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macroeconomics

Questions and Answers of Macroeconomics

Use the following information to determine the Fed’s balance sheet and calculate the Fed’s monetary liabilities: Currency Reserves of the banking $850 billion in circulation = $750 billion system
Use the Fed and the banking system T-accounts to describe the effects of a Fed sale of $200 million worth of government bonds to a bank that pays with part of its reserves held at the Fed. What would
Some developing countries have suffered banking crises in which depositors lost part or all of their deposits (in some countries there is no deposit insurance). This type of crisis decreases
The Federal Reserve announced the closing of many lending facilities, like the term auction facility (TAF), that were originally created to extend loans to financial intermediaries during the most
Suppose the Federal Reserve conducts an open market purchase for $100 million. Assuming the required reserves ratio is 10%, what would be the effect on the money supply in each of the following
Under very particular conditions, banks would like to borrow from the Fed and, rather than use these borrowed funds to make loans, keep them in the form of excess reserves.What would be the effect on
Calculate the money multiplier for the following values of the currency, excess reserves, and required reserves ratios (i.e., complete the following table), and explain why the money multiplier
During the Great Depression years of 1930–1933, bank panics led to a dramatic rise in the currency and excess reserves ratios, while the monetary base rose by 20%. Explain how banks’ and
Go to the St. Louis Federal Reserve FRED database and find the most currently available data on Currency (CURRNS), Total Checkable Deposits (TCDSL), Total Reserves (RESBALNS), and Required Reserves
Go to the St. Louis Federal Reserve FRED database and find data on the M1 Money Stock (M1SL) and the Monetary Base (AMBSL).a) Calculate the value of the money multiplier using the most recent data
In the per-worker production function, what factors determine the level of output per worker? Which one of these factors does the Solow growth model consider to be exogenous?
Why does the per-worker production function have its particular shape and slope?
What determines the amount of investment per worker and capital accumulation in the Solow growth model?
What are the two determinants of the steadystate level of capital per worker? Why does capital per worker move to this steady-state level?
Beginning from a steady state in the Solow growth model, explain how an increase in the saving rate will affect the levels and growth rates of capital and output per worker.
How does population growth affect the steady-state levels of capital and output per worker?
In the Solow growth model, which variables are exogenous and which are endogenous?
How does an increase in total factor productivity affect output per worker?
What are the four basic results of the Solow growth model? What is the model’s chief weakness?
According to the growth accounting equation, what are the three sources that contribute to economic growth?
Assume that the per-worker production function is yt = 2kt0.5. The saving and depreciation rates are estimated at 0.2 and 0.04, respectively.a) Calculate the capital-labor ratio steady state for this
The tsunami that hit Japan in April of 2011 was the costliest national disaster in history.The following graph describes Japan’s economy before the tsunami. Assume Japan was at its steady-state
Consider the effects of an increase in the saving rate on the United States capital-labor ratio, according to the Solow model.a) What would be the immediate effect of a saving rate increase on the
Assume that low standards of living (i.e., low capital-labor ratios, in the Solow model’s terms) are the reason that some countries exhibit high fertility rates. Comment on the effect of population
One of the most well-known population control policies is the one-child policy implemented by China since the late 1970s.Comment on the side effects of such a policy.This policy has been dubbed a
Based on the Solow model’s conclusions about population growth, comment on the effects of immigration on a country’sa) aggregate output level.b) capital-labor ratio.
Start by graphing the U.S. steady-state capitallabor ratio and labeling it k1900 (draw only the investment and the depreciation and capital dilution curves).a) On the same graph, show the effects of
Start by drawing a given country’s steady state, using only the investment and the depreciation and capital dilution curves. On the same graph, do the following:a) Consider the effects of an
Suppose the economy of India can be represented by the following production function: Y = AK1/3L2/3. Assume that during 2014, India’s technological growth (Solow residual) is 4%, and the growth
Suppose two countries have the same growth rates of capital and labor inputs. These factors contribute two percentage points to their respective countries’ total output growth rates.Output growth
Go to the St. Louis Federal Reserve FRED database, and find data on population and GDP per capita for the following countries, with data codes provided in the table below.a) For each country,
Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPCA), the labor force (CLF16OV), and a measure of the capital stock, real consumption of fixed capital
Go to the St. Louis Federal Reserve FRED database and find data on the net saving rate as a percentage of national income (W207RC1A156NBEA).a) Calculate the average net saving rate over the period
Use the following table to find the steady-state values of the capital-labor ratio and output per worker (i.e., complete the table) if the per worker production function is yt = 2kt0.3: S Saving rate
Refer to Problem 1 for data and assume now that the saving rate increases to 50%. Calculate the new steady-state values of the capitallabor ratio and output. Explain your answer graphically.Data from
Refer to Problem 1 for data and assume now that the population growth rate increases to 5%. Calculate the new steady-state values of the capital-labor ratio and output. Explain your answer
Use the graphical representation of the Solow growth model to explain why an increase in the technology factor A leads to a more-thanproportional increase in both the capital-labor ratio and output
As an input to production, how does technology differ from labor and capital inputs?
What government policies can be used to promote productivity growth?
Why may private R&D expenditures be too low?
What is a patent? Why do governments grant them?
What are property rights and how do they influence economic growth?
What role does the legal system play in promoting property rights?
What shortcoming of the Solow growth model does the Romer model attempt to remedy?
Why is sustained per-capita growth possible in the Romer model but not in the Solow model?
In the Romer model, what three factors determine an economy’s growth rate?
In the Romer model, how does an increase in the fraction of the population engaged in R&D affect the growth rate of per-capita output over time?
In the Romer model, how does an increase in total population affect the growth rate of percapita output over time?
What is the impact of an increase in saving in the Romer model?
Compare the following factors of production in terms of their rivalry and excludability:a) A robot that welds car frames and the idea of building a car in an assembly lineb) A recipe to make pancakes
The U.S. government has provided billions of dollars for broadband Internet access nationwide, including grants for rural broadband access, expansion of computer center capacity, and sustainable
Uruguay has implemented the One Laptop per Child (OLPC) initiative in which one laptop is given to every child and teacher in a public primary school. Comment on the effects of this program on the
How might the effects of government spending on proper sewage infrastructure, which results in improved sanitation for crowded cities in poor countries, promote economic growth?
The International Property Rights Index (IPRI) ranks countries according to the significance and protection of both intellectual and physical property rights. What correlation between income per
Transparency International constructs the Corruption Perception Index (CPI), meant to measure “the perceived level of public-sector corruption in 180 countries and territories around the world.”
Do you think corruption affects the enforcement of property rights, or is it that badly designed institutions create opportunities for corruption? In other words, does corruption determine the
Do you tend to agree more with Sachs (foreign aid should be increased) or with Easterly (foreign aid can do more harm than good) in the foreign aid debate? Explain your arguments.
Suppose total population is 100 million and 25% is devoted to the production of research and development. Using the simplified version of the Romer model outlined in the chapter, calculate the
Consider the world economy and comment on the effect of the Industrial Revolution on the world growth rate of output per person, according to the assumptions of the Romer model.
During the late 1960s, Chinese authorities imposed the precepts of the “Cultural Revolution” on their people. As a result, almost all scholars and researchers were sent to the fields to perform
Michael Kremer’s research suggests that higher population might stimulate technological progress. How can higher population stimulate technological change?
Discuss the validity of the following statement:“Unlike Solow’s model, Romer’s model concludes that changes in the saving rate do not affect the sustained per-capita output growth rate.”
Go to the St. Louis Federal Reserve FRED database, and find data on the labor force, capital stock, GDP, and the price level for Turkey and South Korea, with data codes provided in the table below.
The Heritage Index, published yearly by the Heritage Foundation, provides a comprehensive numerical measure of overall economic freedom for countries and reflects the strength or weakness of
The production function for technology in Equation 8 can be expressed asAssume that χ = 1, that both N̅ and α can vary over time, and that N̅ is interpreted as the labor force rather than
Distinguish between procyclical and countercyclical economic variables.
Distinguish among leading, lagging, and coincident economic variables.
Classify the following economic variables as procyclical or countercyclical and as leading, lagging, or coincident: real consumer spending, real investment spending, unemployment, inflation, S&P 500
What were the “Great Inflation” and the “Great Moderation”?
How do macroeconomists distinguish between flexible and sticky prices and wages?
What is the difference between the short run and the long run in macroeconomic analysis? Why do macroeconomists differentiate between the two time horizons?
How do Keynesian views on macroeconomic fluctuations differ from those of classical macroeconomists?
How do conflicting views of market structure influence the ideas of classical and Keynesian macroeconomists regarding price and wage flexibility and how quickly the economy adjusts to long-run
How do menu costs contribute to sticky prices?
Using the accompanying graph, measure the following:a) Expansions (in months from trough to peak)b) Contractions (in months from peak to trough) Economic Activity 01/1912 01/1913 12/1914 08/1918
Discuss the following statement: “Real GDP has decreased for two quarters in a row; we definitively are living through a contraction.”
The NBER Business Cycle Dating Committee stated that the U.S. economy entered a recession in December 2007. The S&P/Case-Shiller Home Price Index (a widely used measure of home prices) shows an
Use the information given in the following table to answer the following questions.Assume the business cycle is entirely determined by changes in real GDP.a) Identify the peak and trough during this
Refer to the data provided in Problem 4 to answer the following questions.a) Plot real GDP and the stock prices index on the same graph.b) Plot the unemployment and inflation rates on the same
Consider the following variables: real GDP, consumer spending, investment, unemployment, inflation, stock prices, interest rates, and credit spreads. Classify each as procyclical, countercyclical, or
Using Table 8.1 (NBER business cycles), identify the longest and shortest expansion and contraction in the United States from December 1854 to November 2001. What are your thoughts about the
Discuss the following statement: “When Keynes stated that ’in the long run, we are all dead’ he meant that we should focus only on the short run and not pay attention to any long-run
For each of the following products, state whether they are sold in a perfectly competitive market or in a monopolistically competitive market:a) Dairy products (e.g., milk, cheese, etc.)b) Cars
Suppose that in a given economy all goods and services produced are sold in perfectly competitive markets. Would you represent this economy using the classical or Keynesian approach? Explain why.
Do you think that the hourly wage (i.e., the price of labor) is a relatively flexible or a relatively sticky price? Explain why.
How, in general, can a financial crisis lead to a recession? How, in general, can a major new invention lead to an expansion?
How is the labor force defined and who measures it? How is the unemployment rate calculated? Does an increase in the unemployment rate necessarily mean a decline in the size of the labor force? Why
How, in general, do unemployment rates vary by race and ethnicity, gender, occupation, and education? Why does the average length of time people are unemployed rise during a recession?
Suppose that a country’s annual growth rates were 5, 3, 4, –1, –2, 2, 3, 4, 6, and 3 in yearly sequence over a 10-year period. What was the country’s trend rate of growth over this period?
Assume the following data for a country: total population, 500;population under 16 years of age or institutionalized, 120; not in labor force, 150; unemployed, 23; part-time workers looking for
Suppose that the natural rate of unemployment in a particular year is 5 percent and the actual rate of unemployment is 9 percent. Use Okun’s law to determine the size of the GDP gap in
If the CPI was 110 last year and is 121 this year, what is this year’s rate of inflation? In contrast, suppose that the CPI was 110 last year and is 108 this year. What is this year’s rate of
If your nominal income rose by 5.3 percent and the price level rose by 3.8 percent in some year, by what percentage would your real income(approximately) increase? If your nominal income rose by 2.8
Suppose that the nominal rate of inflation is 4 percent and the inflation premium is 2 percent. What is the real interest rate? Alternatively, assume that the real interest rate is 1 percent and the
What are the variables (the items measured on the axes) in a graph of the(a) consumption schedule and (b) saving schedule? Are the variables inversely (negatively) related or are they directly
In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal?a. A large decrease in real estate values, including private homes.b. A sharp,
Why does a downshift of the consumption schedule typically involve an equal upshift of the saving schedule? What is the exception to this relationship?
Why will a reduction in the real interest rate increase investment spending, other things equal?
In what direction will each of the following occurrences shift the investment demand curve, other things equal?a. An increase in unused production capacity occurs.b. Business taxes decline.c. The
Why is investment spending unstable?

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