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Questions and Answers of Macroeconomics

Estimating the natural rate of unemployment To answer this question, you will need data on the annual French unemployment and inflation rates since 2000. Go to the English language Web site of the
Changes in the natural rate of unemploymenta. Repeat Problem 7, but now draw separate graphs for the period 2000 to 2008 and the period since 2008, which marks the global financial crisis.b. Do you
Using the natural rate of unemployment to predict changes in inflation Suppose that the equation of the Phillips curve is\[\pi_{t}-\pi_{t}-1=4.0-0.32 \theta t\]Fill in the table below using the data
The rate of inflation and expected inflation in different decades Fill in the values in the table below for inflation and expected inflation of your country during the 1980s. You need to use a
Label each of the following statements true, false, or uncertain. Explain briefly.a. The \(I S\) curve shifts up with an increase in G, up with an increase in \(T\), and up with an increase in
The medium-run equilibrium is characterized by four conditions:Output is equal to potential output \(Y=Y_{n}\).The unemployment rate is equal to the natural rate \(u=u_{n}\).The real policy interest
The two paths to the medium-run equilibrium explored in this chapter make two different assumptions about the formation of the level of expected inflation. One path assumes the level of expected
A shock to aggregate supply will also have different outcomes when there are different assumptions about the formation of the level of expected inflation. As in Question 3, one path assumes that the
Okun's Law is written as \(u-u(-1)=-0.4\left(g_{Y}-3 \%ight)\)a. What is the sign of \(u-u(-1)\) in a recession? What is the sign of \(u-u(-1)\) in a recovery?b. Explain where the \(3 \%\) number
Fiscal consolidation at the Zero Lower Bound Suppose the economy is operating at the zero lower bound for the nominal policy rate; there is a large government deficit and the economy is operating at
Consider the data in the Focus box, "Deflation in the Great Depression."a. Do you believe that output had returned to its potential level in 1933?b. Which years suggest a deflation spiral as
Consider the data in the Focus box, "Deflation in the Great Depression."a. Calculate real interest rates in each year making the assumption that the expected level of inflation is last year's rate of
The Great Depression in the United Kingdom Answer the following questions based on information found in the table belowa. Is there evidence of the deflation spiral from 1929 to 1933 in the United
Label each of the following statements true, false, or uncertain. Explain briefly.a. On a logarithmic scale, a variable that increases at \(5 \%\) per year will move along an upward-sloping line with
Suppose that every month the average student in Tokyo, Japan, and the average student in Beijing, China, consume the following quantities of food and transportation services at the following
Consider the following production function:\[Y=K+2 N\]a. Suppose that \(K=10\) and \(N=20\). What is the value of \(Y\) ?b. Suppose that \(K\) and \(N\) triple. What happens to \(Y\) ?c. How would
The growth rates of capital and output Consider the production function given in problem 3.Assume that\(N\) is constant and equal to 1 . Note that if \(z=x^{a}\), then \(g_{z} \approx a g_{x}\),
Between 1950 and 1973, France, Germany, and Japan all experienced growth rates that were at least two percentage points higher than those in the United States. Yet the most important technological
On the World Bank's Web site (http://data.worldbank.org/ indicator/NY.GDP.PCAP.KD), find the data on GDP per capita (in constant 2005 US\$) for China and for the Euro area (which includes Austria,
Convergence in two sets of countries Go to the Web site containing the Penn World Table and collect data on real GDP per person (chained series) from 1950 to 2011 (or the most recent year available)
Growth successes and failures Go to the Web site containing the Penn World Table and collect data on real GDP per capita (chained series) for 1970 for all available countries. Do the same for a
Label each of the following statements true, false, or uncertain. Explain briefly.a. The saving rate is always equal to the investment rate.b. A higher investment rate can sustain higher growth of
Suppose that the head of the Finance Ministry in your country were to go on the record advocating an effort to restrain current consumption, arguing that "lower consumption now means higher savings;
In Chapter 3 we saw that an increase in the saving rate can lead to a recession in the short run (i.e., the paradox of saving). We examined the issue in the medium run in Problem 5 at at the end of
Discuss how the level of output per person in the long run would likely be affected by each of the following changes:a. The right to exclude saving from income when paying income taxes.b. A higher
Suppose that in a given economy, both the savings rate and the depreciation rate increase. What would the effect of this dual movement be on the economy's capital per worker and output per worker in
Suppose that an economy is characterized by the following production function:\[Y=3 \sqrt{K} \sqrt{N}\]a. Derive the steady-state level of output per worker, and the steady-state level of capital per
The Cobb-Douglas production function and the steady state This problem is based on the material in the chapter appendix.Suppose that the economy's production function is given by\[Y=K^{\alpha}
Continuing with the logic from Problem 7, suppose that the economy's production function is given by \(Y=K^{1 / 3} N^{2 / 3}\) and that both the saving rate, s, and the depreciation rate, \(\delta\)
The savings rate and changes in the capital stock Suppose that in country \(X\), the savings rate slowly declines from \(12 \%\) in year to \(11 \%\) in year \(t+1\) and \(10 \%\) in year
Savings and government deficits.a. The World Bank has a database on gross domestic savings (as \% of GDP) available on its Web site. Using the data (for 2014), find the savings rates for France,
Label each of the following statements true, false, or uncertain. Explain briefly.a. Writing the production function in terms of capital and effective labor implies that as the level of technology
RED and growtha. Why is the amount of R\&D spending important for growth? How do the appropriability and fertility of research affect the amount of R\&D spending?How do each of the policy proposals
Sources of technological progress: Leaders versus followersa. Where does technological progress come from for the economic leaders of the world?b. Do developing countries have other alternatives to
For the following changes in economic policy, explain how the growth rate and the level of output in the future would be affected. Distinguish between short-run effects and long-term effects.a. The
Measurement error, inflation, and productivity growth Suppose that there are only two goods produced in an economy: haircuts and banking services. Prices, quantities, and the number of workers
Suppose that a country's production function is\[Y=2 \sqrt{K} \sqrt{A N}\]and that the savings rate, s, is equal to \(20 \%\) and the depreciation rate, \(\delta\), is \(10 \%\). Suppose further that
Discuss the potential role of each of the factors listed in (a) through (g) on the steady-state level of output per worker. In each case, indicate whether the effect is through \(A\), through \(K\),
Growth accounting The appendix to this chapter shows how data on output, capital, and labor can be used to construct estimates of the rate of growth of technological progress. We modify that approach
Label each of the following statements true, false, or uncertain. Explain briefly.a. The change in employment and output per person in the United States since 1900 lends support to the argument that
Suppose an economy is characterized by the following equations:\[\begin{gathered}\text { Price setting: } P=(1+m)(W / A) \\\text { Wage setting: } W=A^{e} P^{e}(1-u)\end{gathered}\]a. Solve for the
Discuss the following statement: "Higher labor productivity allows firms to produce more goods with the same number of workers and thus to sell the goods at the same or even lower prices. That's why
Discuss the potential impact of the following policies on wage inequalities.a. New fiscal incentives for corporate spending on on-the-job training for low-skilled employees.b. Trade barriers erected
Technological progress, agriculture, and employment Discuss the following statement: "Those who argue that technological progress does not reduce employment should look at agriculture. At the start
Productivity and the aggregate supply curve Consider an economy in which production is given by\[Y=A N\]Assume that price setting and wage setting are described in the following
Technology and the labor market In the appendix to Chapter 7, we learned how the wage-setting and price-setting equations could be expressed in terms of labor demand and labor supply. In this
The churn In 2014, the European Commission (EC) published a"European Vacancy and Recruitment Report" on its Web site, which contains data on the occupations with the sharpest declines and increases
Real wages According to the International Labour Office's (ILO) latest Global Wage Report's appendix on Asia and the Pacific, available on its Web site, real wage growth has been very strong in the
Income Inequality Use the World Income Database (at http://www.wid. world/\#Database) to find data about income inequality in France and the United Kingdom.a. Find data about the top \(1 \%\) income
Explain how each of the following situations illustrates one of the five principles of interaction.a. Using eBay any student who wants to sell a used textbook for at least $30 is able to sell it to
Explain how each of the following examples illustrates one of the three principles of economy-wide interactions.a. The White House urged Congress to pass a package of temporary spending increases and
In 2010, Tim Geithner, Treasury secretary at the time, published an article defending the administration’s policies. In it he said, “The recession that began in late 2007 was extraordinarily
In 2012, Hurricane Sandy caused massive destruction to the northeast United States. Tens of thousands of people lost their homes and possessions. Even those who weren’t directly affected by the
Use the circular-flow diagram to explain how an increase in the amount of money spent by households results in an increase in the number of jobs in the economy.Describe in words what the
A survey indicated that chocolate is the most popular flavor of ice cream in America. For each of the following, indicate the possible effects on demand, supply, or both as well as equilibrium price
Assume that the quota limit is 8 million rides. Suppose demand decreases due to a decline in tourism. What is the smallest parallel leftward shift in demand that would result in the quota no longer
The accompanying table shows hypothetical demand and supply schedules for milk per year. The U.S. government decides that the incomes of dairy farmers should be maintained at a level that allows the
European governments tend to make greater use of price controls than does the U.S. government. For example, the French government sets minimum starting yearly wages for new hires who have completed
In 2002 the United States imposed tariffs on steel imports, which are an input in a large number and variety of U.S. industries. Explain why political lobbying to eliminate these tariffs is more
Over the years, the WTO has increasingly found itself adjudicating trade disputes that involve not just tariffs or quota restrictions but also restrictions based on quality, health, and environmental
Since 2000, the value of U.S. imports of men’s and boy’s apparel from China has more than tripled. What prediction does the Heckscher-Ohlin model make about the wages received by labor in China?
Determine the amount of consumer surplus generated in each of the following situations.a. Leon goes to the clothing store to buy a new T-shirt, for which he is willing to pay up to $10. He picks out
Which of the following questions involve microeconomics, and which involve macroeconomics?In each case, explain your answer.a. Why did consumers switch to smaller cars in 2008?b. Why did overall
Why do we talk about business cycles for the economy as a whole, rather than just talking about the ups and downs of particular industries? Describe who gets hurt in a recession, and how.
How do economists in the United States determine when a recession begins and when it ends? How do other countries determine whether or not a recession is occurring?
The U.S. Department of Labor reports statistics on employment and earnings that are used as key indicators by many economists to gauge the health of the economy. Figure 6-4 in the text plots
In the 1990s there were some dramatic economic events that came to be known as the Asian financial crisis. A decade later similar events came to be known as the global financial crisis. The
Why do we consider a business-cycle expansion different from long-run economic growth? Why do we care about the size of the long-run growth rate of real GDP relative to the size of the growth rate of
Each year, The Economist publishes data on the price of the Big Mac in different countries and exchange rates.The accompanying table shows some data from 2007 and 2014. Use this information to answer
College tuition has risen significantly in the last few decades. From the 1981–1982 academic year to the 2011–2012 academic year, total tuition, room, and board paid by full-time undergraduate
Assume there are only two goods in the economy, french fries and onion rings. In 2013, 1,000,000 servings of french fries were sold at $0.40 each and 800,000 servings of onion rings at $0.60 each.
From 2005 to 2010, the price of electronic equipment fell dramatically and the price of housing rose dramatically. What are the implications of this in deciding whether to use 2005 or 2010 as the
Consider Table 7-3 but suppose that the market basket is composed of 100 oranges, 50 grapefruit, and 200 lemons. How does this change the pre-frost and post-frost price indexes? Explain. Generalize
For each of the following events, how would an economist using a 10-year-old market basket create a bias in measuring the change in the cost of living today?a. A typical family owns more cars than it
The consumer price index in the United States (base period 1982–1984) was 226.229 in 2012 and 229.324 in 2013. Calculate the inflation rate from 2012 to 2013.
The components of GDP in the accompanying table were produced by the Bureau of Economic Analysis.a. Calculate 2013 consumer spending.b. Calculate 2013 private investment spending.c. Calculate 2013
In the economy of Pizzania (from Problem 4), bread and cheese produced are sold both to the pizza company for inputs in the production of pizzas and to consumers as final goods. The accompanying
The accompanying table shows data on nominal GDP(in billions of dollars), real GDP (in billions of 2005 dollars), and population (in thousands) of the United States in 1960, 1970, 1980, 1990, 2000,
Eastland College is concerned about the rising price of textbooks that students must purchase. To better identify the increase in the price of textbooks, the dean asks you, the Economics
The consumer price index, or CPI, measures the cost of living for a typical urban household by multiplying the price for each category of expenditure (housing, food, and so on) times a measure of the
Go to the Bureau of Labor Statistics home page at www.bls.gov. Place the cursor over the “Economic Releases”tab and then click on “Major Economic Indicators”in the drop-down menu that
The accompanying table provides the annual real GDP(in billions of 2009 dollars) and nominal GDP (in billions of dollars) for the United States.a. Calculate the GDP deflator for each year.b. Use the
The accompanying table contains two price indexes for the years 2011, 2012, and 2013: the GDP deflator and the CPI. For each price index, calculate the inflation rate from 2011 to 2012 and from 2012
The cost of a college education in the United States is rising at a rate faster than inflation. The following table shows the average cost of a college education in the United States during the
The economy of Britannica produces three goods:computers, DVDs, and pizza. The accompanying table shows the prices and output of the three goods for the years 2012, 2013, and 2014.a. What is the
Suppose that the advent of employment websites enables job-seekers to find suitable jobs more quickly. What effect will this have on the unemployment rate over time? Also suppose that these websites
Why does collective bargaining have the same general effect on unemployment as a minimum wage? Illustrate your answer with a diagram.
Each month, usually on the first Friday of the month, the Bureau of Labor Statistics releases the Employment Situation Summary for the previous month. Go to www.bls.gov and find the latest report. On
Part of the information released in the Employment Situation Summary concerns how long individuals have been unemployed. Go to www.bls.gov to find the latest report. Use the same technique as in
A country’s labor force is the sum of the number of employed and unemployed workers. The accompanying table provides data on the size of the labor force and the number of unemployed workers for
The accompanying diagram shows the interest rate on one-year loans and inflation during 1998–2013 in the economy of Albernia. When would one-year loans have been especially attractive and why?
The accompanying table provides the inflation rate in the year 2000 and the average inflation rate over the period 2001–2013 for seven different countries.a. Given the expected relationship between
The accompanying diagram shows the inflation rate in WORK IT OUT the United Kingdom from 1980 to 2013.a. Between 1980 and 1985, policy makers in the United Kingdom worked to lower the inflation rate.
Predict the effect of each of the following events on the growth rate of productivity.a. The amounts of physical and human capital per worker are unchanged, but there is significant technological
Output in the economy of Erewhon 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
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
Explain the link between a country’s growth rate, its investment spending as a percent of GDP, and its domestic savings.
U.S. centers of academic biotechnology research have closer connections with private biotechnology companies than do their European counterparts. What effect might this have on the pace of creation
During the 1990s in the former Soviet Union a lot of property was seized and controlled by those in power. How might this have affected the country’s growth rate at that time? Explain.
Some economists think the high rates of growth of productivity achieved by many Asian economies cannot be sustained. Why might they be right? What would have to happen for them to be wrong?

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