New Semester Started Get 50% OFF Study Help! --h --m --s Claim Now

Question Answers

Textbooks

Find textbooks, questions and answers

Oops, something went wrong!

Change your search query and then try again

Result Not Found

Books FREE
Study Help
Tutors
AI Study Planner NEW
Sell Books

Search
Sign In
Register

study help
business
foundations macroeconomics

Macroeconomics: A European Perspective 1st Edition Olivier Blanchard, Alessia Amighini, Francesco Giavazzi - Solutions

Deficits and the capital stock For the production function, Y = K N, equation (12.8) gives the solution for the steady-state capital stock per worker.a. Retrace the steps in the text that derive equation (12.8).b. Suppose that the saving rate, s, is initially 15% per year, and the depreciation
Continuing with the logic from problem 7, suppose that the economy’s production function is given by Y = K1/3N2/3 and that both the saving rate, s, and the depreciation rate, δ, are equal to 0.10.a. What is the steady-state level of capital per worker?b. What is the steady-state level of output
The Cobb–Douglas production function and the steady state. This problem is based on the material in the chapter appendix. Suppose that the economy’s production function is given by Y = Kα N1−αand assume that α = 1/3.a. Is this production function characterised by constant returns to scale?
Suppose that the production function is given by Y = 0.5 K Na. Derive the steady-state levels of output per worker and capital per worker in terms of the saving rate, s, and the depreciation rate, δ.b. Derive the equation for steady-state output per worker and steady-state consumption per worker
Suppose all European countries moved from the current pay-as-you-go social security system to a fully funded one, and financed the transition without additional government borrowing. How would the shift to a fully funded system affect the level and the rate of growth of output per worker in the
In Chapter 3 we saw that an increase in the saving rate can lead to a recession in the short run (i.e. the paradox of saving). We examined the issue in the medium run in a chapter problem at the end of Chapter 8.We can now examine the long-run effects of an increase in saving.Using the model
Consider the following statement: ‘The Solow model shows that the saving rate does not affect the growth rate in the long run, so we should stop worrying about the low saving rate. Increasing the saving rate wouldn’t have any important effects on the economy.’ Do you agree or disagree?
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. The saving rate is always equal to the investment rate.b. A higher investment rate can sustain higher growth of output forever.c. If capital never depreciated, growth could go
Growth successes and failures Go to the website containing the Penn World Table(pwt.econ.upenn.edu) and collect data on real GDP per capita (chained series) for 1970 for all available countries.Do the same for a recent year of data, say one year before the most recent year available in the Penn
Convergence in two sets of countries Go to the website containing the Penn World Table(pwt.econ.upenn.edu) and collect data on real GDP per person (chained series) from 1951 to the most recent year available for the USA, France, Belgium, Italy, Argentina, Venezuela, Chad and Madagascar.a. Define
Convergence between Japan and the USA since 1950 Go to the website containing the Penn World Table(pwt.econ.upenn.edu) and collect data on the annual growth rate of GDP per person for the USA and Japan from 1951 to the most recent year available. In addition, collect the numbers for real GDP per
Between 1950 and 1973, France, Germany and Japan all experienced growth rates that were at least 2 percentage points higher than those in the USA. Yet the most important technological advances of that period were made in the USA.How can this be?EXPLORE FURTHER
The growth rates of capital and output Consider the production function given in problem 3.Assume that N is constant and equal to 1.Note that if z = x a, then gz ≈ agx where gz and gx are the growth rates of z and x.a. Given the growth approximation here, derive the relation between the growth
Consider the production function Y = K N.a. Compute output when K = 49 and N = 81.b. If both capital and labour double, what happens to output?c. Is this production function characterised by constant returns to scale? Explain.d. Write this production function as a relation between output per worker
Assume that the average consumer in Mexico and the average consumer in the UK buy the quantities and pay the prices indicated in the following table:Food Transportation services Price Quantity Price Quantity Mexico 5 pesos 400 20 pesos 2000 UK £1 1000 £2a. Compute UK consumption per capita in
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. On a logarithmic scale, a variable that increases at 5% per year will move along an upward-sloping line with a slope of 0.05.b. The price of food is higher in poor countries
Go the Eurostat website and retrieve monthly data on the level of employment and unemployment for 2009. You will notice that the level of unemployment rose in every month of 2009.a. Did the level of employment rise in any month(s) in 2009?b. How is it possible that both employment and unemployment
Go to the Eurostat website and retrieve quarterly data on gross domestic product at constant prices for 2009 and 2010 and on monthly unemployment rates and monthly employment levels for 2009 and 2010, for your country.a. Was output growth positive throughout 2009 and 2010?b. What happened to the
The effects of a permanent decrease in the rate of nominal money growth Suppose that the economy can be described by the following three equations:ut − ut−1 = −0.4(gyt − 3%) Okun’s lawπt − πt−1 = −(ut − 5%) Phillips curve gyt = gmt − πt Aggregate demanda. Reduce the three
Credibility and disinflation Suppose that the Phillips curve is given byπt = πe t − (ut − 5%)and expected inflation is given byπe t = πt−1a. What is the sacrifice ratio in this economy?Suppose that unemployment is initially equal to the natural rate and π = 12%. The central bank decides
The Fisher hypothesisa. What is the Fisher hypothesis?b. Does the experience of Latin American countries in the 1990s support or refute the Fisher hypothesis? Explain.c. Look at the figure in the Focus box on Latin America.Note that the line drawn through the scatter of points does not go through
Mark-ups, unemployment and inflation Suppose that the Phillips curve is given byπt − πt−1 = −(ut − 5%) + 0.1µwhere µ is the mark-up.Suppose that unemployment is initially at its natural rate.Suppose now that µ increases as a result of an oil price shock,but that the monetary authority
Suppose that you are advising a government that wants to reduce the inflation rate. It is considering two options: a gradual reduction over several years or an immediate reduction.a. Lay out the arguments for and against each option.b. Considering only the sacrifice ratio, which option is
Suppose that an economy can be described by the following three equations:ut − ut−1 = −0.4(gyt − 3%) Okun’s lawπt − πt−1 = −(ut − 5%) Phillips curve gyt = gmt − πt Aggregate demanda. What is the natural rate of unemployment for this economy?b. Suppose that the unemployment
As shown by equation (10.2), the estimated Okun’s law for the USA is given by ut − ut−1 = −0.4(gyt − 3%)a. What growth rate of output leads to an increase in the unemployment rate of 1% per year? How can the unemployment rate increase even though the growth rate of output is positive?b.
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. The unemployment rate will remain constant as long as there is positive output growth.b. Many firms prefer to keep workers around when demand is low (rather than lay them off )
Changes in the natural rate of unemploymenta. Repeat problem 8, but now draw separate graphs for the period 1970 to 1990 and the period since 1990.b. Do you find that the relation between inflation and unemployment is different in the two periods? If so, how has the natural rate of unemployment
Estimating the natural rate of unemployment To answer this question, you will need data on the annual unemployment and inflation rates since 1970, which can be obtained from the website of the Organization for Economic Cooperation and Development (OECD) (www.oecd.org).Retrieve the data for the
Supply shocks and wage flexibility Suppose that the Phillips curve is given byπt − πt−1 = −α(ut − un)where un = (µ + z)/αRecall that this Phillips curve was derived in this chapter under the assumption that the wage bargaining equation took the form W = Pe(1 − αut + z)We can think
The price of oil declined substantially in the 1990sa. Can the fall in the price of oil help explain the evidence(presented in this chapter) on inflation and unemployment in the 1990s?b. What was the likely effect of the fall in the price of oil on the natural rate of unemployment?
The macroeconomic effects of the indexation of wages Suppose that the Phillips curve is given byπt − πe t = 0.1 − 2ut whereπe t = πt−1 Suppose that inflation in year t − 1 is zero. In year t, the authorities decide to keep the unemployment rate at 4%forever.a. Compute the rate of
Oil shocks, inflation and unemployment Suppose that the Phillips curve is given byπt − πe t = 0.08 + 0.1µt − 2ut where µ is the mark-up of prices over wages. Suppose that µ is initially equal to 20%, but that as a result of a sharp increase in oil prices, µ increases to 40% in year t and
Mutations of the Phillips curve Suppose that the Phillips curve is given byπt = πe t + 0.1 − 2uta. What is the natural rate of unemployment?Assume,πe t = θπt−1 and suppose that θ is initially equal to 0.Suppose that the rate of unemployment is initially equal to the natural rate.In year
Discuss the following statements.a. The Phillips curve implies that when unemployment is high, inflation is low, and vice versa. Therefore, we may experience either high inflation or high unemployment, but we will never experience both together.b. As long as we do not mind having high inflation, we
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. The original Phillips curve is the negative relation between unemployment and inflation first observed in the UK.b. The original Phillips curve relation has proven to be very
Growth and fluctuations: some economic history When economists think about history, fluctuations often stand out – oil shocks and stagflation in the 1970s, a recession followed by a long expansion in the 1980s, a recession followed by an extraordinary low-unemployment, low-inflation boom in the
Adding energy prices to the AS curve In this problem, we incorporate the price of energy inputs (e.g.oil) explicitly into the AS curve.Suppose the price-setting equation is given by P = (1 + µ)Wa PE 1−a where PE is the price of energy resources and 0 < a < 1.Ignoring a multiplicative constant,
Taxes, oil prices and workers Everyone in the labour force is concerned with two things:whether they have a job and, if so, their after-tax income from the job (i.e. their after-tax real wage). An unemployed worker may also be concerned with the availability and amount of unemployment benefits, but
Based on your answers to problems 8 and 9 and the material from the chapter, comment on the following statement:The European Central Bank has the easiest job in the world. All it has to do is conduct expansionary monetary policy when the unemployment rate increases and contractionary monetary
Supply shocks and demand management Assume that the economy starts at the natural level of output.Now suppose there is an increase in the price of oil.a. In an AS–AD diagram, show what happens to output and the price level in the short run and the medium run.b. What happens to the unemployment
Demand shocks and demand management Assume that the economy starts at the natural level of output.Now suppose there is a decline in business confidence, so that investment demand falls for any interest rate.a. In an AD–AS diagram, show what happens to output and the price level in the short run
You learned in problem 6 (on the liquidity trap) in Chapter 5 that money demand becomes very flat at low interest rates. For this problem, consider the money demand function to be horizontal at a zero nominal interest rate.a. Draw the LM curve. How does the slope of the curve change when the
Suppose that the interest rate has no effect on investmenta. Can you think of a situation in which this may happen?b. What does this imply for the slope of the IS curve?c. What does this imply for the slope of the LM curve?d. What does this imply for the slope of the AD curve?Continue to assume
The paradox of saving, one last time In chapter problems at the end of Chapters 3 and 5, we examined the paradox of saving in the short run, under different assumptions about the response of investment to output and the interest rate. Here we consider the issue one last time in the context of the
The neutrality of moneya. In what sense is money neutral? How is monetary policy useful if money is neutral?b. Fiscal policy, like monetary policy, cannot change the natural level of output. Why then is monetary policy considered neutral but fiscal policy is not?c. Discuss the statement: ‘Because
Supply shocks and the medium run Consider an economy with output equal to the natural level of output. Now suppose there is an increase in unemployment benefits.a. Using the model developed in this chapter, show the effects of an increase in unemployment benefits on the position of the AD and AS
Spending shocks and the medium run Suppose the economy begins with output equal to its natural level. Then, there is a reduction in income taxes.a. Using the AS–AD model developed in this chapter, show the effects of a reduction in income taxes on the position of the AD, AS, IS and LM curves in
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. The aggregate supply relation implies that an increase in output leads to an increase in the price level.b. The natural level of output can be determined by looking at the
Go to the Eurostat website (http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/). Find the data on harmonised unemployment in the statistics portal.a. What are the latest monthly data on the unemployment rate in your country, by gender?b. What are the latest monthly data on the
Go to the Eurostat website (http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/). Find the labour market data for your country.a. What are the latest monthly data on the size of the labour force, on the number of unemployed and on the unemployment rate in your country?b. How many
Unemployment spells and long-term unemployment In the example presented in this chapter, about 47% of unemployed workers leave unemployment each month.a. What is the probability that an unemployed worker will still be unemployed after one month? Two months? Six months?Now consider the composition
The informal labour market You learned in Chapter 2 that informal work at home (e.g.preparing meals, taking care of children) is not counted as part of GDP. Such work also does not constitute employment in labour market statistics. With these observations in mind, consider two economies, each with
The existence of unemploymenta. Suppose the unemployment rate is very low. How easy is it for firms to find workers to hire? How easy is it for workers to find jobs? What do your answers imply about the relative bargaining power of workers and firms when the unemployment rate is very low? What do
Reservation wages In the mid-1980s, a famous supermodel once said that she would not get out of bed for less than $10 000 (presumably per day).a. What is your own reservation wage?b. Did your first job pay more than your reservation wage at the time?c. Relative to your reservation wage at the time
The natural rate of unemployment Suppose that the mark-up of goods prices over marginal cost is 5%, and that the wage-setting equation is W = P(1 − u), where u is the unemployment rate.a. What is the real wage, as determined by the price-setting equation?b. What is the natural rate of
Answer the following questions using the information provided in this chapter.a. Is it true that European countries have very different participation rates, regardless of the gender of workers?b. Is it true that countries with lower participation rates among women also have lower participation
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. Since 1950, the participation rate in the Europe has remained roughly constant at 60%.b. In Europe, the average duration of unemployment is small compared to the USA.c. The
Saving and investment throughout the world Retrieve the most recent World Economic Outlook (WEO)from the website of the International Monetary Fund(www.imf.org). In the Statistical Appendix, find the table titled ‘Summary of Sources and Uses of World Saving’, which lists saving and investment
Retrieve the nominal exchange rates between Japan and the USA from the Internet. A useful and free Canadian site that allows you to construct graphs online is the Pacific Exchange Rate Service (fx.sauder.ubc.ca), provided by Werner Antweiler at the Sauder School of Business, University of British
Eliminating a trade deficita. Consider an economy with a trade deficit (NX < 0) and with output equal to its natural level. Suppose that, even though output may deviate from its natural level in the short run, it returns to its natural level in the medium run. Assume that the natural level is
Net exports and foreign demanda. Suppose there is an increase in foreign output. Show the effect on the domestic economy (i.e. replicate Figure 6.4).What is the effect on domestic output? On domestic net exports?b. If the interest rate remains constant, what will happen to domestic investment? If
Consider a world with three equal-sized economies (A, B and C) and three goods (clothes, cars and computers). Assume that consumers in all three economies want to spend an equal amount on all three goods.The value of production of each good in the three economies is given below.ABC Clothes 10 0 5
Real and nominal exchange rates and inflation Using the definition of the real exchange rate (and Propositions 7 and 8 in Appendix 1 at the end of the book), you can show that= + πt − π*t In words: the percentage real appreciation equals the percentage nominal appreciation plus the difference
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. The national income identity implies that budget deficits cause trade deficits.b. Opening the economy to trade tends to increase the multiplier because an increase in
Consumption, investment and the recession of 2007–2010 This question asks you to examine the movements of investment and consumption before, during and after the recession of 2007–2010. Go to the Eurostat website(http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/). Find the data
The (less paradoxical) paradox of saving A chapter problem at the end of Chapter 3 considered the effect of a drop in consumer confidence on private saving and investment, when investment depended on output but not the interest rate. Here, we consider the same experiment in the context of the
Policy mixes Suggest a policy mix to achieve each of the following objectives.a. Increase Y while keeping i constant.b. Decrease the fiscal deficit while keeping Y constant. What happens to i? to investment?
The liquidity trapa. Suppose the interest rate on bonds is negative. Will people want to hold bonds or to hold money? Explain.b. Draw the demand for money as a function of the interest rate for a given level of real income. How does your answer to part (a) affect your answer? (Hint: Show that the
Investment and the interest rate The chapter argues that investment depends negatively on the interest rate because an increase in the cost of borrowing discourages investment. However, firms often finance their investment projects using their own funds.If a firm is considering using its own funds
Consider the following IS–LM model:C = 400 + 0.25YD I = 300 + 0.25Y − 1500i G = 600 T = 400(M/P)d = 2Y − 12 000i M/P = 3000a. Derive the IS relation. (Hint: You want an equation with Y on the left side and everything else on the right.)b. Derive the LM relation. (Hint: It will be convenient
The response of investment to fiscal policya. Using the IS–LM diagram, show the effects on output and the interest rate of a decrease in government spending.Can you tell what happens to investment? Why?Now consider the following IS–LM model:C = c0 + c1(Y − T)I = b0 + b1Y − b2i M/P = d1Y −
Consider first the goods market model with constant investment that we saw in Chapter 3.Consumption is given by C = c0 + c1(Y − T)and I, G and T are given.a. Solve for equilibrium output. What is the value of the multiplier?Now let investment depend on both sales and the interest rate:I = b0 +
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. The main determinants of investment are the level of sales and the interest rate.b. If all the exogenous variables in the IS relation are constant, then a higher level of
Current monetary policy Go to the website of the European Central Bank (http://www.ecb.int/home/html/index.en.html) and download the most recent monetary policy decisions press release of the Governing Council. Make sure you get the most recent GC press release and not simply the most recent ECB
Bank runs and the money multiplier During the Great Depression, the US economy experienced many bank runs, to the point where people became unwilling to keep their money in banks, preferring to keep it in cash.How would you expect such a shift away from deposit accounts toward currency to affect
The money multiplier The money multiplier is described in Section 4.4. Assume the following:i. The public holds no currency.ii. The ratio of reserves to deposits is 0.1.iii. The demand for money is given by Md = aY(0.8 − 4i)Initially, the monetary base is b100 billion, and nominal income is b5
ATMs and credit cards This problem examines the effect of the introduction of ATMs and credit cards on money demand. For simplicity, let’s examine a person’s demand for money over a period of four days.Suppose that before ATMs and credit cards, this person goes to the bank once at the beginning
The demand for bonds In this chapter, you learned that an increase in the interest rate makes bonds more attractive, so it leads people to hold more of their wealth in bonds, as opposed to money. However, you also learned that an increase in the interest rate reduces the price of bonds.How can an
Suppose that a person’s wealth is b50 000 and that her yearly income is b60000.Also suppose that her money demand function is given by Md = aY(0.35 − i)a. Derive the demand for bonds. Suppose the interest rate increases by 10 percentage points. What is the effect on the demand for bonds?b. What
Suppose that money demand is given by Md = aY(0.25 − i)where aY is a100. Also, suppose that the supply of money is a20.a. What is the equilibrium interest rate?b. If the central bank wants to increase i by 10 percentage points (e.g., from 2% to 12%), at what level should it set the supply of
Consider a bond that promises to pay b100 in one year.a. What is the interest rate on the bond if its price today is a75? a85? a95?b. What is the relation between the price of the bond and the interest rate?c. If the interest rate is 8%, what is the price of the bond today?
Suppose that a person’s yearly income is b60000.Also suppose that this person’s money demand function is given by Md = aY(0.30 − i)a. What is this person’s demand for money when the interest rate is 5%? 10%?b. Explain how the interest rate affects money demand.c. Suppose that the interest
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. Income and financial wealth are both examples of stock variables.b. The term investment, as used by economists, refers to the purchase of bonds and shares of stock.c. The
The paradox of saving revisited You should be able to complete this question without doing any algebra, although you may find making a diagram helpful for part (a). For this problem, you do not need to calculate the magnitudes of changes in economic variables – only the direction of change.a.
Investment and income This problem examines the implications of allowing investment to depend on output. Chapter 5 carries this analysis much further and introduces an essential relation – the effect of the interest rate on investment – not examined in this problem.a. Suppose the economy is
Taxes and transfers Recall that we define taxes, T, as net of transfers. In other words, T = taxes − transfer paymentsa. Suppose that the government increases transfer payments to private households, but these transfer payments are not financed by tax increases. Instead, the government borrows to
Balanced budget versus automatic stabilisers It is often argued that a balanced budget amendment would actually be destabilising. To understand this argument, consider the economy of problem 5.a. Solve for equilibrium output.b. Solve for taxes in equilibrium.Suppose that the government starts with
Automatic stabilisers So far in this chapter, we have assumed that the fiscal policy variables G and T are independent of the level of income. In the real world, however, this is not the case. Taxes typically depend on the level of income and so tend to be higher when income is higher. In this
The balanced budget multiplier For both political and macroeconomic reasons, governments are often reluctant to run budget deficits. Here, we examine whether policy changes in G and T that maintain a balanced budget are macroeconomically neutral. Put another way, we examine whether it is possible
Use the economy described in problem 2.a. Solve for equilibrium output. Compute total demand. Is it equal to production? Explain.b. Assume that G is now equal to 110.Solve for equilibrium output. Compute total demand. Is it equal to production?Explain.c. Assume that G is equal to 110, so output is
Suppose that the economy is characterised by the following behavioural equations:C = 180 + 0.8YD I = 160 G = 160 T = 120 Solve for the following variables.a. Equilibrium GDP (Y)b. Disposable income (YD)c. Consumption spending (C)
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. The largest component of GDP is consumption.b. Government spending, including transfers, was equal, on average, to 20.9% of GDP in EU15 in 2008.c. The propensity to consume has
The labour market and the recession of 2007–2010 Go to the Eurostat web page and retrieve the quarterly data at constant prices for your country and for the EU27.a. How did the unemployment rate change in 2007 and after?Do you think the unemployment rate tells the whole story about the labour
Measured and true GDP Suppose that instead of cooking dinner for an hour, you decide to work an extra hour, earning an additional b12. You then purchase some (takeout) Chinese food, which costs you b10.a. By how much does measured GDP increase?b. Do you think the increase in measured GDP accurately
Hedonic pricing As the third Focus box in this chapter explains, it is difficult to measure the true increase in prices of goods whose characteristics change over time. For such goods, part of any price increase can be attributed to an increase in quality. Hedonic pricing offers a method to compute
Consider the economy described in problem 4.a. Construct real GDP for years 2006 and 2007 by using the average price of each good over the two years.b. By what percentage does real GDP change from 2006 to 2007?c. What is the GDP deflator in 2006 and 2007? Using the GDP deflator, what is the rate of
Consider the economy described in problem 4.a. Use the prices for 2006 as the set of common prices to compute real GDP in 2006 and in 2007. Compute the GDP deflator for 2006 and for 2007 and compute the rate of inflation from 2006 to 2007.b. Use the prices for 2007 as the set of common prices to
An economy produces three goods: cars, computers and oranges. Quantities and prices per unit for years 2006 and 2007 are as follows:2006 2007 Quantity Price Quantity Price Cars 10 A2000 12 A3000 Computers 4 A1000 6 A500 Oranges 1000 A1 1000 A1a. What is nominal GDP in 2006 and in 2007? By what
During a given year, the following activities occur:i. A silver mining company pays its workers a200 000 to mine 75 pounds of silver. The silver is then sold to a jewellery manufacturer for a300 000.ii. The jewellery manufacturer pays its workers a250 000 to make silver necklaces, which the
Suppose you are measuring annual GDP by adding up the final value of all goods and services produced in the economy.Determine the effect on GDP of each of the following transactions.a. A seafood restaurant buys a100 worth of fish from a fisherman.b. A family spends a100 on a fish dinner at a

Showing 1200 - 1300 of 5010

First
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Last

Step by Step Answers

Services

Sitemap
Fun
Definitions
Become Tutor
Used Textbooks
Study Help Categories
Recent Questions
Expert Questions
Campus Wear
Sell Your Books

Company Info

Security
Copyrights
Privacy Policy
Terms & Conditions
SolutionInn Fee
Scholarship
Online Quiz
Give Feedback, Get Rewards

Get In Touch

About Us
Contact Us
Career
Jobs
FAQ
Student Discount
Campus Ambassador

Secure Payment

Download Our App

© 2026 SolutionInn. All Rights Reserved