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dynamic macroeconomics

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

Briefly describe the three major measures of the price level.
Costco typically pays its workers higher wages than does Wal-Mart. One analyst argues that Costco pays higher wages “because it requires higher-skilled workers to sell higher-cost products to more affluent customers.” If this analyst is correct, can we conclude that Costco is paying efficiency
An economic consultant studies the labor policies of a firm where it is difficult to monitor workers and prepares a report in which she recommends that the firm raise employee wages. At a meeting of the firm’s managers to discuss the report, one manager makes the following argument:“I think the
Why do you think the minimum wage was set at only $0.25 per hour in 1938? Wouldn’t this wage have been well below the equilibrium wage?
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 on job openings easily
If Congress eliminated the unemployment insurance system, what would be the effect on the level of frictional unemployment? What would be the effect on the level of real GDP? Would well-being in the economy be increased?Briefly explain.
In 2007, Ségolène Royal, who was running unsuccessfully for president of France, 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 were enacted, what would likely be
Why has the unemployment rate in the United States typically been lower than the unemployment rates in Canada and countries in Western Europe?
Discuss the effect of each of the following on the unemployment rate.a. The federal minimum wage lawb. Labor unionsc. Efficiency wages
What effect does the payment of government unemployment insurance have on the unemployment rate? On the severity of recessions?
Recall from Chapter 3 the definitions of normal goods and inferior goods. During an economic expansion, would you rather be working in an industry that produces a normal good or in an industry that produces an inferior good? Why?During a recession, would you rather be working in an industry that
[Related to the Making the Connection on page 279]What advice for finding a job would you give someone who is frictionally unemployed? What advice would you give someone who is structurally unemployed? What advice would you give someone who is cyclically unemployed?
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
Macroeconomic conditions affect the decisions firms and families make. Why, for example, might a student graduating from college enter the job market during an economic expansion but apply for graduate school during a recession?
What is the natural rate of unemployment? What is the relationship between the natural rate of unemployment and full employment? Would it be better for economists to define full employment as being an unemployment rate equal to zero?
What is the relationship between frictional unemployment and job search?
What are the three types of unemployment?
Is it possible for the total number of people who are unemployed to increase while the unemployment rate decreases?Briefly explain.
[Related to the Making the Connection on page 274]An article published in the New York Times in July 2011 argued that: “For the second straight year, the recovery in the job market has essentially stalled. This chart, showing the share of adults with jobs, offers the best summary you’ll
Look again at Table 9.1 on page 276. Between August and September 2011, the household survey shows that the total number of people employed increased by 398,000. Yet the unemployment rate remained the same. Shouldn’t the unemployment rate fall when the number of people employed increases? Briefly
[Related to Solved Problem 9.1 on page 270] Homemakers are not included in the employment or labor force totals compiled in the Bureau of Labor Statistics household survey.They are included in the working-age population totals.Suppose that homemakers were counted as employed and included in the
[Related to the Chapter Opener on page 641] The Ford Motor Company employed many fewer people in 2011 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?
Fill in the missing values in the following table of data collected in the household survey for September 2011: Working-age population Employment Unemployment Unemployment rate Labor force 140,025,000 9.1% Labor force participation rate 64.2% Employment-population ratio
What is the difference between the household survey and the establishment survey? Which survey do many economists prefer for measuring changes in employment? Why?
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 does the labor force participation rate measure?Since 1950, how have the labor force participation rates of men and women changed?
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?
How is the unemployment rate measured? What are the three conditions someone needs to meet to be counted as unemployed?
Briefly discuss the accuracy of the following statement:“Corporate profits are much too high: Most corporations make profits equal to 50 percent of the price of the products they sell.”
If you were attempting to forecast the level of consumption spending by households, which measure of total production or total income might be most helpful to you in making your forecast? Briefly explain.
Suppose the amount the federal government collects in personal income taxes increases, while the level of GDP remains the same. What will happen to the values of national income, personal income, and disposable personal income?
Suppose a country has many of its citizens temporarily working in other countries, and many of its firms have facilities in other countries. Furthermore, relatively few citizens of foreign countries are working in this country, and relatively few foreign firms have facilities in this country.In
What is gross domestic income? Which component of gross domestic income is the largest?
What is the difference between GDP and GNP? Briefly explain whether the difference is important for the United States.
Use the data in the following table to calculate the GDP deflator for each year (values are in billions of dollarsWhich year from 2007 to 2010 saw the largest percentage increase in the price level, as measured by changes in the GDP deflator? Briefly explain. Year Nominal GDP Real GDP 2006 $13,377
The movie Avatar overtook Titanic as the highest-grossing movie of all time. An article on Forbes.com notes that “the average ticket price in 2008 (Avatar was released in 2009)was $7.18, up 56% from prices in 1997 when Titanic was in theaters.” The article states that “A look at domestic
Briefly explain whether you agree or disagree with the following statements.a. “If nominal GDP is less than real GDP, then the price level must have fallen during the year.”b. “Whenever real GDP declines, nominal GDP must also decline.”c. “If a recession is so severe that the price level
[Related to Solved Problem 8.3 on page 254] Suppose the information in the table on the next page is for a simple economy that produces only four goods and services: textbooks, hamburgers, shirts, and cotton. Assume that all the cotton is used in the production of shirts.a. Use the information in
Assuming that inflation has occurred over time, what is the relationship between nominal GDP and real GDP in each of the following situations?a. In the years after the base yearb. In the base yearc. In the years before the base year
What is the GDP deflator, and how is it calculated?
Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?How does the U.S. Bureau of Economic Analysis deal with the problem inflation causes with nominal GDP?
[Related to the Making the Connection on page 253]Think about the increases since 2001 in spending for the Department of Homeland Security and the wars in Afghanistan and Iraq. These increases represent government expenditures that have increased GDP. Briefly explain whether you think that these
Each year, the United Nations publishes the Human Development Report, which provides information on the standard of living in nearly every country in the world.The report includes data on real GDP per person and also contains a broader measure of the standard of living called the Human Development
[Related to the Making the Connection on page 251]A report of the World Bank, an international organization devoted to increasing economic growth in developing countries, included the following statement: “Informal economic activities pose a particular measurement problem[in calculating GDP],
Roger Ransom and Richard Sutch, economic historians at the University of California, Riverside, have estimated that African-American farmers in the U.S. South after the Civil War worked about 30 percent fewer hours per year than they had as slaves during the years before the Civil War. If after the
The typical American today works fewer than 40 hours per week, while the typical American in 1890 worked 60 hours per week. Does this difference in the length of work weeks matter in comparing the economic well-being of Americans today versus 1890? Or can we use the difference between real GDP per
Michael Burda of Humboldt University in Germany and Daniel Hamermesh of the University of Texas examined how workers in the United States who lost their jobs between 2003 and 2006 spent their time. They discovered that during the period when they were unemployed, the decline in the number of hours
Which of the following are likely to increase measured GDP, and which are likely to reduce it?a. The fraction of women working outside the home increases.b. There is a sharp increase in the crime rate.c. Higher tax rates cause some people to hide more of the income they earn.
Why is GDP an imperfect measure of economic wellbeing?What types of production does GDP not measure?Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?
What is the underground economy? Why do some countries have larger underground economies than do other countries?
Why does the size of a country’s GDP matter? How does it affect the quality of life of the country’s people?
An artist buys scrap metal from a local steel mill as a raw material for her metal sculptures. Last year, she bought $5,000 worth of the scrap metal. During the year, she produced 10 metal sculptures that she sold for $800 each to a local art store. The local art store sold all of the sculptures to
For the total value of expenditures on final goods and services to equal the total value of income generated from producing those final goods and services, all the money that a business receives from the sale of its product must be paid out as income to the owners of the factors of production.How
[Related to the Making the Connection on page 248]An article on USAToday.com observed: “Consumer spending, once the driving force of the U.S. economy, is likely to remain stagnant for years as households struggle to cut debt and build up savings, economists say.” Why does cutting debt and
[Related to the Don’t Let This Happen to You on page 247]Briefly explain whether you agree with the following statement:“In years when people buy many shares of stock, investment will be high and, therefore, so will GDP.”
[Related to Solved Problem 8.1 on page 244] Suppose that a simple economy produces only four goods: textbooks, hamburgers, shirts, and cotton. Assume that all the cotton is used in the production of shirts. Use the information in the following table to calculate nominal GDP for 2013: Production and
Is the value of a house built in 2000 and resold in 2013 included in the GDP of 2013? Briefly explain. Would the services of the real estate agent who helped sell (or buy) the house in 2013 be counted in GDP for 2013? Briefly explain.
[Related to the Chapter Opener on page 241] Which component of GDP will be affected by each of the following transactions involving Ford Motor Company? If you believe that none of the components of GDP will be affected by the transactions, briefly explain why.a. You purchase a new Ford Escape
Briefly explain whether each of the following transactions represents the purchase of a final good.a. The purchase of wheat from a wheat farmer by a bakeryb. The purchase of an aircraft carrier by the federal governmentc. The purchase of French wine by a U.S. consumerd. The purchase of a new
A student remarks: “It doesn’t make sense that intermediate goods are not counted in GDP. A computer chip is an intermediate good, and without it a PC won’t work. So why don’t we count the computer chip in GDP?” Provide an answer for the student’s question.
What is the difference between the value of a firm’s final product and the value added by the firm to the final product?
Describe the four major components of expenditures in GDP and write the equation used to represent the relationship between GDP and the four expenditure components.
In the circular flow of income, why must the value of total production in an economy equal the value of total income?
If the U.S. Bureau of Economic Analysis added up the values of every good and service sold during the year, would the total be larger or smaller than GDP?
Calculating Real GDP Suppose that a very simple economy produces only the following three final goods and services: eye examinations, pizzas, and textbooks. Use the information in the table on the right to compute real GDP for the year 2013. Assume that the base year is 2005. Product Quantity 2005
The following appeared in an article in BusinessWeek that argued against free trade: “The U.S. is currently in a precarious position. In addition to geopolitical threats, we face a severe economic shock. We have already lost trillions of dollars and millions of jobs to foreigners.” If a country
President George W. Bush and President Barack Obama had trouble getting Congress to ratify free trade agreements the United States had negotiated with South Korea, Colombia, and Panama. According to an article in the New York Times, “When the Democrats controlled Congress, they resisted the trade
[Related to the Chapter Opener on page 205] In a forum in the New York Times on the Buy American provision in the American Recovery and Reinvestment Act, the editors posed the following question: “Why is the buy-American idea objectionable, or, alternatively, under what circumstances should it be
Suppose you are explaining the benefits of free trade and someone states, “I don’t understand all the principles of comparative advantage and gains from trade. I just know that if I buy something produced in America, I create a job for an American, and if I buy something produced in Brazil, I
Steven Landsburg, an economist at the University of Rochester, wrote the following in an article in the New York Times:Free trade is not only about the right of American consumers to buy at the cheapest possible price; it’s also about the right of foreign producers to earn a living. Steelworkers
[Related to the Making the Connection on page 226]The following excerpt is from a newspaper story on President Bill Clinton’s proposal to create a group within the Word Trade Organization (WTO) responsible for developing labor standards. The story was published just before the 1999 WTO meeting in
What is protectionism? Who benefits and who loses from protectionist policies? What are the main arguments people use to justify protectionism?
What events led to the General Agreement on Tariffs and Trade (GATT)? Why did the WTO eventually replace GATT?
[Related to the Making the Connection on page 223]An economic analysis of a proposal to impose a quota on steel imports into the United States indicated that the quota would save 3,700 jobs in the steel industry but cost about 35,000 jobs in other U.S. industries. Why would a quota on steel imports
[Related to Solved Problem 7.4 on page 221] Suppose that the United States currently both produces kumquats and imports them. The U.S. government then decides to restrict international trade in kumquats by imposing a quota that allows imports of only 6 million pounds of kumquats into the United
According to an editorial in the Washington Post: “Sugar protectionism is a burden on consumers and a job-killer.”a. In what sense does the United States practice “sugar protectionism”?b. In what way is sugar protectionism a burden on consumers? In what way is it a job-killer?c. If sugar
Suppose China decides to pay large subsidies to any Chinese company that exports goods or services to the United States. As a result, these companies are able to sell products in the United States at far below their cost of production.In addition, China decides to bar all imports from the United
A student makes the following argument:Tariffs on imports of foreign goods into the United States will cause the foreign companies to add the amount of the tariff to the prices they charge in the United States for those goods. Instead of putting a tariff on imported goods, we should ban importing
The United States has about 9,000 rice farmers. In 2006, these rice farmers received $780 million in subsidy payments from the U.S. government (or nearly $87,000 per farmer). These payments result in U.S. farmers producing much more rice than they otherwise would, a substantial amount of which is
When Congress was considering a bill to impose quotas on imports of textiles, shoes, and other products, the late Milton Friedman, a Nobel Prize–winning economist, made the following comment: “The consumer will be forced to spend several extra dollars to subsidize the producers [of these goods]
[Related to the Chapter Opener on page 205] Which U.S. firms are most likely to be unfavorably affected by a provision which states that only U.S. firms can participate in programs financed by federal spending?
The United States produces beef and also imports beef from other countries.a. Draw a graph showing the demand and supply of beef in the United States. Assume that the United States can import as much as it wants at the world price of beef without causing the world price of beef to increase.Be sure
Two U.S. senators made the following argument against allowing free trade: “Fewer and fewer Americans support our government’s trade policy. They see a shrinking middle class, lost jobs and exploding trade deficits. Yet supporters of free trade continue to push for more of the same—more
Political commentator B. Bruce-Briggs once wrote the following in the Wall Street Journal: “This is not to say that the case for international free trade is invalid; it is just irrelevant.It is an ‘if only everybody . . .’ argument. . . . In the real world almost everybody sees benefits in
The G20 is a group of central bankers and finance ministers from 19 countries and the European Union who have a common goal of promoting global economic stability. In a letter to the editor of the New York Times, Victor K. Fung, the chairman of the International Chamber of Commerce, comments on the
In a public opinion poll, 47 percent of people responding believed that free trade hurts the U.S. economy, while only 23 percent believed that it helps the economy. (The remaining people were uncertain about the effects of free trade or believed that it did not make much difference.)What is “free
Who gains and who loses when a country imposes a tariff or a quota on imports of a good?
What is a tariff? What is a quota? Give an example, other than a quota, of a non-tariff barrier to trade.
[Related to the Making the Connection on page 216]Explain why there are advantages to a movie studio operating in southern California, rather than in, say, Florida.
[Related to the Don’t Let This Happen to You on page 214]In 2011, President Barack Obama described a trade agreement reached with the government of Colombia as a “‘winwin’for both our countries.” Is everyone in both countries likely to win from the agreement? Briefly explain.Based on Kent
Imagine that the graph below shows Tanzania’s production possibilities frontier for cashew nuts and mangoes.Assume that the output per hour of work is 8 bushels of cashew nuts or 2 bushels of mangoes, and that Tanzania has 1,000 hours of labor. Without trade, Tanzania evenly splits its labor
Hal Varian, an economist at the University of California, Berkeley, has made two observations about international trade:a. Trade allows a country “to produce more with less.”b. There is little doubt who wins [from trade] in the long run: consumers. Briefly explain whether you agree with either
An article in the New Yorker magazine states, “the main burden of trade-related job losses and wage declines has fallen on middle- and lower-income Americans.But . . . the very people who suffer most from free trade are often, paradoxically, among its biggest beneficiaries.”Explain how it is
Briefly explain whether you agree with the following statement: “Most countries exhaust their comparative advantage in producing a good or service before they reach complete specialization.”
[Related to Solved Problem 7.3 on page 212] A political commentator makes the following statement:The idea that international trade should be based on the comparative advantage of each country is fine for rich countries like the United States and Japan. Rich countries have educated workers and
[Related to Solved Problem 7.3 on page 212] The following table shows the hourly output per worker in two industries in Chile and Argentina:a. Explain which country has an absolute advantage in the production of hats and which country has an absolute advantage in the production of beer.b. Explain
What is meant by a country specializing in the production of a good? Is it typical for countries to be completely specialized?Briefly explain.
In a 2007 debate among Democratic presidential candidates, Barack Obama made the following statement:“Well, look, people don’t want a cheaper T-shirt if they’re losing a job in the process.” What did Obama mean by the phrase “losing a job in the process”? Using the economic concept of
Patrick J. Buchanan, a former presidential candidate, argued in his book on the global economy that there is a flaw in David Ricardo’s theory of comparative advantage:Classical free trade theory fails the test of common sense. According to Ricardo’s law of comparative advantage . . . if America
In January 2008, the Bank of France published a report, stating that in 2006, hourly labor productivity in the United States was higher than the productivity in Japan.If U.S. workers can produce more goods and services per hour than Japanese workers, why does the United States continue to import

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