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foundations macroeconomics
Macroeconomics 10th edition David C. Colander - Solutions
If a country’s actual exchange rate is 20 units per dollar and its purchasing power parity exchange rate is 25, is its currency under- or overvalued? Explain your answer.
Domestic policy as it relates to a country’s currency is related to the state of the economy.a. Why didn’t the United States have to implement contractionary policy following World War II even though the value of the dollar was high?b. Why didn’t a decline in U.S. competitiveness in the 1970s
Why are economic statistics incomplete measures of quality of life?
What impact does measuring income per capita using the purchasing power parity approach have on the comparison of incomes between developed and developing countries as opposed to measuring them based on exchange rates? Explain your answer.
Christians are called to be Christ-like, a "light to lighten the nations" (Luke 2:32).a. In light of the basic biblical norms of justice, righteousness, and stewardship, how should a nation decide how much development aid to provide developing countries?b. Is it within Christian norms to make that
When thinking about development, it is often presented as an analytic exercise, but development policies have very real consequences.a. Who is responsible for economies that fail to develop?b. Who will primarily suffer the consequences from a failure at economic development?c. If your answers to a
What is wrong with saying that people in developing countries are worse off than people in the United States?
The Grameen bank is an example of a successful micro credit reform. It focuses its loans on women.a. Why do many of the micro credit policies focus on women rather than men?b. Does your answer in a suggest anything about other policies that might help developing countries develop? (Feminist)
Islam considers the interest on loans to be an instrument of oppression of the poor by the wealthy. That is why interest is banned by the Qur'an. Islamic-owned companies do, however, provide financing for purchases such as homes.a. How could financing be an instrument of oppression?b. How could
The brief argument for globalization goes something like this. Countries that trade a lot grow quickly and poverty rates decline in rapidly growing countries. Therefore, globalization promotes rapid growth and alleviates poverty and is far superior to economic isolation. Radicals believe that the
What is meant by “the dual economy”?
Why might credentialism be an obstacle to growth?
What are the risks to a developing country of sending an individual to a U.S. college?
Why are politicians so uneasy about discussing the structural problems caused by globalization?
Demonstrate graphically how the following are represented in the globalized AS/AD model for the United States. What happens to the trade deficit in each?a. Foreign wages rise.b. U.S. productivity rises.c. The value of the dollar rises.d. The U.S. imposes tariffs on imported goods.
What policies are needed to deal with the structural problems caused by globalization?
True or false? Globalization is a one-time event, and thus does not present a problem for the future of the United States. Explain your answer.
True or false? Since globalization causes structural problems, it should be restricted. Explain your answer.
Why does globalization tend to make the distribution of income less equal?
True or false? If you have a job in the nontradable sector, you don’t have to worry about the structural effects of globalization. Explain your answer.
How do structural problems from the aftermath of a financial crisis make policy more difficult?
Why does globalization mask inflation? Demonstrate your answer graphically.
If a country does not run a trade deficit, where does the world supply curve intersect the domestic equilibrium in the AS/AD model?
Beginning with a country that has a trade deficit, demonstrate graphically what will happen to a country’s potential output with globalization if that country’s costs of production fall. Explain your answer.
Beginning with a country that has a trade deficit, demonstrate graphically what will happen to a country’s potential output with globalization if that country’s exchange rate falls. Explain your answer.
Structural stagnation was caused by government’s control of the money supply. If policy makers had used gold as its money supply, there would be no structural stagnation. (Austrian)
How does the structural stagnation hypothesis differ from secular stagnation theory?
If the $3 trillion the United States had spent in the stimulus package after the 2008 recession had gone into a safety net for the least well off, how much of a safety net could be provided? See the appendix at the end of this chapter.
Policy has focused too much on GDP and output. The most important aspects of life are not economic but spiritual, and the current slowdown provides our country with a chance to reorder its priorities. (Religious)
Using the accompanying graph demonstrate an economy whose output declines by 4 percent in year 2 and returns to its trend the following year.a. By what dollar amount did output decline during the recession?b. By what percent does the economy need to expand to return to trend by year 3.c. How does
If any realistic solution to the structural stagnation problem involves both tax increases and entitlement cuts, why do both sides have such a difficult time coming to a compromise that will deal with our budget dilemma or with providing a safety net for those most hurt by globalization?
If we had followed reasonable trade policies and required countries that trade with us to have fair labor practices and pay a living wage, we would not have the problems caused by globalization. Discuss. (Institutionalist)
Why is the underlying growth trend important for policy?
Since the growth rate is of central importance to policy, how can one decide who is right about what the trend growth rate for policy should be?
A country that can print money can never have a budget deficit that is too high. Discuss. (Post-Keynesian)
How is structural stagnation different from a normal downturn?
Globalization has pulled hundreds of millions of people out of poverty in China and India. How should that gain be weighed against structural changes that globalization requires in the United States?
Structural stagnation is simply a way to foist more of the burden of supporting our society on the poor by the rich. Discuss. (Radical)
When more and more women entered the labor force in the 1970s and 1980s, the economy’s potential output rose.a. To the extent that real output rose because of their entry into the labor market, what was the effect on measured GDP?b. What was the impact on welfare?
Fill in the missing values in the table below: Nominal Interest Real Interest Rate Inflation Řate 4 3 12 |
Below are nominal GDP and GDP deflators for four years.a. Calculate real GDP in each year.b. Did the percentage change in nominal GDP exceed the percentage change in real GDP in any of the last three years listed?c. In which year did society€™s welfare increase the most? Nominal GDP in
If an economy has a trade surplus, is domestic production higher or lower than domestic expenditures? Explain your answer.
What is the largest component of aggregate income for most countries?
If the government increases transfer payments, what happens to aggregate output?
Unlike GDP, the Genuine Progress Indicator measures the costs as well as the benefits of economic growth by accounting for how production and consumption create social ills such as inequality and create environmental problems that threaten future generations, such as global warming and the
If you add up all the transactions in an economy, do you arrive at GDP, GNP, or something else?
In the early 2000s, some people, part of a renewed “Simplicity Movement,” felt that accumulating material things reduced their happiness. Assuming they are truly happier with fewer material goods, what does this suggest about the connection between GDP and welfare?
The government spends far too much money collecting and organizing statistics. If those statistics were necessary, the private market would collect them.a. Explain the sense in which the above statement is true.b. Who do you think is the major supporter of government collection of data? (Austrian)
In the expenditure approach of GDP, should G (government purchases) be taken into account within the calculation the same way C (consumption) and I (investment) are measured? If not, is there something inherently different about the nature of private and public expenditures? (Austrian)
Explain the sense in which GDP accounting is an institution (see the Oxford Dictionary of the English Language for a precise definition of an institution).a. How does GDP as an institution shape our understanding of the economic system?b. Who benefits from using GDP accounting as a measure of
How do wealth accounts differ from national income accounts?
What’s the relationship between a stock concept and a flow concept?
People’s perception of inflation often differs from actual inflation.a. List five goods that you buy relatively frequently.b. Looking in old newspapers (found in the library on microfiche), locate sales prices for these goods since 1950, finding one price every five years or so. Determine the
What expenditure category of production is largest for most countries?
Find consumption expenditures (as a percentage of GDP) for the following countries and explain what accounts for the differences. (Requires research.)a. Mexicob. Thailandc. Polandd. Nigeriae. Kuwait
What type of unemployment is best studied within the long-run framework?
What type of unemployment is best studied under the short-run framework?
Suppose the total labor force is 155 million of a possible 244 million working-age adults. The total number of unemployed is 13 million. What is the standard unemployment rate?
Does the standard unemployment rate underestimate or overestimate the unemployment problem? Explain.
What has happened to growth rates in Western Europe and the United States in recent years?
How does the U.S. per capita growth rate since 1940 compare to growth rates in other areas around the world?
Which has the more pessimistic view of the problems facing the United States economy: structural stagnation theory or conventional business-cycle theory?
How does a structural stagnation differ from a recession?
What are two ways in which long-term economic growth is measured?
In what way is potential output not purely a physical measure based on the number of workers and existing factories?
In natural science, when theories fail, as conventional macroeconomics failed in the financial crisis and its aftermath, they are overthrown and replaced by new theories. Why has it been so difficult to overthrow conventional macroeconomics? (All)
Is structural stagnation a Keynesian or a Classical theory?
As the problem of inflation grew in the 1970s, did Keynesian or Classical economics grow in importance?
The text presents the target rate of unemployment as being about 5 percent. William Vickrey, a Nobel Prize–winning economist, argued that the target unemployment rate should be seen as being between 1 percent and 2 percent. Only an unemployment rate that low, he argued, would produce genuine full
Since the Great Depression, the United States has been able to avoid severe economic downturns.a. What macroeconomic policies do you think have allowed us to avoid another Great Depression?b. Would you classify those policies as being Classical or Keynesian?c. Are such policies still relevant
Would Keynesian or Classical economists be more likely to emphasize the fallacy of composition?
Did Keynesian or Classical economics support laissez-faire policy?
Wesley Mitchell, a founder of Institutional economics, said that to understand the business cycle, a distinction must be made between making goods and making money. All societies make goods. In the modern money economy, those who control the production and distribution of goods will only allow
It is unfair, but true, that bad things happen. Unfortunately, to attempt to prevent unavoidable bad things can actually make things worse, not better. How might the above ideas be relevant to how society deals with business cycles? (Austrian)
What is the relationship between GATT and WTO?
Why would a country want to be a most-favored nation? Why might it not want to be a most-favored nation?
Name three reasons economists support free trade.
How are economies of scale, comparative advantage, and trade restrictions related?
How would a credible threat of trade restrictions lead to lower trade restrictions?
Why would a country have trade assistance programs? What makes them difficult to implement?
What are three reasons countries restrict trade? Are they justified?
The U.S. government taxes U.S. companies for their overseas profits, but it allows them to deduct from their U.S. taxable income the taxes that they pay abroad and interest on loans funding operations abroad, with no limits on the amount deducted.a. Is it possible that the overseas profit tax
The text presents free trade as advantageous for developing countries. However, in its period of most rapid development, the half century following the Civil War, the United States imposed tariffs on imports that averaged around 40 percent, a level higher than those in all but one of today's
When the United States placed a temporary price floor on tomatoes imported from Mexico, a U.S. trade representative said, “The agreement will provide strong relief to the tomato growers in Florida and other states, and help preserve jobs in the industry.” What costs did Americans bear from the
Who has benefited most from free trade? Who has been hurt most by it? Does that match the positions the various groups have about their support for free trade? Which group do economists align themselves with? Why? ( Post-Keynesian)
How does the outsourcing of manufacturing production benefit production in the United States?
In some states and localities "scalping" is against the law, although enforcement of these laws is spotty.a. Using supply/demand analysis and words, demonstrate what a weakly enforced antiscalping law would likely do to the price of tickets.b. Using supply/demand analysis and words, demonstrate
In the late 1990s, the television networks were given $70 billion worth of space on public airways for broadcasting high-definition television rather than auctioning it off.a. Why do airways have value?b. After the airway had been given to the network, would you expect that the broadcaster would
Some economists believe minimum wages create distortions in the labor market. If you are an employer and unable to hire the one willing and able to work for the lowest wage, how else might you choose a worker? Is this fair? Why or why not? (Austrian)
Draw the supply and demand curves associated with the tables below.a. What is equilibrium price and quantity?b. What is equilibrium price and quantity with a $0.75 per-unit tax levied on suppliers? Demonstrate your answer graphically.c. How does your answer to b change if the tax were levied on
Say that the equilibrium price and quantity both rose. What would you say was the most likely cause?
In the United States, say gasoline costs consumers about $2.50 per gallon. In Italy, say it costs consumers about $6 per gallon. What effect does this price differential likely have on:a. The size of cars in the United States and in Italy?b. The use of public transportation in the United States and
The textbook model assumes that individuals have enough knowledge to follow the economic decision rule.a. How did you decide what college you would attend?b. Did you have enough knowledge to follow the economic decision rule?c. For what type of decisions do you not use the economic decision rule?d.
What is the difference between normative and positive statements?
Knowledge is derived from a tautology when something is true because you assume it is true. In this chapter, you have learned the conditions under which supply and demand explain outcomes. Yet, as your text author cautions, these conditions may not hold. How can you be sure if they ever hold?
Do you think consumers make purchasing decisions based on general rules of thumb instead of price?a. Why would consumers do this?b. What implication might this have for the conclusions drawn about markets? (Post-Keynesian)
Some economists believe that imposing international labor standards would cost jobs. In support of this argument, one economist said, "Either you believe labor demand curves are downward-sloping, or you don't." Of course, not to believe that demand curves are negatively sloped would be tantamount
Why does sales volume rise during weeks when states suspend taxes on sales by retailers? Demonstrate your answer graphically assuming that the retailer pays the tax.
You’re a commodity trader and you’ve just heard a report that the winter wheat harvest will be 2 billion bushels, a 40 percent jump, rather than an expected 30 percent jump.a. What would you expect would happen to wheat prices?b. Demonstrate graphically the effect you suggested in part a.
In “Christianity and Economics: A Review of the Recent Literature,” economist John Tiemstra states, “Taking good to mean self-perceived happiness derived from economic consumption adopts an ethic that is foreign to biblical Christianity.” Your textbook cautions that GDP is not the same as
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