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foundations macroeconomics

Macroeconomics 3rd Global Edition Daron Acemoglu ,David Laibson ,John List - Solutions

4. Is GDP per capita more relevant to understanding differences in international living standards than GDP per worker?
3. Suppose that country A has higher income per capita than country B. Explain why this does not imply that most citizens of country A have higher incomes than most citizens of country B. Construct an example in which both countries have ten citizens to demonstrate this point.
2. What are the disadvantages of using Big Macs to measure PPP?
1. Suppose you are comparing per capita income in Germany and Hungary. According to the International Monetary Fund’s World Economic Outlook Database (April 2017), Hungary’s GDP per capita in 2015, using exchange rates and current prices, was Intl$ 12,344, and its PPP-based GDP per capita was
13. Recall the method of calculating real GDP detailed in the chapter. As you may already have noticed, this method has a problem: when calculating aggregate output, this method weights the output of the various goods and services by their relative prices in the base year. Say, for example, a
12. As of September 25, 2020, Jeff Bezos (the CEO of Amazon) had an estimated net worth of $182 billion(https://www.forbes.com/billionaires/). But does this make Bezos the richest person who ever lived? John D.Rockefeller, the founder of Standard Oil, is often credited with this distinction. At the
11. Social Security payments in the United States are currently linked to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This means that as the CPI-W shows an increase in the price level, Social Security payments will also increase, keeping the real value of the
10. The following table contains some of the CPI components for the United Kingdom between 2009 and 2016.Every component is a part per 1,000.What are the reasons for the changes in average spending in the following components?a. Food and non-alcoholic beverages, which fell by 13 percent.b. Clothing
9. The country of Francania produces and consumes only three goods: lemonade, croissants, and blouses. The quantity produced and price of each good in 2020 and 2021 are given in the following table:a. Calculate nominal GDP for 2020 and 2021.b. Using 2018 as the base year, calculate real GDP for
8. With the rise of globalization, supply chains are spread across the world. Suppose the following are the stages of producing pencils in Germany:• A German-based pencil company develops the designs for the pencil. It’s a ground-breaking design that is ergonomic, easy to carry, and doesn’t
7. In 1966, two of baseball’s best pitchers, both playing for the Los Angeles Dodgers, formed a two-player union. They demanded a $1 million 3-year contract to be split equally. They eventually signed 1-year contracts of $125,000 for Koufax and $110,000 for Drysdale. A short time later, baseball
6. Most products we buy go through several intermediate processes before we can purchase them. Suppose the stages and the associated transaction values involved in the production of a tin of coffee are as follows:By how much would GDP change as a result of this tin of coffee? Use the following:a.
5. The following table gives data for a small country, Barboras.a. Use the data to calculate GDP for this economy using the expenditure method.b. Calculate the value of Barboras’ GNP. Does Barboras’GDP differ from its GNP? Why or why not? Component Interest paid on government debt Depreciation
4. Suppose there are two neighboring countries in a multicountry world: Plastakia and Recylopia. Both countries have the same currency, Bogs. Plastakia’s GDP per capita is 5,380 Bogs, its GDP is 400 million Bogs, and its GNP is 432 million Bogs. Recyclopia has a population of 40,000 people and
3. To generate estimates of GDP, the Bureau of Economic Analysis must aggregate a variety of data sources, such as expenditure surveys.a. What measurement problems might the government face in trying to estimate GDP? Consider the three accounting methods discussed in this chapter; what kinds of
2. By how much would GDP change as a result of each of the following changes? Briefly explain your answers.a. A couple decides that their child should visit a private language tutor as opposed to attending a language school. The cost of the private language teacher is€10 per session, whereas the
1. Which of the following would be considered a final good in the calculation of Armenian GDP? Explain your answers.a. All the actors and members of staff employed for a popular TV show, produced by Armenia TV, are citizens of the country.b. The Armenian government approved a stimulus package in
2. From 1941 to 1942, U.S. real GDP rose 18.9%, even though real consumption, real (private) investment, and real net exports all fell. How is this possible? Explain this important episode in economic history.
1. Let’s use the different components of GDP from the national income accounting identity and the Evidence-Based Economics section to examine the types of events that you read about in the news. First, economists and politicians frequently talk about the impact of trade on the economy.For the
19. How is the CPI similar to the GDP deflator?
18. What are the key differences between the CPI and the GDP deflator?
17. Why is it essential to differentiate between real and nominal growth rates of GDP?
16. In 1968, Robert F. Kennedy gave an address in which he criticized the usefulness of GDP. His key observations are quoted here: “Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product—if we judge the United States of America by that—that Gross
15. Nobel laureate Simon Kuznets, who did significant work on national income accounts in the 1930s, said that the welfare of a nation can scarcely be inferred from a measurement of national income. Would you agree with him? Why or why not?
14. When would a country’s GDP exceed its GNP?
13. You decide to cook your own meal rather than eat in a restaurant. How will this affect GDP?
12. Describe three important factors that GDP leaves out.
11. How might more rapid income per capita growth in a country with low income like Zimbabwe improve the wellbeing of the citizens of the United States in ways that are both measured and not measured in U.S. GDP calculations?
10. What is meant by capital depreciation?
9. Why is owning a home an important source of capital income?
8. How is the level of economic activity calculated using the income method?
7. Which category of expenditure accounts for the highest share of GDP in the United States?
6. How is GDP calculated using expenditure-based accounting?
5. How is production-based accounting used to estimate GDP? Discuss the role of value added.
4. Use the circular flow diagram to show how expenditure, production, and income relate to one another.
3. What is an accounting identity? Explain the accounting identity Production = Expenditure = Income.
2. How is GDP defined?
1. Find and list three recent stories in the media that would typically be studied in macroeconomics. (Cite the date and source of the stories you choose.) Discuss why they would fall within the subject matter of macroeconomics.
15. Draw the demand curve and the supply curve for a market in which the equilibrium price is negative. (Hint: Reread the discussion—Letting the Data Speak—of the crude oil market in Cushing, Oklahoma, on April 20, 2020.)
14. Suppose the demand for hand sanitizer is QD = 70 - 4P, and the supply of hand sanitizers is QS = 10 + 2P, where P is the price of a unit of hand sanitizer.a. Find the equilibrium price and quantity of hand sanitizers.b. Suppose consumers’ income increases and hand sanitizers are considered as
13. The equilibrium price of coffee in an economy, measured in dollars, is about $2,000 per ton. To help the coffee farmers earn a higher income, the government set the price to $2,500 per ton.a. How will this affect the demand and supply of coffee in the coffee market?b. Construct a diagram for
12. As part of U.S. sugar policy (in 2013), the government offered to buy raw sugar from domestic sugarcane mills at an average price of 18.75 cents per pound. This government offer was made for as much raw sugar as the sugarcane mills produced. Any raw sugar purchased by the government was not
11. Lobsters are plentiful and easy to catch in August but scarce and difficult to catch in November. In addition, vacationers shift the demand curve for lobsters further to the right in August than in any other month. Compare the equilibrium price and quantity of lobsters in August to the
10. Paris decides to increase the consumption of natural juices by imposing a maximum price of €3 per glass.The current equilibrium price is €4. Sketch the supply and demand for natural juice glasses and show the effect of this policy. Clearly label the excess demand/supply in your diagram.
9. Suppose that while explaining this chapter to your classmate, she tells you that when the supply curve shifts to the left, the price will increase. This increase in price will lead to an increase in supply leading to a rightward shift in the supply curve. Therefore, the supply curve will be back
8. A freshwater aqua farm in Singapore can breed tiger prawns and tilapia. Recently, it was found that there may be a risk of contracting a type of disease from the consumption of tiger prawns—this discovery has led to fear among its consumers. How will this affect the equilibrium price and
7. For each of the following situations, sketch the demand curve as accurately as possible.a. There are 2 buyers of ostrich feathers. For any price above £6, these two buyers want nothing. For any price at or below £6 these buyers want a total of exactly 40 feathers.b. Insulin is a medicine
6. Suppose nuclear reactors primarily provide the energy supply in your country. Your country is both sunny and windy at the same time and, therefore, many people have decided to set up solar panels and wind farms as a cheaper alternative to obtaining electricity. Explain how this might affect the
5. Thailand is the world’s second-largest producer of hard drives after China. In 2011, there were severe floods in Thailand. Because the hard drive manufacturing factories had to shut down due to the flood, the cost of hard drives increased significantly.a. Draw and discuss a supply and demand
4. Sketch supply and demand curves for the housing market and label the equilibrium price and quantity.a. A booming economy increases the demand for housing.Show the shift in the demand curve on your graph. What does this do to the price and quantity in the market?b. You and a friend both notice
3. The following two incidents involve simultaneous shifts in the demand and the supply curves. Analyze the final effects on the equilibrium price and quantity after the changes. Explain your answers.a. Severe drought at the peak of summer reduces the production of watermelons. With more people
2. Suppose your country has been doing well since the end of the global financial crisis and, therefore, the wages have increased by 30 percent since 2008. In parallel, active workers represent 75 percent of the population.Using a generic supply curve and assuming steak is a normal commodity, show
1. Suppose the following table shows the quantity of glitter that is demanded and supplied at various prices in European Country A.a. Use the data in the table to draw the demand and supply curves in the market for glitter.b. What is the equilibrium price and quantity in the market?c. The following
11. Recall from the Evidence-Based Economics section that governments can raise or lower the domestic price of gasoline by respectively taxing or subsidizing its sale. Using the Law of Demand, let’s analyze what happens to your gasoline demand under different government policy regimes. All of the
10. Assume a shipping company is offering a Mediterranean cruise along Greece for anyone who lives in your city at the fixed price of €200 (the normal price is around€2,000). However, only a hundred people can take advantage of this offer. What would be the optimal way of distributing these
9. How do the following affect the equilibrium price in a market?a. A rightward shift in demandb. A leftward shift in supplyc. A leftward shift in supply and a rightward shift in demand of the same magnituded. A small rightward shift in supply and a large leftward shift in demand
8. Explain how the following factors will affect the supply curve for cars.a. An increase in the working age population of a country.b. A restriction on the inflow of foreign labor employed in the car industry.c. More companies are producing cars.
7. What is the difference between willingness to accept and willingness to pay? For a trade to take place, does the willingness to accept have to be lower, higher, or equal to the willingness to pay?
6. Suppose the price of crude oil rises from $55.66 per barrel in February 2020 to $62.28 per barrel in February 2021. The quantity supplied increases from 500 gallons to 720 gallons. What does this imply about the relationship between the price and the supply? Does the Law of Supply hold true in
5. In what ways do you think renewable energy is affecting the demand curve of oil?Questions
4. Explain how the following factors will affect the demand curve for houses in an economy.a. Commercial banks raise the housing loan rate.b. An increase in immigration results in a large increase in population in the economy.c. An increase in the income of people in the economy.
2. How would you define diminishing marginal benefits?Using the examples below, explain if it is possible to experience diminishing marginal benefits.a. You are an ardent fan of animated movies. Are you going to be as excited for the eighth animated movie released in a given year (such as Wonder
1. How would you define a perfectly competitive market?Use an example to explain how you would apply the concept of ceteris paribus (holding all else equal) in such a market.
9. Your firm has a marginal revenue given by the equation MR = 24 - Q. This means that the third unit of output brings in 24 - 3 = +21 of additional revenue. The marginal cost for your firm is MC = 4 + Q; thus, the third unit increases cost by 4 + 3 = +7.a. If you are currently producing two units,
8. It is possible to use equations to do marginal analysis.Suppose your firm has a marginal revenue given by MR = 21 - 2Q. This means that the fifth unit of output brings in 21 - 2(5) = $11 of additional revenue.The marginal cost for your firm is MC = 3 + Q.This means that the fifth unit of output
7. Scott is planning on buying a car. He can choose between six types of powering: petrol, diesel, gas, hybrid, electric, or hydrogen. Being environmentally conscious, his total benefit will reflect the amount of greenhouse gases a car releases. The total cost is the price and upkeep of the car. He
6. Viktoria, a business consultant, has to travel quite frequently from Singapore to other parts of Asia. She has a frequent flyer card with Singapore Airlines and can choose from four different classes—First Class, Business Class, Premium Economy, and Economy. The following table provides the
5. Richard has begun running to improve his health. The first column lists the distance he is jogging in meters, the second column the total benefits in U.S. dollars.Meters ran Total Benefit 0 0 500 40 1000 100 2000 200 3000 320 4000 420 5000 490 6000 540 7000 550a. Find the marginal benefit, the
4. Pascal is taking three courses this semester: economics, calculus, and statistics. Pascal’s goal is to maximize his average grade on the three term exams. Using optimization in marginal analysis, help Pascal decide how much time to spend studying for each exam if he has only one day in total
3. Determine if the following statements use optimization by total values or optimization by marginal analysis.a. Kelly is working as an administrator at a university.The university is now facing the decision whether to launch a new bachelor’s and a new master’s program.The expected net benefit
2. Suppose you applied to three jobs and are accepted for all three. Considering all factors:a. How would you make an optimal decision about which job to choose?b. The jobs that you have applied for only require a bachelor’s degree; however, you may wish to pursue Problems your Masters. How can
1. Suppose you are making two different decisions: the first decision is to buy a financial stock. The second decision is to buy a good to consume. Identify how you would behave in each decision to optimize your choice. Does optimal choice always mean obtaining the highest values?
1. You are an apartment hunter looking for housing in the Portland, Oregon, area. You would like to pay about$950 per month, so you search for apartments near the ring of highways around the city center. You’ve found two apartments—one apartment to the east of Portland(apartment East) and
9. A normative model answers optimization questions like what the optimal way of solving things is. Why do you think economists are being taught early on about normative models and optimization?
8. Identify the distinction between optimization in levels and optimization in differences. Do they yield the same result?
7. Economists like using marginal analysis to illustrate a point. Suppose you have been working very hard and are considering taking a vacation. Use marginal analysis to illustrate how you would approach taking (i) one additional day and (ii) one additional week of vacation.
5. Suppose you are trying to open a store at a local shopping mall. There are two open spaces: one is on the ground floor near the entrance; the other is on the topmost floor. Both spaces are identical in size, but the rent for the ground floor space is almost twice the rent for the top floor
3. Suppose your workplace does not have a cafeteria and you have to go out during your lunch break to grab a bite to eat. You have two options: an expensive restaurant that is two minutes away or a cheaper one that is ten minutes away. Does picking the one that is ten minutes away necessarily imply
A3. Suppose the following table shows the relationship between revenue that the Girl Scouts generate and the number of cookie boxes that they sell.Number of Cookie Boxes Revenue 50 .................................. $200 150 .................................. $600 250
A2. Consider the following data that show the quantity of coffee produced in Brazil from 2004 to 2012.Year Production (in tons)2004 .................................. 2,465,710 2005 .................................. 2,140,169 2006 .................................. 2,573,368 2007
A1. How would you represent the following graphically?a. Income inequality in the United States has increased over the past 10 years.b. All the workers in the manufacturing sector in a particular country fit into one (and only one) of the following three categories: 31.5 percent are high school
9. An economist believes that the consumption patterns of a household can be determined by using the equation C = a + bI, where I is the income, a denotes a positive number, and b a percentage.a. Is the economist using a model?b. How would you test this?
8. In 2016, most British voters decided that the United Kingdom should exit the European Union (EU). This withdrawal is popularly known as Brexit. How can we use this to demonstrate the effects of EU membership?Is this a natural experiment? What economic impact will this have on the United Kingdom?
7. An independent variable is a variable whose value does not depend on another variable, whereas a dependent variable is a variable whose value depends on another variable. Assume that ACT scores obtained by the students is the dependent variable.a. What kind of independent variables might we use
6. During the summer of 2015, the European Union (EU)experienced a record number of applications from asylum seekers. Some said they are economic migrants who just want to take advantage of the relatively good social protection system of the EU, whereas others pointed out that most asylum
5. As the text explains, it can sometimes be very difficult to sort out the direction of causality.a. As opposed to the United States, which has serious speed limits, in Germany, many places have no speed limits on the motorway. This means that you can easily travel at 200 kilometers per hour. Does
4. A study in 1991 have found that hormone replacement therapy (HRT), used to treat symptoms of menopause, reduces coronary heart disease risk. Do you think this study is strong evidence in favor of HRT? Explain.
3. This chapter stressed the importance of using appropriate samples for empirical studies. Consider the following two problems in that light.a. Imagine you are a sociologist and your task is to find out the average wage in a small town in rural Europe. Since you are short on time you travel to the
2. The average score for a class of 30 students is 70. The score for the top 20 students in the class averaged at 75.What is the average score of the remaining 10 students in the class?
1. Some studies have found that people who owned guns were more likely to be killed with a gun. Do you think this study is strong evidence in favor of stricter gun control laws? Explain.
2. In the second Evidence-Based Economic module, we discussed how Philip Oreopoulos used a natural experiment involving compulsory schooling laws to infer that the return to one additional year of schooling is a 10 percent increase in earnings. For this question, let’s assume that Oreopoulos’s
1. Let’s return to our examination of whether workers with 4-year college degrees earn more than workers with high school degrees. In the first Evidence-Based Economics module, we provided data about earnings for U.S. workers.We showed that the median earnings of full-time workers with a college
10. Suppose you had to find the effect of smoking on cancer.Would you choose to run a randomized experiment or would it make sense to use natural experiments here? Explain.
9. Why is it necessary to conduct experiments before releasing new drugs in a market? Why is randomization needed for experiments?
8. What is data? Is it always numerical? How is data used in empirical analysis? Give an example.
7. Consider the following examples and state whether there is positive correlation, negative correlation, or zero correlation between the variables.a. A person’s gender and how well they drive a car.b. The number of sunglasses sold and the number of sunny days.c. The amount of gas (petrol) sold
6. Explain why correlation does not equal causation. Give examples where the cause and effect relationship between events is not necessarily clear.
5. Why does the size of the sample matter in an empirical argument?
4. How is the mean calculated from a series of observations?Suppose a supermarket near you sells 4 types of fruit juice (apple, orange, lemon, and grape). The price of the apple juice is €3, the price of the orange juice is€5, the lemon juice is €6, and the grape juice is €4. What is the
3. Are economic models detailed or simplified versions of reality? Could economists build perfect economic models?Why?

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