Macroeconomics 8th Edition Andrew B. Abel, Ben Bernanke, Dean Croushore - Solutions

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5.15. The derivation of the log-linearized equation of motion for capital. Consider the equation of motion for capital, Kt +1 = Kt + Kαt (AtLt)1−α − Ct −Gt − δKt.(a) (i) Show that ∂ ln Kt +1/∂ ln Kt (holding At, Lt, Ct, and Gt fixed) equals(1 + rt +1)(Kt/Kt +1).(ii) Show that this
5.14. (a) If the A˜t’s are uniformly 0 and if ln Yt evolves according to (5.39), what path does ln Yt settle down to? (Hint: Note that we can rewrite [5.39] as ln Yt − (n + g)t = Q + α[ln Yt −1 − (n + g)(t − 1)] + (1 − α)A˜t, where Q ≡α ln ˆs + (1 − α)(A + ln ˆ+ N ) −
5.13. Consider the model of Section 5.5. Suppose, however, that the instantaneous utility function, ut, is given by ut = ln ct + b(1 − t )1−γ/(1 − γ ), b > 0, γ > 0, rather than by (5.7) (see Problem 5.4).(a) Find the first-order condition analogous to equation (5.26) that relates current
5.12. Suppose technology follows some process other than (5.8)–(5.9). Do st = sˆand t = ˆ for all t continue to solve the model of Section 5.5? Why or why not?
5.11. Solving a real-business-cycle model by finding the social optimum.34 Consider the model of Section 5.5. Assume for simplicity that n = g = A = N =0. Let V(Kt,At), the value function, be the expected present value from the current period forward of lifetime utility of the representative
5.9. A simplified real-business-cycle model with taste shocks. (This follows Blanchard and Fischer, 1989, p. 361.) Consider the setup in Problem 5.8. Assume, however, that the technological disturbances (the e’s) are absent and that the instantaneous utility function is u(Ct ) = Ct − θ(Ct +
5.8. A simplified real-business-cycle model with additive technology shocks.(This follows Blanchard and Fischer, 1989, pp. 329–331.) Consider an economy consisting of a constant population of infinitely lived individuals. The representative individual maximizes the expected value of ∞t=0
5.7. (a) Use an argument analogous to that used to derive equation (5.23) to show that household optimization requires b/(1 − t) = e−ρEt [wt(1 + rt +1)b/wt +1(1 − t +1)].(b) Show that this condition is implied by (5.23) and (5.26). (Note that [5.26]must hold in every period.)
5.6. Suppose an individual lives for two periods and has utility ln C1 + ln C2.(a) Suppose the individual has labor income of Y1 in the first period of life and zero in the second period. Second-period consumption is thus(1 + r )(Y1 − C1); r, the rate of return, is potentially random.(i) Find the
5.5. Consider the problem investigated in (5.16)–(5.21).(a) Show that an increase in both w1 and w2 that leaves w1/w2 unchanged does not affect 1 or 2.(b) Now assume that the household has initial wealth of amount Z > 0.(i) Does (5.23) continue to hold? Why or why not?(ii) Does the result in
5.4. Suppose the period-t utility function, ut, is ut = ln ct + b(1 − t )1−γ/(1 − γ ), b > 0, γ > 0, rather than (5.7).(a) Consider the one-period problem analogous to that investigated in(5.12)–(5.15). How, if at all, does labor supply depend on the wage?(b) Consider the two-period
5.3. Let A0 denote the value of A in period 0, and let the behavior of ln A be given by equations (5.8)–(5.9).(a) Express ln A1, ln A2, and ln A3 in terms of ln A0, εA1, εA2, εA3, A, and g.(b) In light of the fact that the expectations of the εA ’s are zero, what are the expectations of ln
5.2. Redo the calculations reported in Table 5.3 for the following:(a) Employees’ compensation as a share of national income.(b) The labor force participation rate.(c) The federal government budget deficit as a share of GDP.(d) The Standard and Poor’s 500 composite stock price index.(e) The
5.1. Redo the calculations reported in Table 5.1, 5.2, or 5.3 for any country other than the United States.
4.12. Convergence regressions.(a) Convergence. Let yi denote log output per worker in country i. Suppose all countries have the same balanced-growth-path level of log income per worker, y∗. Suppose also that yi evolves according to dyi(t)/dt =−λ[yi(t) − y∗].(i) What is yi(t) as a function
4.11. Briefly explain whether each of the following statements concerning a crosscountry regression of income per person on a measure of social infrastructure is true or false:(a) “If the regression is estimated by ordinary least squares, it shows the effect of social infrastructure on output per
4.10. (A different form of measurement error.) Suppose the true relationship between social infrastructure (SI) and log income per person (y) is yi = a +bSIi + ei . There are two components of social infrastructure, SI A and SI B(with SIi = SI A i + SI B i ), and we only have data on one of the
4.9. Increasing returns in a model with human capital. (This follows Lucas, 1988.)Suppose that Y(t) = K(t)α[(1 − aH)H(t)]β, H˙(t) = BaH H(t), and K˙(t) = sY(t).Assume 0 < α < 1, 0 < β < 1, and α + β > 1.20(a) What is the growth rate of H ?(b) Does the economy converge to a balanced growth
4.8. Consider the following model with physical and human capital:Y(t) = [(1 − aK )K(t)]α[(1 − aH)H(t)]1−α, 0 < α < 1, 0 < aK < 1, 0 < aH < 1, K˙(t) = sY(t) − δK K(t), H˙(t) = B[aK K(t)]γ [aH H(t)]φ[A(t)L(t)]1−γ −φ − δH H(t), γ > 0, φ > 0, γ + φ< 1,˙L(t) = nL(t),
4.7. (This follows Jones, 2002a.) Consider the model of Section 4.1 with the assumption that G(E) = eφE . Suppose, however, that E, rather than being constant, is increasing steadily: E˙(t) = m, where m > 0. Assume that, despite the steady increase in the amount of education people are getting,
4.6. Consider the model in Problem 4.5.(a) What are the balanced-growth-path values of k and h in terms of sk, sh, and the other parameters of the model?(b) Suppose α = 1/3 and β = 1/2. Consider two countries, A and B, and suppose that both sk and sh are twice as large in Country A as in Country
4.5. (This follows Mankiw, D. Romer, and Weil, 1992.) Suppose output is given by Y(t) = K(t)αH(t)β[A(t)L(t)]1−α−β, α > 0, β > 0, α + β < 1. Here L is the number of workers and H is their total amount of skills. The remainder of the notation is standard. The dynamics of the inputs are
4.4. Suppose the production function is Y = Kα(eφE L)1−α, 0 < α < 1. E is the amount of education workers receive; the rest of the notation is standard.Assume that there is perfect capital mobility. In particular, K always adjusts so that the marginal product of capital equals the world rate
4.3. Suppose output in country i is given by Yi = Ai QieφEi Li . Here Ei is each worker’s years of education, Qi is the quality of education, and the rest of the notation is standard. Higher output per worker raises the quality of education.Specifically, Qi is given by Bi(Yi/Li)γ , 0 0.Our
4.2. Endogenizing the choice of E. (This follows Bils and Klenow, 2000.) Suppose that the wage of a worker with education E at time t is begteφE . Consider a worker born at time 0 who will be in school for the first E years of life and will work for the remaining T − E years. Assume that the
4.1. The golden-rule level of education. Consider the model of Section 4.1 with the assumption that G(E) takes the form G(E) = eφE .(a) Find an expression that characterizes the value of E that maximizes the level of output per person on the balanced growth path. Are there cases where this value
3.14. Delays in the transmission of knowledge to poor countries.(a) Assume that the world consists of two regions, the North and the South.The North is described by YN (t) = A N (t)(1−aL )L N and A˙N (t) = aL L NA N (t).The South does not do R&D but simply uses the technology developed in the
3.13. (This follows Krugman, 1979; see also Grossman and Helpman, 1991b.) Suppose the world consists of two regions, the “North” and the “South.” Output and capital accumulation in region i (i = N,S) are given by Yi(t) = Ki(t)α[Ai(t)(1 − aLi)Li]1−α and K˙i(t) = siYi(t). New
3.12. (This follows Rebelo, 1991.) Assume that there are two sectors, one producing consumption goods and one producing capital goods, and two factors of production: capital and land. Capital is used in both sectors, but land is used only in producing consumption goods. Specifically, the production
3.11. Learning-by-doing with microeconomic foundations. Consider a variant of the model in equations (3.22)–(3.25). Suppose firm i’s output is Yi(t) =Ki(t)α[A(t)Li(t)]1−α, and that A(t) = BK(t). Here Ki and Li are the amounts of capital and labor used by firm i and K is the aggregate
3.10. (a) Show that (3.48) follows from (3.47).(b) Derive (3.49).
3.9. Suppose that policymakers, realizing that monopoly power creates distortions, put controls on the prices that patent-holders in the Romer model can charge for the inputs embodying their ideas. Specifically, suppose they require patent-holders to charge δw(t)/φ, where δ satisfies φ ≤ δ
3.8. Consider the model of Section 3.5. Suppose, however, that households have constant-relative-risk-aversion utility with a coefficient of relative risk aversion of θ. Find the equilibrium level of labor in the R&D sector, LA .
3.7. Learning-by-doing. Suppose that output is given by equation (3.22), Y(t) =K(t)α[A(t)L(t)]1−α; that L is constant and equal to 1; that K˙(t) = sY(t); and that knowledge accumulation occurs as a side effect of goods production: A˙(t) =BY(t).(a) Find expressions for gA (t) and gK (t) in
3.6. Consider the model of Section 3.3 with β + θ > 1 and n > 0.(a) Draw the phase diagram for this case.(b) Show that regardless of the economy’s initial conditions, eventually the growth rates of A and K (and hence the growth rate of Y) are increasing continually.(c) Repeat parts (a) and (b)
3.5. Consider the model of Section 3.3 with β + θ = 1 and n = 0.(a) Using (3.14) and (3.16), find the value that A/K must have for gK and gA to be equal.(b) Using your result in part (a), find the growth rate of A and K when gK = gA .(c) How does an increase in s affect the long-run growth rate
3.4. Consider the economy described in Section 3.3, and assume β + θ < 1 and n > 0. Suppose the economy is initially on its balanced growth path, and that there is a permanent increase in s.(a) How, if at all, does the change affect the g˙A = 0 and g˙K = 0 lines? How, if at all, does it affect
3.3. Consider the economy analyzed in Section 3.3. Assume that θ + β < 1 and n > 0, and that the economy is on its balanced growth path. Describe how each of the following changes affects the g˙A = 0 and g˙K = 0 lines and the position of the economy in (gA ,gK ) space at the moment of the
3.2. Consider two economies (indexed by i = 1,2) described by Yi(t) = Ki(t)θ and K˙i(t) = siYi(t), where θ > 1. Suppose that the two economies have the same initial value of K, but that s1 > s2. Show that Y1/Y2 is continually rising.
3.1. Consider the model of Section 3.2 with θ < 1.(a) On the balanced growth path, A˙ = g∗A A(t), where g∗A is the balancedgrowth-path value of gA . Use this fact and equation (3.6) to derive an expression for A(t) on the balanced growth path in terms of B, aL , γ , θ, and L(t).(b) Use your
2.21. Explosive paths in the Samuelson overlapping-generations model. (Black, 1974; Brock, 1975; Calvo, 1978a.) Consider the setup described in Problem 2.19. Assume that x is zero, and assume that utility is constant-relative-riskaversion with θ < 1 rather than logarithmic. Finally, assume for
2.20. The source of dynamic inefficiency. (Shell, 1971.) There are two ways in which the Diamond and Samuelson models differ from textbook models.First, markets are incomplete: because individuals cannot trade with individuals who have not been born, some possible transactions are ruled out.Second,
2.19. Stationary monetary equilibria in the Samuelson overlapping-generations model. (Again this follows Samuelson, 1958.) Consider the setup described in Problem 2.18. Assume that x < 1 + n. Suppose that the old individuals in period 0, in addition to being endowed with Z units of the good, are
2.18. The basic overlapping-generations model. (This follows Samuelson, 1958, and Allais, 1947.) Suppose, as in the Diamond model, that Lt two-period-lived individuals are born in period t and that Lt = (1 + n)Lt−1. For simplicity, let utility be logarithmic with no discounting: Ut = ln(C1t) +
2.17. Social security in the Diamond model. Consider a Diamond economy where g is zero, production is Cobb–Douglas, and utility is logarithmic.(a) Pay-as-you-go social security. Suppose the government taxes each young individual an amount T and uses the proceeds to pay benefits to old
2.16. Depreciation in the Diamond model and microeconomic foundations for the Solow model. Suppose that in the Diamond model capital depreciates at rate δ, so that rt = f(kt) − δ.(a) How, if at all, does this change in the model affect equation (2.59) giving kt +1 as a function of kt?(b) In the
2.15. A discrete-time version of the Solow model. Suppose Yt = F (Kt,AtLt), with F (•) having constant returns to scale and the intensive form of the production function satisfying the Inada conditions. Suppose also that At +1 = (1 + g)At, Lt +1 = (1 + n)Lt, and Kt +1 = Kt + sYt − δKt.(a) Find
2.14. Consider the Diamond model with logarithmic utility and Cobb–Douglas production. Describe how each of the following affects kt +1 as a function of kt:(a) A rise in n.(b) A downward shift of the production function (that is, f (k) takes the form Bkα, and B falls).(c) A rise in α.
2.13. The analysis of government policies in the Ramsey–Cass–Koopmans model in the text assumes that government purchases do not affect utility from private consumption. The opposite extreme is that government purchases and private consumption are perfect substitutes. Specifically, suppose that
2.12. Using the phase diagram to analyze the impact of unanticipated and anticipated temporary changes. Analyze the following two variations on Problem 2.11:(a) At time 0, the government announces that it will tax investment income at rate τ from time 0 until some later date t1; thereafter
2.11. Using the phase diagram to analyze the impact of an anticipated change.Consider the policy described in Problem 2.10, but suppose that instead of announcing and implementing the tax at time 0, the government announces at time 0 that at some later time, time t1, investment income will begin to
2.10. Capital taxation in the Ramsey–Cass–Koopmans model. Consider a Ramsey–Cass–Koopmans economy that is on its balanced growth path. Suppose that at some time, which we will call time 0, the government switches to a policy of taxing investment income at rate τ. Thus the real interest
2.9. A closed-form solution of the Ramsey model. (This follows Smith, 2006.)Consider the Ramsey model with Cobb–Douglas production, y(t) = k (t)α, and with the coefficient of relative risk aversion (θ) and capital’s share (α)assumed to be equal.(a) What is k on the balanced growth path
2.8. Derive an expression analogous to (2.39) for the case of a positive depreciation rate.
2.7. Describe how each of the following affects the c˙ = 0 and k˙ = 0 curves in Figure 2.5, and thus how they affect the balanced-growth-path values of c and k:(a) A rise in θ.(b) A downward shift of the production function.(c) A change in the rate of depreciation from the value of zero assumed
2.6. The productivity slowdown and saving. Consider a Ramsey–Cass–Koopmans economy that is on its balanced growth path, and suppose there is a permanent fall in g.(a) How, if at all, does this affect the k˙= 0 curve?(b) How, if at all, does this affect the c˙ = 0 curve?(c) What happens to c
2.5. Consider a household with utility given by (2.1)–(2.2). Assume that the real interest rate is constant, and let W denote the household’s initial wealth plus the present value of its lifetime labor income (the right-hand side of [2.6]). Find the utility-maximizing path of C, given r, W, and
2.4. Assume that the instantaneous utility function u(C ) in equation (2.1) is ln C. Consider the problem of a household maximizing (2.1) subject to (2.6).Find an expression for C at each time as a function of initial wealth plus the present value of labor income, the path of r (t), and the
2.3. (a) Suppose it is known in advance that at some time t0 the government will confiscate half of whatever wealth each household holds at that time. Does consumption change discontinuously at time t0? If so, why (and what is the condition relating consumption immediately before t0 to consumption
2.2. The elasticity of substitution with constant-relative-risk-aversion utility.Consider an individual who lives for two periods and whose utility is given by equation (2.43). Let P1 and P2 denote the prices of consumption in the two periods, and let W denote the value of the individual’s
2.1. Consider N firms each with the constant-returns-to-scale production function Y = F (K,AL), or (using the intensive form) Y = ALf (k). Assume f(•) > 0, f (•) < 0. Assume that all firms can hire labor at wage wA and rent capital at cost r, and that all firms have the same value of A.(a)
1.15. Derive equation (1.50). (Hint: Follow steps analogous to those in equations[1.47] and [1.48].)
1.14. (a) In the model of convergence and measurement error in equations (1.38)and (1.39), suppose the true value of b is −1. Does a regression of ln(Y/N )1979 − ln(Y/N )1870 on a constant and ln(Y/N )1870 yield a biased estimate of b? Explain.(b) Suppose there is measurement error in measured
1.13. Consider a Solow economy on its balanced growth path. Suppose the growthaccounting techniques described in Section 1.7 are applied to this economy.(a) What fraction of growth in output per worker does growth accounting attribute to growth in capital per worker? What fraction does it attribute
1.12. Embodied technological progress. (This follows Solow, 1960, and Sato, 1966.)One view of technological progress is that the productivity of capital goods built at t depends on the state of technology at t and is unaffected by subsequent technological progress. This is known as embodied
1.11. Go through steps analogous to those in equations (1.28)–(1.31) to find how quickly y converges to y∗ in the vicinity of the balanced growth path. (Hint:Since y = f (k), we can write k = g(y), where g(•) = f −1(•).)
1.10. Suppose that, as in Problem 1.9, capital and labor are paid their marginal products. In addition, suppose that all capital income is saved and all labor income is consumed. Thus K˙ = [∂F (K,AL)/∂K]K − δK.(a) Show that this economy converges to a balanced growth path.(b) Is k on the
1.9. Factor payments in the Solow model. Assume that both labor and capital are paid their marginal products. Let w denote ∂F (K, AL)/∂L and r denote[∂F (K,AL)/∂K] − δ.(a) Show that the marginal product of labor, w, is A[f (k) − kf(k)]
1.8. Suppose that investment as a fraction of output in the United States rises permanently from 0.15 to 0.18. Assume that capital’s share is 1 3 .(a) By about how much does output eventually rise relative to what it would have been without the rise in investment?(b) By about how much does
1.7. Find the elasticity of output per unit of effective labor on the balanced growth path, y∗, with respect to the rate of population growth, n. If αK (k∗) = 1 3 , g = 2%, and δ = 3%, by about how much does a fall in n from 2 percent to 1 percent raise y∗?
1.6. Consider a Solow economy that is on its balanced growth path. Assume for simplicity that there is no technological progress. Now suppose that the rate of population growth falls.(a) What happens to the balanced-growth-path values of capital per worker, output per worker, and consumption per
1.5. Suppose that the production function is Cobb–Douglas.(a) Find expressions for k∗, y∗, and c ∗ as functions of the parameters of the model, s, n, δ, g, and α.(b) What is the golden-rule value of k?(c) What saving rate is needed to yield the golden-rule capital stock?
1.4. Consider an economy with technological progress but without population growth that is on its balanced growth path. Now suppose there is a one-time jump in the number of workers.(a) At the time of the jump, does output per unit of effective labor rise, fall, or stay the same? Why?(b) After the
1.3. Describe how, if at all, each of the following developments affects the breakeven and actual investment lines in our basic diagram for the Solow model:(a) The rate of depreciation falls.(b) The rate of technological progress rises.(c) The production function is Cobb–Douglas, f (k) = kα, and
1.2. Suppose that the growth rate of some variable, X, is constant and equal to a > 0 from time 0 to time t1; drops to 0 at time t1; rises gradually from 0 to a from time t1 to time t2; and is constant and equal to a after time t2.(a) Sketch a graph of the growth rate of X as a function of time.(b)
1.1. Basic properties of growth rates. Use the fact that the growth rate of a variable equals the time derivative of its log to show:(a) The growth rate of the product of two variables equals the sum of their growth rates. That is, if Z(t) = X(t)Y(t), then Z˙(t)/Z(t) = [X˙(t)/X(t)]
2. Using quarterly data since 1948, graph the Federal deficit as a percentage of GDP. Draw lines on the figure corresponding to business cycle peaks and troughs. What is the cyclical behavior of the Federal deficit? Repeat this exercise for the deficits of state and local governments. Are state
1. Using quarterly data since 1959, graph Federal government expenditures and receipts as a percentage of GDP. Separately, graph state and local government expenditures and receipts as a percentage of GDP. Compare the two graphs. How do Federal and state/local governments compare in terms of (a)
4. A constitutional amendment has been proposed that would force Congress to balance the budget each year (that is, outlays must equal revenues in each year). Discuss some advantages and disadvantages of such an amendment. How would a balancedbudget amendment affect the following, if in the
3.a. Use the fact that the nominal deficit equals the nominal primary deficit plus nominal interest payments on government debt to rewrite Equation (15.4) showing the change in the debt–GDP ratio as a function of the ratio of the primary deficit to GDP, the ratio of debt to GDP, and the
2. Both transfer programs and taxes affect incentives. Consider a program designed to help the poor that promises each aid recipient a minimum income of $10,000. That is, if the recipient earns less than $10,000, the program supplements his income by enough to bring him up to $10,000. Explain why
1. Why is some state and local spending paid for by grants in aid from the Federal government instead of entirely through taxes levied by states and localities on residents? What are the advantages and disadvantages of a system of grants in aid?
9. Consider an economy in which the money supply consists of both currency and deposits. The growth rate of the monetary base, the growth rate of the money supply, inflation, and expected inflation all are constant at 10% per year. Output and the real interest rate are constant. Monetary data for
8. Real money demand in an all-currency economy with fixed real output and real interest rate, and constant inflation rate and money growth rate is L = 0.2Y - 500i, where Y is real income and i is the nominal interest rate. In equilibrium, real money demand, L, equals real money supply, M/P.
7. In this problem you are asked to analyze the question: By issuing new bonds and using the proceeds to pay the interest on its old bonds, can government avoid ever repaying its debts?a. Suppose that nominal GDP is $1 billion and the government has $100 million of bonds outstanding. The bonds
6. Find the largest nominal deficit that the government can run without raising the debt–GDP ratio, under each of the following sets of assumptions:a. Nominal GDP growth is 10% and outstanding nominal debt is 1000.b. Real GDP is 5,000 and remains constant, nominal GDP is initially 10,000,
5. Suppose that all workers value their leisure at 90 goods per day. The production function relating output per day, Y, to the number of people working per day, N, is Y = 250N - 0.5N2 . Corresponding to this production function, the marginal product of labor is MPN = 250 - N.a. Assume that there
4. A constitutional amendment has been proposed that would force Congress to balance the budget each year (that is, outlays must equal revenues in each year). Discuss some advantages and disadvantages of such an amendment. How would a balancedbudget amendment affect the following, if in the
3.a. Use the fact that the nominal deficit equals the nominal primary deficit plus nominal interest payments on government debt to rewrite Equation (15.4) showing the change in the debt–GDP ratio as a function of the ratio of the primary deficit to GDP, the ratio of debt to GDP, and the
2. Both transfer programs and taxes affect incentives. Consider a program designed to help the poor that promises each aid recipient a minimum income of $10,000. That is, if the recipient earns less than $10,000, the program supplements his income by enough to bring him up to $10,000. Explain why
1. Why is some state and local spending paid for by grants in aid from the Federal government instead of entirely through taxes levied by states and localities on residents? What are the advantages and disadvantages of a system of grants in aid?
9. Consider an economy in which the money supply consists of both currency and deposits. The growth rate of the monetary base, the growth rate of the money supply, inflation, and expected inflation all are constant at 10% per year. Output and the real interest rate are constant. Monetary data for
8. Real money demand in an all-currency economy with fixed real output and real interest rate, and constant inflation rate and money growth rate is L = 0.2Y - 500i, where Y is real income and i is the nominal interest rate. In equilibrium, real money demand, L, equals real money supply, M/P.
7. In this problem you are asked to analyze the question: By issuing new bonds and using the proceeds to pay the interest on its old bonds, can government avoid ever repaying its debts?a. Suppose that nominal GDP is $1 billion and the government has $100 million of bonds outstanding. The bonds
6. Find the largest nominal deficit that the government can run without raising the debt–GDP ratio, under each of the following sets of assumptions:a. Nominal GDP growth is 10% and outstanding nominal debt is 1000.b. Real GDP is 5,000 and remains constant, nominal GDP is initially 10,000,
5. Suppose that all workers value their leisure at 90 goods per day. The production function relating output per day, Y, to the number of people working per day, N, is Y = 250N - 0.5N2 . Corresponding to this production function, the marginal product of labor is MPN = 250 - N.a. Assume that there
4. Suppose that the income tax law exempts income of less than $8000 from the tax, taxes income between $8000 and $20,000 at a 25% rate, and taxes income greater than $20,000 at a 30% rate.a. Find the average tax rate and the marginal tax rate for someone earning $16,000 and for someone earning
3. Because of automatic stabilizers, various components of the government’s budget depend on the level of output, Y. The following are the main components of that budget: Tax revenues 1000 + 0.1Y Transfers 800 - 0.05Y Government purchases 1800 Interest payments 100 Full-employment output is
2. Congress votes a special one-time $1 billion transfer to bail out the buggy whip industry. Tax collections don’t change, and no change is planned for at least several years. By how much will this action increase the overall budget deficit and the primary deficit in the year that the transfer
1. The following budget data are for a country having both a central government and provincial governments: Central purchases of goods and services 200 Provincial purchases of goods and services 150 Central transfer payments 100 Provincial transfer payments 50 Grants in aid (central to provincial)

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Macroeconomics 8th Edition Andrew B. Abel, Ben Bernanke, Dean Croushore - Solutions

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