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foundations macroeconomics
Macroeconomics 3rd Global Edition Daron Acemoglu ,David Laibson ,John List - Solutions
5. Suppose Construire Construction Firm makes a special window frame that it sells for €20. The following table shows the number of window frames that can be produced from a given number of labor hours. Assume that the company cannot hire labor for a fraction of an hour.a. Find the marginal
4. A new study suggests that technology might provide improved leisure options, like video games, to potential workers, and that young men with low levels of education are increasingly staying home and playing video games instead of working.14 There has also been a concurrent decline in the labor
3. In April 2012, the Bazanian Daily, a leading newspaper in the country of Bazania, carried a report titled “20,000 Jobs Added in the Last Quarter; Unemployment Rate Shoots Up from 5 Percent to 6.7 Percent.” How could the unemployment rate in Bazania increase even when new jobs were created?
2. Assume that 1 million immigrants enter the United States this year and that some of these immigrants work in the home construction industry.a. Graph the impact of immigration on the supply of labor and the resulting new equilibrium wage and quantity.b. These new immigrants also increase the
1. The following table shows the employment level, unemployment level, and the labor force participation rate in Greece for the month of March of every year from 2008 to 2020. Use the given data to complete the table and answer the following questions. (Note: All rates are in percent.)a. In which
2. In the 1980s, Raleigh-Durham in North Carolina specialized in textiles, apparel, electrical products, and computers.These industries contracted in the next two decades, partly as a result of competition from imports from China, and many of the establishments in these industries, including those
1. The period from 2007 to 2009 was a time of economic contraction that some have called the “Great Recession.”An even sharper (though shorter) economic contraction occurred during the COVID pandemic in 2020. During periods of recession, most firms experience a decline in demand for their
12. What is wage rigidity? List and explain two factors that can increase wage rigidity in the labor market.
11. Sometimes new technology in production reduces the time that a worker takes to complete a task.Technological innovations can also completely replace a factory worker. Does this mean that technological progress will lead to large-scale unemployment?Explain your answer.
10. What is the difference between frictional and structural unemployment?
9. What is meant by job search? How does it lead to frictional unemployment?
8. Would a country with a healthy economy have a zero unemployment rate?
7. Why does the labor supply curve slope upward, and what can cause the labor supply curve to shift?
6. List two factors that can cause a shift in the labor demand curve. Explain why a change in each factor can lead to a shift of the curve.
5. What is the value of the marginal product of labor?Explain how it is computed with an example.
4. What could explain why unemployment is lower among workers with a relatively higher level of education?
3. Consider Exhibit 9.2. What were the three highest rates of unemployment since 1948? When did they occur?
2. Explain whether each of these individuals will be counted as a part of the labor force.a. Chiara is a part-time university lecturer who is raising her daughter by herself.b. Jan recently quit his job and has not applied for any jobs in the last four weeks because he is still trying to decide
1. Unemployment statistics are measured and released by the Bureau of Labor Statistics, a division of the U.S.Department of Labor.a. When does the Bureau of Labor Statistics officially classify a person as being employed? When are potential workers classified as being unemployed?b. What do the
12. Based on the discussions in this chapter, the preceding chapters, and your own readings, what could be some of the conditions under which aid works and can assist the development of the countries of the Global South?
11. In what situation would foreign aid be not only insufficient but also detrimental to an economy?
10. The process of Schumpeter's creative destruction creates winners and losers in economies. What are some of the options to limit the negative effects on the losers? Why is it imperative to minimize these negative effects?
9. Jointly published by The Wall Street Journal and The Heritage Foundation, “The Freedom Index” gives an annual ranking of most of the countries of the world based on their level of economic freedom. Factors considered in the rankings include the status of property rights, extent of
8. Suppose the returns-to and cost-of entrepreneurship curves are described by the following equations (with numbers measured in the thousands):R = 520,000 - 140,000 N C = 120,000 + 180,000 N where R = returns to entrepreneurship, C = cost of entrepreneurship, N = number of entrepreneursa. How
7. Using a graph like that displayed in Exhibit 8.5, which show returns to entrepreneurship and the opportunity cost of entrepreneurship, illustrate how each of the following historical events shifted one (or both) of the curves.a. The Lebanese Company for the Development and Reconstruction of
6. Since gaining independence from Malaysia in 1965, Singapore has had impressive growth performance, achieving an average annual growth rate of GDP per capita of 7.46 percent. State-owned enterprises (SOEs)have featured prominently in its burgeoning economy;even today, many of its powerful
5. The latest OECD Economic Survey of Germany projected growth to top 2 percent for the 2018–19 period.To sustain the remarkable growth of the German economy, OECD Secretary-General Angel Gurría suggested, among other improvements, decreasing the government involvement and ownership of various
4. Look at the following map of Nogales, a twin city that is divided by the U.S. border.One part of Nogales lies in the United States, in Arizona, and the other part lies in Sonora, Mexico. Life in Nogales, Mexico, is very different from life in Nogales, Arizona. The average income in Nogales,
3. Suppose the country of Temria has an abundance of oil and gas. These natural resources were discovered about 40 years ago. Before this discovery was made, the country was a middle-income country with relatively productive industrial and service sectors. However, with exceptional profits due to
2. In 1974, Cyprus got divided into two parts, the Northern part that got invaded by Turkey and the Southern part that is internationally recognized and a member of the European Union. The Southern or the Greek Cypriot part has a freemarket economy mostly based on services, especially the tourism
1. A mission "to expand financial access to help underserved communities thrive" is the raison-d'etre of Kiva, a nonprofit organization founded in San Francisco in 2005. It serves as a platform to help small businesses and low-income entrepreneurs in 77 countries. Financing the businesses come from
14. In 2019, average GDP per capita in the United States was approximately$54,000 and in Mexico was about $18,000 (in PPP-adjusted dollars). A researcher claims that this prosperity gap between the United States and Mexico is due to differences in climate. He argues that average temperature in the
13. Parts of the world that were relatively more prosperous 500 years ago have experienced a reversal of fortune and are relatively poorer today. What factors could explain this?
12. What is meant by political creative destruction? How would this concept explain the existence of extractive institutions?
11. Suppose a country has well-enforced private property rights for entrepreneurs, but a large fraction of the population does not have access to education and thus cannot become entrepreneurs. Moreover, their productivity as workers is low. Would you say that this country has inclusive economic
10. In what ways should extractive economic institutions be changed to encourage economic development?
9. What does the return-to-entrepreneurship curve show?What is meant by the opportunity cost of entrepreneurship?
8. How do inclusive economic institutions differ from extractive economic institutions?
7. What does it mean to say that private property rights are well enforced in an economy? How does enforcement of these rights foster economic development?
6. How does the institutions hypothesis explain the difference in prosperity among nations?
5. In the context of this chapter, what is meant by the term institution? What are the three important elements that define institutions?
4. What does the culture hypothesis state?
3. According to the geography hypothesis, what could be done to improve incomes in poor countries?
2. What does the geography hypothesis state?
1. How are the proximate causes of prosperity different from the fundamental causes of prosperity?
12. Challenge Problem: Refer to Exhibit 7.4. If the United States, Guatemala, Haiti, Rwanda, Ghana, Kenya, and India continue to grow at the rates given in the exhibit, how many years (starting from 2010) would it take for each to catch up to the United States in terms of per capita GDP? Why might
11. Suppose that a 20 percent increase in the physical capital stock increases GDP by 20 percent. By how much should the capital stock increase next to cause another 20 percent increase in GDP.
10. Increasingly, independent programmers are making their code “open source.” The statistical programming language“R,” for example, is completely free and open; anyone can submit a new package of specialized functions. How might open source technology affect growth in developing
9. The Letting the Data Speak box “Levels versus Growth”points out how one important index of health—life expectancy—has changed in various countries over time.To see a dramatic animation of the data mentioned in the box, go to
8. In Question 8, we discussed the Malthusian cycle prediction.Under what conditions might the Malthusian cycle be a reality as it was in the preindustrial age?
7. The concept of diminishing returns to a factor of production applies not only to physical capital but to labor as well. Use the concept of diminishing returns to labor to explain and illustrate why there was no sustained growth in living standards prior to the Industrial Revolution.Draw a graph
6. Labor productivity (GDP per hour worked) in the United States increased significantly in the 1990s and 2000s.This can be clearly seen in Exhibits 7.10 and 7.11.a. Based on Exhibit 7.10, is it physical capital, human capital, or technology that is most responsible for the overall increase in the
5. The graph below shows an index of world GDP per capita from 1000 BC to the year 2000.As you can see, over most of that period, global economic growth was virtually nonexistent. While there were periods that experienced some increase in per capita income, sustained growth begins only in the
4. Economists Andrew McAfee and Erik Brynjolfsson have written about “The Great Decoupling”—the divergence between productivity growth and employment. Since the mid-1990s, labor productivity and real GDP have continued to increase, while employment and wages have remained stagnant. Use the
3. The following table lists GDP per capita from 1970 to 2010 for South Korea and the United States. As you can see, both grew substantially over that 40-year period.a. Plot the five data points for each country on a graph using a nonproportional scale, as in Exhibit 7.3 in the chapter. Connect the
2. Currently, some of the fastest-growing countries in the world remain desperately poor. For example, of the top five fastest-growing economies in 2016, three—Iraq, Burma, and Nauru—had real per capita GDPs that are 101st, 162nd, and 112th in the world, respectively.(Source: CIA, The World
1. Having experienced an exponential growth in the past few decades due to economic reforms it initiated in the late 1970's, China had a GDP of $305.35 billion in 1980. It witnessed a 10 percent average annual growth rate after initiating the reforms. This growth slowed down in later years, and the
1. The governor of Mississippi is elected in 2016 on a platform of stimulating economic growth in the state.The state’s GDP per capita in that year is $32,000. The governor ambitiously declares that in 10 years’ time Mississippi will catch up with Connecticut, whose GDP per capita in 2016 is
12. What factors explain the dramatic increases in life expectancy that most countries experienced in the twentieth century?
11. Based on your understanding of the chapter, how can poverty best be reduced?
10. Suppose Italy has experienced a greater average growth rate in GDP per capita than Greece. Based only on this, what would you predict about how the poverty rates changed in the two countries?
9. How did the Industrial Revolution affect economic growth?
8. What did Malthus predict about economic growth? Did his predictions come true? Why or why not?
7. Why was there no sustained economic growth before modern times, that is, before 1800?
6. What explains economic growth in the United States over the past few decades?
5. Holding all else equal, will increasing the efficiency units of labor lead to sustained growth? Why or why not?
4. The chapter emphasizes the importance of saving to economic growth.a. How is the saving rate in an economy defined?b. What factors help households decide whether to consume or save their incomes?c. How do household saving decisions impact investment in the economy?
3. According to the aggregate production function, how does real GDP increase?
2. What are catch-up growth and sustained growth? Explain with examples.
1. What is meant by economic growth? How has the U.S.economy grown over the past 200 years?
A4. The appendix details the important distinction between arithmetic and geometric averages in determining growth rates. Consider Exhibit 7.4.a. Using the procedure outlined in the Appendix for geometric average growth rates (in the section titled“Calculating Average (Compound) Growth
A3. Switzerland’s GDP per capita increased from$30,401.892 in 1989 to $81,993.727 in 2019. (Source:World Bank, https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?end=2019&locations=CH&start=1973.)a. Calculate the arithmetic average annual rate of growth of the Swiss economy during this period
A2. In 2016, Guinea topped the list of countries registering the lowest national savings, with savings forming−14.9 percent of GDP. This, however, does not mean that the economy doesn't have good prospects of potential growth given various internal positive components. Does this logic fit the
A1. Use a diagram to represent the Solow growth model using the aggregate production function and the relationship between the physical capital stock and aggregate saving.a. Which point in the figure represents the steady-state equilibrium? Why?b. Use the diagram to show the impact of an increase
12. Give an algebraic and an intuitive explanation of the concept of “efficiency of production.” Why is efficiency of production so important to GDP?
11. In the book Dead Aid, economist Dambisa Moyo9 argues that humanitarian aid—provision of food or medicine to poor families, for example—is an ineffective tool for promoting growth in the developing world. Instead, she argues in favor of foreign aid policies that encourage or subsidize
10. According to Central Intelligence Agency data, in 2017, Angola ranked first in a list of countries ranked from highest to lowest birth rates. In the same year, it ranked twentieth in a list of countries ranked from lowest to highest life expectancy in years. It means that Angola has both a high
9. An economy has two types of workers, economics professors and basketball players, and two types of tasks, teaching and playing basketball. Efficiency for each worker is measured in the value of hourly production as shown in the following table.A worker can only be assigned to one task.
8. Assume that the country Lusitania has two industries, clothing production and computer chip production. At first, both industries have identical aggregate production functions.The following table shows how the output of each industry is affected by a change in efficiency units of labor.a. Using
7. In this question, we will use what you learned in the second part of the chapter to compare the performance of an economy in two different time periods, as its physical capital stock and efficiency units of labor change.a. Suppose that from period 1 to period 2, the unemployment rate in the
6. In 2011, China revised its poverty line upward to 2,300 yuan per year, or 6.3 yuan per day. At the prevailing exchange rate, this was equal to a little less than a single U.S. dollar. Some commentators felt that China’s poverty line fell short of the World Bank’s poverty line—which, at the
5. Suppose that the GDP in current dollars for Spectrania is lower than Meleda’s GDP. In addition, using PPP-adjusted dollars, Meleda’s GDP is higher than Spectrania’s GDP. Based on this information, what would you conclude about the living standards in Polonia and Ruritania?
4. Suppose you are given the following information for the country Poldan: Characteristic Total population GDP per worker GDP per capita a. What is Poldan's GDP? Value in Poldan 175 million 29,166.667 15,500 b. What is the number of employed people in Poldan? The following table gives you the same
3. Let us use what we have learned in the first part of the chapter to compare living standards in the United States and Germany in 2015.a. The U.S. GDP in 2015 was approximately $18,120 billion, and the U.S. population was approximately 321.08 million. What was the per capita GDP in U.S.in 2015?b.
2. The following table lists 2014 PPP GDP per capita for four countries in $. It also lists the price of a Levi’s 501 jeans in local currency in each country in 2014. The price of the Levi’s 501 in the United states was $40.58 in 2014.Using the Levi’s 501 jeans as a representative commodity
1. Shutterstock is a photo library and one of the leaders in the microstock industry. Photographers and videographers from around the world upload their files to the site, knowing that each file can be sold multiple times.When a file is sold, the artist receives a royalty. In the last week of May
1. Two countries, Ruritania and Francia, have the same population, the same stock of physical capital, and the same human capital per worker in the year 2015. But Ruritania has a GDP per capita of $55,000 (in 2015 PPP), while Francia’s GDP per capita is $50,000 (again in 2015 PPP).a. What
17. What policies can be used to raise GDP in a country?
16. Why is the average American so much richer than the average Indian?
15. What does Moore’s Law state? Is Moore’s Law borne out by historical data?
14. How do increases in technology affect the aggregate production function?
13. Explain what distinguishes physical capital from natural resources.
12. Explain the difference between the terms “physical capital”and “human capital.”
11. Use the following diagram to explain the relationship between a country’s physical capital stock and GDP, holding all else constant. K= Physical capital stock
10. What are the total efficiency units of labor? What is the relationship between this concept and human capital?
9. What are factors of production? What does the aggregate production function describe?
8. What are the two components of technology?
7. What is productivity? Why does it vary across countries?
6. What does the Human Development Index measure?What is the correlation between this index and PPPadjusted GDP per capita in a country?
5. What is the correlation between GDP per capita and welfare measures like absolute poverty and life expectancy?What does this suggest about GDP per capita as a measure of welfare?
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