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Krugmans Macroeconomics For Ap 1st Edition Margaret Ray, David A Anderson - Solutions
How are long-run economic growth and short-run fluctuations during a business cycle represented using the aggregate demand-aggregate supply model?
How are long-run economic growth and short-run fluctuations during a business cycle represented using the production possibilities curve model?
According to the MIT study discussed in the module, a cap and trade system to reduce greenhouse gas emissions in the United States would lead toa. no significant costs.b. significant but not overwhelming costs.c. a loss of roughly three year’s real GDP over the next 40 years.d. a reduction in
Which of the following statements is true of environmental quality?a. It is typically not affected by government policy.b. Other things equal, it tends to improve with economic growth.c. There is broad scientific consensus that rising levels of carbon dioxide and other gases are raising the
Which of the following is true of sustainable long-run economic growth?a. Long-run growth can continue in the face of the limited supply of natural resources.b. It was predicted by Thomas Malthus.c. Modern economies handle resource scarcity problems poorly.d. It is less likely when we find
Which of the following can lead to increases in physical capital in an economy?a. increased investment spendingb. increased savings by domestic householdsc. increased savings from foreign householdsd. an inflow of foreign capitale. all of the above
Economies experience more rapid economic growth when they do which of the following?I. add physical capital II. promote technological progress III. limit human capitala. I onlyb. II onlyc. III onlyd. I and II onlye. I, II, and III
What is the link between greenhouse gas emissions and growth?What is the expected effect on growth from emissions reduction? Why is international burden sharing of greenhouse gas emissions reduction a contentious problem?
Some economists think the best way to help African countries is for wealthier countries to provide more funds for basic infrastructure. Others think this policy will have no long -run effect unless African countries have the financial and political means to maintain this infrastructure. What
Which of the following is the better predictor of a future high long -run growth rate: a high standard of living today or high levels of savings and investment spending? Explain your answer.
Explain the link between a country’s growth rate, its investment spending as a percent of GDP, and its domestic savings.
Assume that between 1940 and 2010:The amount of physical capital per worker grows at 2% per year.Each 1% rise in physical capital per worker (holding human capital and technology constant) raises output per worker by 1⁄2 of a percent, or 0.5%.There is no growth in human capital.Real GDP per
a. Draw a correctly labeled graph of an aggregate production function that illustrates diminishing returns to physical capital.b. Explain how your aggregate production function illustrates diminishing returns to physical capital.c. On your graph, illustrate the effect of technological progress.d.
The “convergence hypothesis”a. states that differences in real GDP per capita among countries widen over time.b. states that low levels of real GDP per capita are associated with higher growth rates.c. states that low levels of real GDP per capita are associated with lower growth rates.d.
Which of the following is cited as an important factor preventing long-run economic growth in Africa?a. political instabilityb. lack of property rightsc. unfavorable geographic conditionsd. poor healthe. all of the above
The following statement describes which area of the world?“This area has experienced growth rates unprecedented in history and now looks like an economically advanced country.”a. North Americab. Latin Americac. Europed. East Asiae. Africa
Which of the following is an example of physical capital?a. machineryb. healthcarec. educationd. moneye. all of the above
Which of the following is a source of increased productivity growth?I. increased physical capital II. increased human capital III. technological progressa. I onlyb. II onlyc. III onlyd. I and II onlye. I, II, and III
Multinomics, Inc., is a large company with many offices around the country. It has just adopted a new computer system that will affect virtually every function performed within the company. Why might a period of time pass before employees’ productivity is improved by the new computer system? Why
The economy of Erehwon has grown 3% per year over the past 30 years. The labor force has grown at 1% per year, and the quantity of physical capital has grown at 4% per year. The average education level hasn’t changed. Estimates by economists say that each 1% increase in physical capital per
Explain the effect of each of the following on the growth rate of productivity.a. The amounts of physical and human capital per worker are unchanged, but there is significant technological progress.b. The amount of physical capital per worker grows, but the level of human capital per worker and
Long-run economic growth depends almost entirely ona. technological change.b. rising productivity.c. increased labor force participation.d. rising real GDP per capita.e. population growth.
If a country’s real GDP per capita doubles in 10 years, what was its average annual rate of growth of real GDP per capita?a. 3.5%b. 7%c. 10%d. 70%e. 700%
According to the “Rule of 70,” if a country’s real GDP per capita grows at a rate of 2% per year, it will take how many years for real GDP per capita to double?a. 3.5b. 20c. 35d. 70e. It will never double at that rate.
Which of the following is the key statistic used to track economic growth?a. GDPb. real GDPc. real GDP per capitad. median real GDPe. median real GDP per capita
Which of the following is true regarding growth rates for countries around the world compared to the United States?I. Fifty percent of the world’s people live in countries with a lower standard of living than the U.S. in 1908.II. The U.S. growth rate is six times the growth rate in the rest of
Although China and India currently have growth rates much higher than the U.S. growth rate, the typical Chinese or Indian household is far poorer than the typical American household.Explain why
Apply the Rule of 70 to the data in Figure 37.3 to determine how long it will take each of the countries listed there to double its real GDP per capita. Would India’s real GDP per capita exceed that of the United States in the future if growth rates remained the same? Why or why not?
Why do economists focus on real GDP per capita as a measure of economic progress rather than on some other measure, such as nominal GDP per capita or real GDP?
Using a set of graphs as in Figure 35.2, show how a monetarist can argue that a contractionary fiscal policy may not lead to the desired fall in real GDP given a fixed money supply. Explain.
Which of the following policy recommendations, if any, are consistent with the classical, Keynesian, monetarist, and/or modern consensus views of the macroeconomy?a. Since the long -run growth of GDP is 2%, the money supply should grow at 2%.b.Decrease government spending in order to decrease
The economy of Albernia is facing a recessionary gap, and the leader of that nation calls together five of its best economists representing the classical, Keynesian, monetarist, real business cycle, and modern consensus views of the macroeconomy. Explain what policies each economist would recommend
Module 35 explains that Kenneth Rogoff proclaimed Richard Nixon “the all -time hero of political business cycles.” Using the table of data below from the Economic Report of the President, explain why Nixon may have earned that title.
Monetarists believed for a period of time that the velocity of money was stable within a country. However, with financial innovation, the velocity began shifting around erratically after 1980. As would be expected, the velocity of money is different across countries depending upon the
In the modern world, central banks are free to increase or reduce the money supply as they see fit. However, some people harken back to the “good old days” of the gold standard.Under the gold standard, the money supply could expand only when the amount of available gold increased.a. Under the
The accompanying table provides data from the United States on the average annual rates of unemployment and inflation. Use the numbers to construct a scatter plot similar to Figure 34.1. Discuss why, in the short run, the unemployment rate rises when inflation falls. Year 2000 Unemployment rate
Concerned about the crowding - out effects of government borrowing on private investment spending, a candidate for president argues that the United States should just print money to cover the government’s budget deficit. What are the advantages and disadvantages of such a plan?
Answer the following questions about the (real) inflation tax, assuming that the price level starts at 1.a. Maria Moneybags keeps $1,000 in her sock drawer for a year. Over the year, the inflation rate is 10%. What is the real inflation tax paid by Maria for this year?b.Maria continues to keep the
In the following examples, would the classical model of the price level be relevant?a. There is a great deal of unemployment in the economy and no history of inflation.b.The economy has just experienced five years of hyperinflation.c. Although the economy experienced inflation in the 10% to 20%
An economy is in long - run macroeconomic equilibrium with an unemployment rate of 5% when the government passes a law requiring the central bank to use monetary policy to lower the unemployment rate to 3% and keep it there. How could the central bank achieve this goal in the short run? What would
Continuing from equilibrium E1 in the previous problem, now suppose that in the economy of Eastlandia the central bank decides to decrease the money supply.a. Using the diagram in problem 5, explain what will happen to the interest rate in the short run.b.What will happen to the interest rate in
In the economy of Eastlandia, the money market is initially in equilibrium when the economy begins to slide into a recession.a. Using the accompanying diagram, explain what will happen to the interest rate if the central bank of Eastlandia keeps the money supply constant at M1.
Unlike households, governments are often able to sustain large debts. For example, in September 2007, the U.S. government’s total debt reached $9 trillion, approximately 64% of GDP. At the time, according to the U.S. Treasury, the average interest rate paid by the government on its debt was 5.0%.
In which of the following cases does the size of the government’s debt and the size of the budget deficit indicate potential problems for the economy?a. The government’s debt is relatively low, but the government is running a large budget deficit as it builds a high-speed rail system to connect
You are an economic adviser to a candidate for national office.She asks you for a summary of the economic consequences of a balanced -budget rule for the federal government and for your recommendation on whether she should support such a rule.How do you respond?
The government’s budget surplus in Macroland has risen consistently over the past five years. Two government policy makers disagree as to why this has happened. One argues that a rising budget surplus indicates a growing economy; the other argues that it shows that the government is using
On the basis of the description of the Laffer curve in the FYI box on supply-side economics on page 357, draw a correctly labeled graph of the Laffer curve. Use an “x” to identify a point on the curve at which a reduction in tax rates would lead to increased tax revenue.
What is the consensus view of macroeconomists on each of the following:a. monetary policy and aggregate demandb. when monetary policy is ineffectivec. fiscal policy and aggregate demandd. a balanced budget mandatee. the effectiveness of discretionary fiscal policy
The “clean little secret of macroeconomics” is thata. microeconomics is even more contentious than macroeconomics.b. debate among macroeconomists has ended.c. economists have reached a significant consensus.d. macroeconomics has progressed much more than microeconomics in the past 70 years.e.
The Fed’s main concerns area. inflation and unemployment.b. inflation and asset prices.c. inflation, asset prices, and unemployment.d. asset prices and unemployment.e. inflation and the value of the dollar.
Which of the following is true regarding central bank targets?a. The Fed has an explicit inflation target.b. All central banks have explicit inflation targets.c. No central banks have explicit inflation targets.d. The Fed clearly does not have an implicit inflation target.e. Economists are split
In the first FYI box of this module (p. 357) you learned about supply-side economics. Which of the following is stressed by supply siders?a. Taxes should be increased.b. Lower taxes will lead to lower tax revenues.c. It is important to increase incentives to work, save, and invest.d. The economy
Which of the following is an example of an opinion on which economists have reached a broad consensus?I. The natural rate hypothesis holds true.II. Discretionary fiscal policy is usually counterproductive.III. Monetary policy is effective, especially in a liquidity trap.a. I onlyb. II onlyc. III
For each of the following economic theories, identify its fundamental conclusion.a. the classical model of the price levelb. Keynesian economicsc. monetarismd. the natural rate hypothesise. rational expectationsf. real business cycle theory
a. According to monetarism, business cycles are associated with fluctuations in what?b. Does monetarism advocate discretionary fiscal policy?Discretionary monetary policy?c. What monetary policy does monetarism suggest?d. What is the velocity equation? Define each of the terms in the velocity
The natural rate hypothesis says that the unemployment rate should bea. below the NAIRU
Which of the following is a central point of monetarism?a. Business cycles are associated with fluctuations in money demand.b. Activist monetary policy is the best way to address business cycles.c. Discretionary monetary policy is effective while discretionary fiscal policy is not.d. The Fed should
Which of the following was an important point emphasized in Keynes’s influential work?I. In the short run, shifts in aggregate demand affect aggregate output.II. Animal spirits are an important determinant of business cycles.III. In the long run we’re all dead.a. I onlyb. II onlyc. III onlyd. I
In early 2001, as it became clear that the United States was experiencing a recession, the Fed stated that it would fight the recession with an aggressive monetary policy. By 2004, most observers concluded that this aggressive monetary expansion should be given credit for ending the recession.a.
In addition to praising aggressive monetary policy, the 2004 Economic Report of the President says that “tax cuts can boost economic activity by raising after -tax income and enhancing incentives to work, save, and invest.” Which part is a Keynesian statement and which part is not? Explain your
Now look at Figure 35.3, which shows the path of the velocity of money. What problems do you think the United States would have had since 1996 if the Fed had followed a monetarist policy?
What would the figure above have looked like if the Fed had been following a monetarist policy since 1996?
The figure below shows the behavior of M1 before, during, and after the 2001 recession. What would a classical economist have said about the Fed’s policy?
a. Draw a correctly labeled graph showing a short-run Phillips curve with an expected inflation rate of 0% and the corresponding long-run Phillips curve.b. On your graph, label the nonaccelerating inflation rate of unemployment.c. On your graph, show what happens in the long run if the government
Debt deflation isa. the effect of deflation in decreasing aggregate demand.b. an idea proposed by Irving Fisher.c. a contributing factor in causing the Great Depression.d. due to differences in how borrowers/lenders respond to inflation losses/gains.e. all of the above.
Bringing down inflation that has become embedded in expectations is calleda. deflation.b. negative inflation.c. anti-inflation.d. unexpected inflation.e. disinflation.
An increase in expected inflation will shifta. the short-run Phillips curve downward.b. the short-run Phillips curve upward.c. the long-run Phillips curve upward.d. the long-run Phillips curve downward.e. neither the short-run nor the long-run Phillips curve.
The short-run Phillips curve shows a relationship between .a. negative the aggregate price level and aggregate outputb. positive the aggregate price level and aggregate outputc. negative unemployment and inflationd. positive unemployment and aggregate outpute. positive unemployment and the
The long-run Phillips curve is I. the same as the short-run Phillips curve.II. vertical.III. the short-run Phillips curve plus expected inflation.a. I onlyb. II onlyc. III onlyd. I and II onlye. I, II, and III
Why won’t anyone lend money at a negative nominal rate of interest? How can this pose problems for monetary policy?
Why is disinflation so costly for an economy? Are there ways to reduce these costs?
Why is there no long - run trade - off between unemployment and inflation?
Explain how the short - run Phillips curve illustrates the negative relationship between cyclical unemployment and the actual inflation rate for a given level of the expected inflation rate.
Draw a correctly labeled aggregate demand and supply graph showing an economy in long-run macroeconomic equilibrium.On your graph, show the effect of an increase in the money supply, according to the classical model of the price level.
Use a correctly labeled aggregate supply and demand graph to illustrate cost-push inflation. Give an example of what might cause cost-push inflation in the economy.
Revenue generated by the government’s right to print money is known asa. seignorage.b. an inflation tax.c. hyperinflation.d. fiat money.e. monetary funds.
An inflation tax isa. imposed by governments to offset price increases.b. paid directly as a percentage of the sale price on purchases.c. the result of a decrease in the value of money held by the public.d. generally levied by states rather than the federal government.e. higher during periods of
The classical model of the price level is most applicable ina. the United States.b. periods of high inflation.c. periods of low inflation.d. recessions.e. depressions.
In the classical model of the price levela. only the short-run aggregate supply curve is vertical.b. both the short-run and long-run aggregate supply curves are vertical.c. only the long-run aggregate supply curve is vertical.d. both the short-run aggregate demand and supply curves are vertical.e.
The real quantity of money is I. equal to M/P.II. the money supply adjusted for inflation.III. higher in the long run when the Fed buys government securities.a. I onlyb. II onlyc. III onlyd. I and II onlye. I, II, and III
Suppose that all wages and prices in an economy are indexed to inflation. Can there still be an inflation tax?
Suppose there is a large increase in the money supply in an economy that previously had low inflation. As a consequence, aggregate output expands in the short run. What does this say about situations in which the classical model of the price level applies?
a. Draw a correctly labeled graph of aggregate demand and supply showing an economy in long-run macroeconomic equilibrium.b. On your graph, show what happens in the short run if the central bank increases the money supply to pay off a government deficit. Explain.c. On your graph, show what will
Assume the central bank increases the quantity of money by 25%, even though the economy is initially in both short -run and long -run macroeconomic equilibrium. Describe the effects, in the short run and in the long run (giving numbers where possible), on the following:a. aggregate outputb. the
A graph of percentage increases in the money supply and average annual increases in the price level for various countries provides evidence thata. changes in the two variables are exactly equal.b. the money supply and aggregate price level are unrelated.c. money neutrality holds only in wealthy
Monetary neutrality means that, in the long run, changes in the money supplya. can not happen.b. have no effect on the economy.c. have no real effect on the economy.d. increase real GDP.e. change real interest rates.
A 10% decrease in the money supply will change the aggregate price level in the long run bya. zero.b. less than 10%.c. 10%.d. 20%.e. more than 20%.
An increase in the money supply will lead to which of the following in the short run?a. higher interest ratesb. decreased investment spendingc. decreased consumer spendingd. increased aggregate demande. lower real GDP
In the long run, changes in the quantity of money affect which of the following?I. real aggregate output II. interest rates III. the aggregate price levela. I onlyb. II onlyc. III onlyd. I and II onlye. I, II, and III
Again supposing the economy begins in long-run macroeconomic equilibrium, what is the long-run effect on the interest rate of a 5% increase in the money supply? Explain.
Suppose the economy begins in long-run macroeconomic equilibrium. What is the long-run effect on the aggregate price level of a 5% increase in the money supply? Explain.
a. What can the Fed do with each of its tools to implement expansionary monetary policy during a recession?b. Use a correctly labeled graph of the money market to explain how the Fed’s use of expansionary monetary policy affects interest rates in the short run.c. Explain how the interest rate
a. Give the equation for the Taylor rule.b. How well does the Taylor rule fit the Fed’s actual behavior?Explain.c. What does the Taylor rule predict will happen when the inflation rate increases? Explain.d. What does the Taylor rule predict will happen if the economy sinks further into a
When implementing monetary policy, the Federal Reserve attempts to achievea. an explicit target inflation rate.b. zero inflation.c. a low rate of deflation.d. a low, but positive inflation rate.e. 4–5% inflation.
Which of the following is a goal of monetary policy?a. zero inflationb. deflationc. price stabilityd. increased potential outpute. decreased actual real GDP
Contractionary monetary policy attempts to aggregate demand by interest rates.a. decrease increasingb. increase decreasingc. decrease decreasingd. increase increasinge. increase maintaining
Which of the following actions can the Fed take to decrease the equilibrium interest rate?a. increase the money supplyb. increase money demandc. decrease the money supplyd. decrease money demande. both (a) and (d)
At each meeting of the Federal Open Market Committee, the Federal Reserve sets a target for which of the following?I. the federal funds rate II. the prime interest rate III. the market interest ratea. I onlyb. II onlyc. III onlyd. I and III onlye. I, II, and III
Suppose the economy is currently suffering from a recessionary gap and the Federal Reserve uses an expansionary monetary policy to close that gap. Describe the short -run effect of this policy on the following.a. the money supply curveb. the equilibrium interest ratec. investment spendingd.
Now assume that the Fed is following a policy of targeting the federal funds rate. What will the Fed do in the situation described in question 1 to keep the federal funds rate unchanged? Illustrate with a diagram.
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