Macroeconomics 4th Edition Glenn Hubbard, Anthony O'Brien - Solutions

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Table 3.1 shows that for the United States GNP was greater than GDP in 2008. Has this been true generally? Compute GNP as a percentage of GDP for each year since 1947. Calculate the minimum and maximum values of the resulting time series. What do your data imply about the typical relationship of
(a) Considering the income components in Problem 3.3 (same as the main components in Table 3.7), conjecture which sources of income are the most reliable.(b) To check your conjecture, determine which income components show the greatest fluctuations? Compute the means, variances, standard
(a) Who benefits most from a prosperous economy – workers or the owners of businesses? Table 3.7 shows that the main categories of factor income form an identity: National Income ≡ Employee Compensation + Proprietors’ Income + Rental Income + Profits + Net Interest. Without consulting any
Explain why or why not each of the following contributes to GDP:an antique dealer; a drug dealer; a worker at a charity (e.g., the Red Cross);a religious leader (e.g., a pastor, priest, rabbi, or imam); a dockworker; a psychologist. In what ways might the differences among these cases be
The following table contains data for the United Kingdom.2001 2002 Consumption 660 691 Government Expenditure on Goods and Services 191 210 Fixed Investment 167 170 Changes in Inventories 3 Exports 272 273 Imports 305 GDP 994 Net Income Flows from Abroad 8 20 Gross National Product 1,064 Net
This question is a preparation for Chapter 5. Real GDP growth is not steady. A recession is a prolonged slowdown in economic activity. A common rule of thumb identifies a period of two or more quarters of negative real GDP growth as a recession – by convention a recession is dated as running
Using the rule of 72 (see the Guide, section G.11.3), how long does it take per capita GDP to double at rates of growth of 0.33 percent per year, 1.5 percent per year, 3 percent per year, 13 percent per year? How long does it take population to quadruple at 0.25 percent per year, 1 percent per
Using annual data for nominal GDP and the GDP implicit price deflator, create a graph of real GDP with two lines: one in the constant dollars of the year of your birth, one in the constant dollars of the current base year for official real GDP data. Plot the same data against a logarithmic scale.
Using nothing but the data given in the following table and your knowledge of growth rates, give your estimates of the missing data in the following table. Which of these estimates do you trust more? Explain.Year Canadian Real GDP(constant 1995 C$, billions)Canadian Population(millions)1991 657.55
Real GDP (1990 constant pounds) in the United Kingdom in 1998:4 was £636 billion, and in 1960:2 was £264 billion. What were the compound average rates of growth rate over this period?
Real GDP in Germany in 1980 was DM 1945 billion and in 1985 was DM 2062 billion. What are the compound average rates of growth for the period 1980–1985? If Germany had kept the same compound average growth rate, what would the level of real GDP have been in 2010?
The quarterly rate of real consumption (2005 constant dollars) in 2009:4 was $13,150 billion and in 2010:1, $13,255 billion. What is the rate of growth at a basic quarterly rate? At a compound annual rate?
The chairmen of the Federal Reserve System are often regarded as having more direct influence over the current economy than presidents. Repeat the exercise in Problem 2.8 substituting Federal-Reserve chairmen for presidents, starting with T. B. McCabe in 1948. (Again, consult Table 1.1 for their
Presidents get more blame and take more credit for the state of the economy than they deserve. Nevertheless, presidential terms make convenient reference points for thinking about history. Calculate and display in a table the average annual rates of real GDP growth and inflation (using the GDP
The “baby boom” was one of the major demographic episodes of the twentieth century. It is generally agreed to have started at the end of World War II in 1945. Using any relevant calculations of growth rates or graphs of population, assign a date to the end of the baby boom. Explain your method
Figure 2.14 shows the inflation rate calculated at an annual rate (current quarter relative to the same quarter a year earlier) and at an annualized quarterly rate. The quarterly rate is obviously more variable than the annual rate. To put a number on the difference in variability, first use data
Figure 2.11 shows the growth rate of real GDP calculated at an annual rate (current quarter relative to the same quarter a year earlier) and at an annualized quarterly rate. The quarterly rate is obviously more variable than the annual rate. To put a number on the difference in variability, first
Using the previous table as completed in Problem 2.2, verify that each of the four national-income-accounting identities holds in 2000 (in current dollars).Problem 2.4.(a) Compute the average growth rate of real GDP between 1996 and 2000.(b) GDP in 1999 in current dollars was NZ$107,403 million and
Using the national-income-accounting identities and your knowledge of nominal-to-real conversions, fill in the missing data in the previous table.
Figure 2.6 shows the shares of the various sources of aggregate demand (C, I, G, NX) in GDP (Y) for a particular year. How do these shares change over time? Using annual data and the product-expenditure identity in the form (2.1′′), divide both sides of the identity by Y to yield: 1 ≡ C/Y
People generally dislike both unemployment and inflation. An informal way of characterizing the state of the economy is the misery index =the inflation rate + the rate of unemployment. For each president in the postWorld War II period, starting with Truman’s second term (i.e., his only full term)
Consider equations (1.1) and (1.3) to be a model of consumption and GDP. Imagine that government economists in 2010 estimate that the ageing of the population will lower the sensitivity of consumption to GDP from 0.95 to 0.85 by 2020. They also project that investment will remain at the same level
Consider equations (1.1) and (1.3) to be a model of consumption and GDP. (a) What conditional forecast is implied by the model for consumption and GDP for 2012 when investment is 100? (b) When 2012 arrives, which of the following data would contradict the model?: (i) I = 80, Y = 1,600;(ii) I = 90,
Consider equation (1.2) as a model of GDP. Assume that in 2010, Y2010 = 800 and random error 2010 = 50. What unconditional forecast does the model imply for 2013?
Consider equations (1.1) and (1.3) together as a model of GDP and consumption. Algebraically and graphically (modifying Figure 1.2 as needed), analyze separately the counterfactual experiments of (a) raising investment from 50 to 60; (b) lowering the sensitivity of consumption to GDP from 0.95 to
Consider equation (1.1) as a model of consumption, and begin with a GDP of 1,000. Algebraically and graphically (modifying Figure 1.1 as needed), analyze the counterfactual experiment of (a) raising GDP to 1,200;(b) lowering the sensitivity of consumption to GDP from 0.95 to 0.90. In both cases,
Provide some examples (economic or noneconomic) of fallacies of composition other than those in the text.
This one is optional. Talk to someone who defaulted on a mortgage during the crisis. Find out why. Tell them their names will not be used. If several students in a class each bring in a story, that should be illuminating?
Quite a lot of research has documented the negative effect of foreclosures on the prices of houses in the nearby neighborhood. Find one of those studies and summarize the findings.
It was noted that Arthur Laffer has been active. Find a recent talk or quote of his on the Internet. What did he say? Which presidential candidates took his advice?
The Financial Crisis Inquiry Commission stated that the crisis could have been avoided. Read their summary and summarize their argument. Do you agree?Why or why not? Their report is posted on the web for free.
Look up data on the housing price bubble. Find at least two sources. What do you see?
Update Tables 12.1 and 12.2 to the current year, whatever that is. Reconsider the narrative of the period. Do you agree with the narrative as presented? Why or why not? Does the new data change the narrative? Why or why not?
Look at the rate of inflation and the unemployment rate. Do you see a tradeoff between inflation and unemployment for these years? Inflation was pretty low, so there might have been a reasonably stable Phillips-type curve. What appears to be the non-accelerating inflation rate of unemployment
The Taylor rule says that the federal funds rate should go up when inflation went up and go down when real GDP growth was below target. Assume the target growth rate is 2 percent, as Taylor (1993) did. Can you conclude that the Fed pretty much followed the Taylor rule during 1986 to 2002?
You can compute the percentage change in nominal GDP as the percentage change in real GDP plus the rate of inflation. Make the computations based on Table 11.1, and make up a little table. Compare those percentage changes in nominal GDP with the percentage changes in the money supply. What do you
Look up data on the price of regular gasoline in the U.S. for this period. Are the increases in the price of crude oil evident in the gasoline data?
Make up a chart showing the rate of inflation and the unemployment rate (i.e., the Phillips curve). Put inflation on the vertical axis and unemployment on the horizontal axis. Attach dates to the data points. What patterns do you see? Do you see a trade-off between inflation and unemployment for
Look up Moody’s Analytics and check out the services they offer. (This is not an endorsement.) Search for other macroeconomic modeling services. See if you can find information about the model used by the Council of Economic Advisors and one of them used by the Fed.
Verify that the average percentage increase in real GNP for 1951 to 1969 was 3.2 percent, nominal GNP was 5.9 percent, and prices were 2.3 percent. Use the method explained in Chapter 1.
Estimate the multiplier for the changes in investment spending in real terms for 1959 and 1965. These are years in which investment spending changed but government spending did not change. Do these numbers make sense to you?Why or why not?
Estimate the multiplier for the changes in government spending in real terms for 1951, 1953, and 1954. These are years in which government spending changed but investment spending did not change. Do these numbers make sense to you? Why or why not? Do the changes in consumption suggest that there
Look up the Rand Paul presidential campaign. Does it have an economic policy platform statement? What is it?
Look up Ron Paul’s latest pronouncements. What are they, and do they fit with Austrian economics? Why or why not?
Look up the Mont Pelerin Society. What is it? What do they espouse, and why might it be important?
Look up what Governor Brownback has been doing in Kansas. How successful is his program?
Look up Jack Kemp. Who was he and how does he figure into the supply-side story?
Look up Arthur Laffer and find a picture of the Laffer curve. What do you find?
Look up Robert Lucas on the Internet, and find out his role in creating real business cycle theory.
Look up Phillips curve and rational expectations on the Internet. Summarize what you find.
Look up John Taylor (Stanford economist) on the Internet and explain a little about how he came up with the Taylor rule.
Read some of Milton Friedman’s Capitalism and Freedom. I suggest the first three chapters. Pick out some quotes that say how and why the supply of money should be controlled.
Read some of Hayek’s The Road to Serfdom. I suggest Chapter III and Chapter VI. What do you think of Hayek’s argument?
Read a chapter in Kindleberger’s book Manias, Panics, and Crashes and write a short description of an episode.
Look up Hyman Minsky on the Internet. Write a little more about what he thought beyond the discussion in this chapter.
Return to Figure 3.1. Suppose that the nation finds itself with a combination of domestic demand too low for internal and external balance and a balance of payments surplus. What do you do now? How does the answer depend upon the initial level of the exchange rate? Now change the question to too
The Aggregate Supply curve in Keynesian theory (Figure 3.2 above) is drawn assuming that money wages are fixed (or at least not very flexible). Do you think thisareasonable assumption? Why or why not? Why did Keynesadvocate keeping money wages fixed during a recession or depression?
The Keynesian depression situation is called the “liquidity trap,” a time when increasing the money supply to lower interest rates and stimulate investment spending simply will not work. What conditions in the Keynesian theory would lead to such a conclusion, and why would those conditions be
What is the interest rate?b. What is the level of investment?c. What are Y, C, and S?
We now expand the model to the full Keynesian version. Suppose the demand for money (M) is M=400 –50r (r is the interest rate expressed as a percentage such as 5), and the demand for investment is I=500 –50r.a. Assume the supply of money is
Solve for C, S, and Y.d. What is the investment multiplier? (Hint: Increase I by 100 and see what happens.)
Assume spending in the economy consists only of consumption (C) and investment (I); i.e., Y=C+I. Suppose the consumption function is C=100+0.75 Y, where Y is total income.a. What is the saving function?b. If 0.75 is the marginal propensity to consumer, what is the marginal propensity to save?c.
Do you know of a bank that went out of business in recent years? If you do, find out when it happened and why. Also, find out what happened when the bank disappeared. If you do not know of one such bank, then ask around.Maybe your instructor will provide an example.
What are the new quantity and price?
Suppose the demand for a product is Qd=10–P (Q is quantity and P is price.)And the supply of the product is Qs=4+Pa. Find the equilibrium quantity and price. (Hint: Set quantity demanded equal to quantity supplied.)b. What happens if price somehow gets set at 7, or 2, or 3?c. What happens if the
Can you think of another field that purports to be a science in which its researchers say such nasty things about each other? You might wish to ask your instructors in other fields about this.
Find out who George Shultz and Georgia O’Keefe are. Next, why would quotations from these two seemingly very different people have been used to begin this book?
Economics has been described as a field in which new theories (or modifications of old theories) are made in response to empirical findings that cannot be explained by the existing theory. The new theory is proposed, its implications are worked out, and then it is tested. Can you think of other
An article in the Economist notes that after the end of the Bretton Woods system, “The Europeans did not like leaving their currencies to the whims of the markets. . ..” What does it mean for a country to leave its currency to the “whims of the markets”? What problems might a country
An article in the Wall Street Journal argues that, “The Bretton Woods system ran into trouble in the 1960s, in part because U.S. trade deficits mounted.” Why would increases in the U.S. trade deficit cause problems for the Bretton Woods system?From Jon E. Hilsenrath and Mary Kissel, “Currency
One economist has argued that the East Asian exchange rate crisis of the late 1990s was due to “the simple failure of governments to remember the lessons from the breakdown of the Bretton Woods System.” What are these lessons?In what sense did the East Asian governments fail to learn these
Barry Eichengreen, an economist at the University of California, Berkeley, describes actions taken by the Federal Reserve in 1931 to try to keep the United States on the gold standard: “[T]he New York Fed raised its discount rate by a full percentage point to defend the dollar. A week later it
An article in the New York Times states that, “On Aug. 15, 1971, President Nixon unhitched the value of the dollar from the gold standard.” Is the author of this article correct that the United States abandoned the gold standard in 1971? What led President Nixon to take the action described in
By the mid-1960s, the price of gold on the London market had increased to more than $35 per ounce. (Remember that it was not legal during these years for investors in the United States to own gold.) Would this have happened if foreign investors had believed that the U.S. commitment to buy and sell
According to an article in the Economist, when most countries left the gold standard in the 1930s, in South Africa“the mining industry flourished.” Briefly explain why the end of the gold standard might be good news for the owners of gold mines.From “Johannesburg,” Economist, August 18,
An article in the Economist observes, “When the Depression[of the 1930s] struck, this gold standard became a noose around the necks of struggling economies.” In what sense was the gold standard a “noose around the necks of struggling economies” during the 1930s?From “A Brief Post on
Suppose that under the gold standard, there was 1/5 ounce of gold in a U.S. dollar and 1 ounce of gold in a British pound. Demonstrate that if the exchange rate between the dollar and the pound was $4 = ₤1, rather than $5 = ₤1, you could make unlimited profits by buying gold in one country and
The global financial crisis of 2007–2009 led some economists and policymakers to suggest the reinstitution of capital controls—or limits on the flow of foreign exchange and financial investments across countries—which existed in many European countries prior to the 1960s. Why would a
Briefly describe the pattern of foreign investments in U.S.securities between 1995 and 2010.
[Related to the Making the Connection on page 652]The following is from an article in the Wall Street Journal on changes in the Korean economy:The biggest is a change in where Korean companies are finding growth. It is no longer just the U.S. and Europe, markets where Samsung, Hyundai and other big
According to an article in the Wall Street Journal on a trip by U.S. Treasury Secretary Timothy Geithner to China:The message signals that [the] Treasury is beginning to look . . . toward preventing a return to ever-mounting trade deficits and the constant political tensions they generate between
Graph the demand and supply of Chinese yuan for U.S. dollars and label each axis. To maintain its pegged exchange rate, the Chinese central bank used yuan to buy large quantities of U.S. dollars. Indicate whether the pegged exchange rate was above or below the market equilibrium exchange rate and
Suppose that a developing country pegs the value of its currency against the U.S. dollar. Further, suppose that the dollar appreciates against the yen and against the euro.What will be the impact on the ability of the developing country to export goods and services to Japan and Europe?Briefly
In a column in the New York Times, by Christina Romer, former chair of President Barack Obama’s Council of Economic Advisers, made the following observations:a. “Our exchange rate is just a price—the price of the dollar in terms of other currencies. It is not controlled by anyone.”b. “. .
The Economist observed the following: “In Argentina, many loans were taken out in dollars: this had catastrophic consequences for borrowers once the peg collapsed.” What does it mean that Argentina’s “peg collapsed”? Why was this catastrophic for borrowers in Argentina who had taken out
For many years, Argentina suffered from high rates of inflation. As part of its program to fight inflation, in the 1990s, the Argentine government pegged the value of the Argentine peso to the U.S. dollar at a rate of one peso per dollar. In January 2002, the government decided to abandon the peg
Use the graph to answer the following questions.a. According to the graph, is there a surplus or a shortage of baht in exchange for U.S. dollars? Briefly explain.b. To maintain the pegged exchange rate, will the Thai central bank need to buy baht in exchange for dollars or sell baht in exchange for
[Related to the Chapter Opener on page 639] When Airbus, a subsidiary of a company located in France, sold A380 super-jumbo jetliners to Air France, the transaction was made in dollars, rather than euros. What advantages are there to aerospace firms in different countries in agreeing to carry out
Construct a numerical example that shows how an investor could have made a profit by selling Thai baht for dollars in 1997.
[Related to the Making the Connection on page 647]Jordi Galí, an economist at the Universitat Pompeu Fabra in Spain, notes that the Spanish economy was in recession during the early 1990s, but that “in 1992 and 1993 a series of [exchange rate] devaluations got us out of trouble.” Was Spain
When the euro was introduced in January 1999, the exchange rate was $1.19 per euro. In October 2011, the exchange rate was $1.38 per euro. Was this change in the dollar–euro exchange rate good news or bad news for U.S. firms exporting goods and services to Europe? Was it good news or bad news for
Britain decided not to join other European Union countries in using the euro as its currency. One British opponent of adopting the euro argued, “It comes down to economics.We just don’t believe that it’s possible to manage the entire economy of Europe with just one interest rate policy. How
[Related to the Solved Problem 19.2 on page 645] Fill in the missing values in the following table. Assume that the Big Mac is selling for $4.07 in the United States. Explain whether the U.S. dollar is overvalued or undervalued relative to each of the other currencies and predict what will happen
[Related to the Making the Connection on page 644]Look again at the table on page 644 that shows the prices of Big Macs and the implied and actual exchange rates. Indicate which countries listed in the table have undervalued currencies versus the U.S. dollar and which have overvalued currencies.
According to the theory of purchasing power parity, if the inflation rate in Australia is higher than the inflation rate in New Zealand, what should happen to the exchange rate between the Australian dollar and the New Zealand dollar?Briefly explain.
The following is from an article in the Wall Street Journal:Honda said its profit fell to ¥60.4 billion($796.5 million) in the three months ended Sept. 30 [2011]. . . . Troubles related to the yen. . . come as both Honda and Toyota are working to get back to normal operations in the wake of the
Consider this statement:It usually takes more than 75 yen to buy 1 U.S.dollar and more than 1.5 dollars to buy 1 British pound. These values show that the United States must be a much wealthier country than Japan and that the United Kingdom must be wealthier than the United States.Do you agree with
Consider the following headline from an article in the Wall Street Journal: “Strong Franc Hurts Swiss Business.” What does the article mean by a “strong franc”? Why would a strong Swiss franc be bad for Swiss businesses?From Goran Mijuk, “Strong Franc Hurts Swiss Business,” Wall Street
[Related to the Making the Connection on page 642]In the Toronto Sun, columnist Bob Elliot wrote: “Is there advantage to playing for the [Toronto] Blue Jays over the Boston Red Sox or New York Yankees? . . . The exchange numbers say it’s better to play for the Jays—as long as you are paid in
Briefly describe the Chinese experience with pegging the yuan.

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Macroeconomics 4th Edition Glenn Hubbard, Anthony O'Brien - Solutions

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