial development based on oil, such as the United Arab Emirates, is excluded from the IAC list. There are 27 economies listed in the
1.a. In Alpha, the opportunity cost of producing 1 ton of diamonds is 1/2 ton of pearls.In Beta, the opportunity cost of producing 1 ton of diamonds is 2 tons of pearls.b. In Alpha, the opportunity cost of producing 1 ton of pearls is 2 tons of diamonds.In Beta, the opportunity cost of producing 1
5.a. The infl ation rate is 6 percent, and the unemployment rate is 6 percent.b. The infl ation rate rises to 10 percent, and the employment rate falls in the short run
3. In the 1970s and early 1980s, the economy experienced supply shocks from skyrocketing oil and food prices. The result was a leftward shift in the aggregate supply curve and stagfl ation.
1. The Phillips curve is an inverse relationship between the infl ation rate and the unemployment rate. The increase in aggregate demand would cause the infl ation rate to increase and the unemployment rate to decrease.
9.a. Both prices and nominal wages will rise immediately, causing the infl ation rate to rise from 4 percent to 6 percent. The unemployment rate remains unchanged at the 4 percent natural rate.b. Both prices and nominal wages will rise immediately, causing the infl ation rate to rise from 6 percent
7. The economy is stimulated prior to an election, and there is a boom. After the election, the strategy is to contract the economy, causing recession until the next election approaches.Thus, political policies are counter to Keynesian policies because political policies cause the business cycle
11. Under such conditions, the Keynesian view is correct. The Fed would have no infl uence on investment because changes in the interest rate failed to alter the quantity of investment goods demanded.
9. In the Keynesian view, an increase in the money supply decreases the interest rate and causes investment spending, which increases aggregate demand through the multiplier effect and causes demand-pull infl ation. In the monetarist view, money supply growth gives people more money to spend. This
. In the monetarist view, the velocity of money, V, and the output, Q, variables in the equation of exchange are constant. Therefore, the quantity theory of money is stated as M 3 V 5 P 3 Q Given this equation, changes in the money supply, M1, yield proportionate changes in the price level, P.
5.a. The price level declines slightly. Real GDP and employment fall substantially.b. The price level, real GDP, and employment rise.c. The price level declines slightly. Real GDP and employment fall substantially.
5. There is no impact on the money supply. A check deposited in bank A, drawn on bank B, increases deposits, reserves, and lending at bank A. However, bank B experiences an equal reduction in deposits, reserves, and lending
3. Banks can and do create money by granting loans to borrowers. These loans are deposited in customers’ checking accounts, and, therefore, banks are participants in the money supply creation process.
1. At fi rst, the goldsmiths followed Shakespeare’s advice and gave receipts only for gold on deposit in their vaults. They then realized that at any given time new deposits were coming in that could offset old deposits people were drawing down. The conclusion is that banking does not require a
9. Banks that belong to the Fed must join the FDIC. Banks chartered by the states may affi liate with the FDIC. There are relatively few nonmember, noninsured state banks
7. The Fed’s most important function is to regulate the U.S. money supply. The Board of Governors is composed of seven persons who have the responsibility to supervise and control the money supply and the U.S. banking system.The Federal Open Market Committee (FOMC)controls the money supply by
5. The narrowest defi nition of money in the United States is M1. M1 5 currency (coins 1 paper bills) 1 checkable deposits.
11. This answer should be logical and supported by a thoughtful explanation. For example, the federal defi cit might be the result of a recession and you argue that the defi cit is correct fi scal policy. When the recession ends, the defi -cit will decline. Other arguments include some combinations
9. During a depression, tax hikes and/or expenditure cuts would only reduce aggregate demand and, in turn, real GDP, jobs, and income. Because the economy is operating in the Keynesian segment of the aggregate demand curve, this fi scal policy would have no impact on the price level.
7.a. In year one, the federal defi cit begins at$50 billion, and the U.S. Treasury issues$50 billion worth of bonds to fi nance the defi cit.b. The next year the federal government must pay interest of $5 billion to service the debt ($50 billion bonds 3 0.10 interest rate). Adding the interest
5. When the government makes interest payments on internally held debt, the money remains in the hands of U.S. citizens. External debt is very different. Repayment of interest and principal to foreigners withdraws pur
3. The statement makes the argument that most of the debt is internal national debt that one U.S. citizen owes to another U.S. citizen. Suppose the federal government fi nances a defi cit by having the Treasury sell government bonds to one group of U.S. citizens, thereby increasing the national
1. The national debt is the sum of past federal budget defi cits. When budget defi cits are large, the national debt increases at a rapid rate.When budget defi cits are small, the national debt increases at a lower rate.
11.a. rightward shift in the aggregate demand curveb. leftward shift in the aggregate demand curvec. rightward shift in the aggregate supply curved. rightward shift in the aggregate demand curvee. leftward shift in the aggregate supply curve
9. As a supply-side economist, you would argue that the location of the aggregate supply curve is related to the tax rates. Ceteris paribus, if the tax rates are cut, there will be strong incentives for workers to supply more work, households to save more, and businesses to invest more in capital
7. The tax multiplier equals the spending multiplier minus 1. Thus, the impact of the expansion in government spending exceeds the impact of an equal amount of tax cut.
11. Assuming the aggregate supply curve remains constant, a rightward shift of the aggregate demand curve from AD1 to AD2 in the upward-sloping or the vertical range of the aggregate supply curve causes the price level to rise
9.a. Aggregate demand increases.b. Aggregate supply increases.c. Aggregate demand decreases.d. Aggregate supply decreases.e. Aggregate demand decreases along the classical range.f. Aggregate demand increases along the Keynesian range.
7.a. leftward because of an increase in resource pricesb. rightward because of a decrease in resource pricesc. rightward because technological change reduces the cost of productiond. leftward because an increase in taxes means the price must cover the tax at each possible quantity supplied
. This statement may not be correct. The equilibrium GDP is not necessarily the same as the full-employment GDP. Equilibrium GDP refers to the equality between the aggregate demand and the aggregate supply curves, which does not necessarily equal the full capacity of the economy to produce goods
3.a. A leftward shift occurs because of a decrease in the consumption schedule.b. A rightward shift occurs because of an increase in autonomous investment spending.c. A rightward shift occurs because of an increase in government spending.d. A rightward shift occurs because of an increase in net
Rationales for the downward-sloping demand curve for an individual market are the income effect, the substitution effect, and the law of diminishing marginal utility, which are quite different from the three effects that determine the aggregate demand curve.
On the other hand, Keynes considered the volatility of businesses’ decisions to invest as a major cause of the business cycle. The potentially unstable determinants of investment spending include expectations, technological change, the stock of capital goods, and business taxes.b. The autonomous
7. Changes in the nonincome determinants of the consumption and saving schedules tend to offset each other, and people are reluctant to change their consumption and saving habits.
5.a. The consumption schedule downshifts, and the saving schedule downshifts.b. The consumption schedule upshifts, and the saving schedule downshifts.c. The consumption schedule downshifts, and the saving schedule upshifts.d. The consumption schedule downshifts, and the saving schedule
3. Consumers have only two options for any extra disposable income they receive. The MPC and MPS must add up to one because the portion of extra income that is not spent must be saved.
Unsold merchandise would force fi rms to compete and lower product prices, and unemployed workers would accept a lower wage rate.
1. Classical economists argued that underconsumption and unemployment could not exist in the long run because of price-wage fl exibility.
11. If buyers think prices will be higher tomorrow, they may buy products today and cause demandpull infl ation. If businesses believe prices for inputs will be higher in the future, many will raise prices today and cause cost-push infl ation
9. At full employment, the economy operates at full capacity and produces the maximum output of goods and services. As buyers try to outbid one another for the fi xed supply of goods and services, prices rise rapidly.
7. The loan is advantageous to you because the real interest rate is −5 percent (5 percent nominal interest rate minus 10 percent infl ation). In one year, you must repay $105. If prices rise by 10 percent during the year, the real value of the $105 will be only $95. Therefore, you have borrowed
5. If the percentage increase in the CPI exceeds the salary increase, a person’s purchasing power declines in a given year.
3. First, the CPI is based on a typical market basket purchased by the urban family. Any group not buying the same market basket, such as retired persons, is not experiencing the price changes measured by changes in the CPI. Second, the CPI fails to adjust for quality changes.Third, the CPI ignores
1. This statement is incorrect. The price of a single good or service can rise while the average price of all goods and services falls. In short, the infl ation rate rises when the average price of consumer goods and services rises.
13. GDP does not tell the mix of output in two nations, say, between military and consumer goods. GDP also does not reveal whether GDP is more equally distributed in one nation compared to another
Dividing nominal GDP by the GDP chain price index results in real GDP by removing the distortion from infl ation. Comparison of real GDP changes between years refl ects only changes in the market value of all fi nal products and not changes in the price level.
11. When the price level is rising, nominal GDP overstates the rate of change between years.
9. NI 5 GDP − depreciation$4,007 5 $4,486 2 $479 The depreciation charge is not a measure of newly produced output. It is an estimate,
If foreigners spend less for U.S. products than U.S. citizens spend for foreign products, GDP is reduced. Net exports are used by national income accountants because actual consumption, investment, and government spending fi gures reported to the U.S. Department of Commerce do not exclude the
7. Using the expenditure approach, net exports are exports minus imports. If the expenditures by foreigners for U.S. products exceed the expenditures by U.S. citizens for foreign products, net exports will be a positive contribution to GDP.
5. Capital is not excluded from being a fi nal good.A fi nal good is a fi nished good purchased by an ultimate user and not for resale. The ultimate user is the warehouse, so the sale would be included in GDP and there would be no double-counting problem.
1.a. fi nal serviceb. fi nal goodc. intermediate goodd. intermediate good 3. 3 million pounds of food 3 $1 per pound 5 $3 million 50,000 shirts 3 $20 per shirt 5 1 million 20 houses 3 $50,000 per house 5 1 million 50,000 hours of medical services 3 $20 per hour 5 1 million 1 automobile plant 3 $1
3. The labor market can be divided into two separate markets, one for skilled union workers and one for unskilled workers. If the minimum wage is above the equilibrium wage rate and is raised, the effect will be to increase the demand for, and the wage of, skilled union workers because the two
The government’s goal is to keep the price of milk below the equilibrium price of$6.00 per gallon, which would be set by a free market.
c. The ceiling price will result in a persistent shortage of 200 million gallons of milk per month, but 200 million gallons are purchased by consumers at the low price of $4.00 per gallon. The shortage places a burden on the government to ration milk in order to be fair and to prevent black markets.
b. The support price results in a persistent surplus of 200 million gallons of milk per month, which the government purchases with taxpayers’ money. Consequently, taxpayers who do not drink milk are still paying for milk. The purpose of the support price is to bolster the incomes of dairy farmers.
a. The equilibrium price is $6.00 per gallon, and the equilibrium quantity is 300 million gallons per month. The price system will restore the market’s $6.00 per gallon price because either a surplus will drive prices down or a shortage will drive prices up.
3.a. Demand for cars decreases; oil and cars are complements.b. Demand for insulation increases; oil and home insulation are substitutes.c. Demand for coal increases; oil and coal are substitutes.d. Demand for tires decreases; oil and tires are complements.
1. If people buy a good or service because they associate higher quality with higher price, this is a violation of the ceteris paribus assumption.An increase in the quantity demanded results only from a decrease in price. Quality and other nonprice determinants of demand, such as tastes and
15. In order for Ethiopia to increase its future economic growth, it must choose a point that isa. below its production possibilities curve.b. further along on its production possibilities curve toward the capital goods axis.c. further along on its production possibilities curve toward the
14. Which of the following groups makes long-term low-interest loans to less-developed countries(LDCs)?a. Agency for International Development (AID)b. New International Economic Order (NIEO)Copyrightc. International Monetary Fund (IMF)d. World Bank
13. Which of the following makes short-term conditional low-interest loans to developing countries?a. Agency for International Development (AID)b. World Bankc. International Monetary Fund (IMF)d. New International Economic Order (NIEO)
12. Economic growth and development in LDCs are low because many of them lacka. capital investment.b. technological progress.c. a favorable political environment.d. all of the above.e. none of the above.
10. Which of the following best defi nes the vicious circle of poverty?a. The GDP per capita must rise before people can save and invest.b. People cannot save while capital accumulates.c. Increased GDP per capita relates to lower population growth.d. Poverty, saving, and investment are related like
9. Which of the following problems do LDCs face?a. Low per capita income and high GDP growth rateb. Low population growth and low per capita incomec. Rapid population growth and low human capitald. Low per capita income and high saving rate
8. An outward shift of the production possibilities curve representsa. economic growth.b. a decline in economic development.c. a decrease in human capital.d. a decrease in resources.
7. Which of the following statements is true?a. An LDC is a country with a low GDP per capita, low levels of capital, and uneducated workers.b. The vicious circle of poverty exists because GDP must rise before people can save and invest.c. LDCs are characterized by rapid population growth and low
6. When the government fi xes the exchange rate above market exchange rates,a. international trade falls.b. the infrastructure improves.c. real GDP per capita rises.d. the vicious circle of poverty is broken.
5. According to the classifi cation in the text, which of the following is not an IAC?a. United Arab Emiratesb. Israelc. Hong Kongd. Greece
4. LDCs are characterized bya. high life expectancy.b. high adult literacy.c. high infant mortality.d. all of the above.e. none of the above.
3. Which of the following is true when making GDP per capita comparisons among nations?a. The GDP per capita is subject to greater measurement errors for LDCs compared to IACs.b. The GDP per capita does not measure income distribution.c. The GDP per capita is subject to fl uctuations from changes

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Macroeconomics For Today 7th Edition Irvin B. Tucker - Solutions

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