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Macroeconomics In Context: A European Perspective 1st Edition Sebastian Dullien, Neva Goodwin, Jonathan M. Harris, Julie A. Nelson, Brian Roach, Mariano Torras - Solutions
1. 3. Suppose that the relation between consumption and income is C = 90 +0.75Y.a. For each additional euro that households receive, how much do they save? How much do they spend?b. What is the level of consumption when income is equal to 0?360? 500? 600? (You may want to make a table similar to
1. 2. Suppose that you see a toy store increasing its inventories in early December, right before the Christmas/Chanukah/Kwanzaa season. Is this a case of excess inventory accumulation? Why or why not?
1.1. Carefully draw and label a supply-and-demand diagram for the classical loanable funds market. Assuming that the market starts and ends in equilibrium, indicate what happens if there is a sudden drop in households’ desire to consume.a. Which curve shifts and in what direction?b. What happens
1. 19. What is “the income/spending multiplier”? Explain why a drop in autonomous intended investment or in autonomous consumption leads to a much larger drop in equilibrium income.
1. 18. Does a macroeconomy’s being “in equilibrium” always mean it is in a good state? Why or why not?
1. 17. Describe how adjustment to equilibrium occurs in the Keynesian model.
1.16. Draw a “Keynesian cross” diagram, carefully labeling the curves and the equilibrium point.
1. 15. Do firms always end up investing the amount that they intend? Why or why not?
1. 14. What determines aggregate expenditure in the Keynesian model? Draw and label a graph.
1. 13. What did Keynes think was the most important factor in determining investment behavior?
1. 12. Why isn’t the interest rate included in the Keynesian consumption function?
1. 11. List five factors, aside from the level of income, that can affect the level of consumption in a macroeconomy.
1. 10. How did Keynes model consumption behavior? Draw and label a graph.
1. 9. Describe how the problem of leakages is solved in the classical model.
1. 8. Describe the classical market for loanable funds. Who are the actors, and what do they each do?
1. 7. How can an increase in saving (if not balanced by an increase in intended investment) cause a shrinkage of the output-income-spending flow?
1. 6. Saving is described as a “leakage” from the circular flow. How is it a leakage?
1. 5. What conditions comprise equilibrium in a macroeconomy?
1. 4. What is the definition of aggregate expenditure? How does it differ from measured GDP?
1. 3. In the model laid out in this chapter, who receives income? Who spends?Who saves?
1. 2. During the 1930s, how did economists’ opinions about the Great Depression differ?
1.1. During a business-cycle recession, which of the following typically rises:the level of output, the unemployment rate, the level of investment, or the inflation rate?
1. 2. Have you ever read articles or editorials that claim that high consumption is essential for a healthy economy? Does the Keynesian model seem to confirm or challenge this idea? What are some arguments for the opposite point of view?
1.1. Which theory—classical or Keynesian—seems more realistic in describing today’s economy? Explain why.
1. 2. Describe verbally how, in the Keynesian model, an economy can end up in an equilibrium of persistent unemployment.
1.1. If you received a raise of €100 per month, how would you increase your spending per month? How much would you change your saving? What is your mpc? What is your mps?
1. 2. Explain verbally why, in the classical model, the demand for loanable funds curve slopes downward.Explain verbally why the supply of loanable funds curve slopes upward.
1.1. Who are the actors in this simple macroeconomic model? What is the role of each in determining the flow of currently produced goods and services? What is the role of each in the classical market for loanable funds?
1. 2. Do you know in what phase of the business cycle we are at present? Is the euro-area economy currently in a recession or an expansion? What does this mean for employment, inflation, and GDP growth?
1.1. What impressions do you have of the Great Recession that began in 2008? How about the euro crisis? What were its impacts on people you know or have heard about? How do you think it compares to the Great Depression of the 1930s?
1. 6. Match each concept in Column A with a definition or example in Column B.Column A Column Ba. “Not in the labor force”1. The theory that unemployment is caused by insufficient aggregate demand b.Classical labor market theory 2. Occurs during a recession c.Underemployed part-time workers 3.
1. 5. Locate the most recent update of unemployment and employment statistics for the European Union at the Eurostat Web site. In a paragraph, describe how the labor force, overall unemployment rate, and unemployment rates by country of residence, gender, and education differ from the numbers (for
1. 4. A computer software company advertises for employees, saying “We offer the best-paid jobs in the industry!” But why would any company want to pay more than it absolutely has to in order to attract workers?Can this phenomenon help to explain the existence of unemployment?Explain in a
1. 3. Suppose an economy is suffering unemployment due to wages that are“too high,” as theorized by classical economists.a. Draw and label a graph illustrating this case, in which the going wage is €20, the equilibrium wage is €15, 50 million people want to work, but only 30 million are
1. 3. What is the unemployment rate in Tatoonia?
1. 2. What is the activity rate in Tatoonia?
1. 1. How would a household survey, following EU methods, classify each person?
1. 2. The population of Tatoonia is very small. Luis works full time for pay.Robin works one shift a week as counter help at a fast-food restaurant.Sheila is 78 years old and retired. Shawna does not work for pay but is thinking about getting a job and has been looking through employment postings
1.1. The small country of Nederland counts its unemployed using the same methods as the European Union. Of the population of 350 people, 70 are under age 15, 190 are employed in paid work, and 70 are adults who are not doing paid work or looking for work because they are doing full time family
1.20. How can the price and availability of natural resources affect prevailing wage rates?
1. 19. What is skill-biased technical change?
1. 18. How can changes in technology affect prevailing wage rates?
1. 17. What has been the relationship between labor productivity and average wages in the European Union since 1960?
1. 16. What are “efficiency wages,” and why might payment of them lead to unemployment?
1. 15. What are some reasons that wages might be “sticky”?
1.14. Describe how “sticky wages” could lead to unemployment.
1. 13. What are some of the reasons that an economy might offer less than the optimal number of jobs, according to classical theory?
1. 12. Describe the classical theory of unemployment.
1. 11. What is the relationship between the average duration of unemployment and the unemployment rate?
1. 10. What policies may be used to combat frictional and structural unemployment?
1. 9. List and describe the three types of unemployment.
1. 8. How can high levels of unemployment be explained in the Keynesian model?
1. 7. What is the labor force participation rate, and how is it calculated? How has it changed in recent decades for men and women in the European Union?
1. 6. What does employment flexibility mean from the perspective of workers? From the perspective of employers?
1. 5. What are underemployed part-time workers? Discouraged workers?
1. 4. How is the unemployment rate calculated?
1. 3. What makes a person count as “unemployed”?
1. 2. What questions are asked to determine whether someone is “employed”?
1.1. What population is included in the official household survey that measures employment and unemployment?
1. 2. Can you think of other impacts, positive and negative, of allowing workers more flexibility in setting their work hours? Would you support any specific policies to promote more choice of work hours?
1.1. Which arguments seem most convincing to you, those of classical labor market theorists, “sticky wage” theorists, or Keynesian economists concerned with aggregate demand? What are some strengths and weaknesses of each argument?
1. 2. Do you know of places in your city or region (or country) that have been hit particularly hard by unemployment and underemployment recently or in past decades? Do you know why this hardship occurred? Would you characterize this unemployment as frictional, structural, or cyclical?
1.1. Reflecting on your experience or that of someone you know, how long might it normally take for someone to find a job in your area?Comparing your answers in a group, do you find different opinions?What might be some of the factors that make frictional unemployment last a longer or shorter
1. 2. What evidence have you seen—in your own family or in the media—of increasing “flexibility” in labor markets? Do you think that these changes have been beneficial, harmful, or both?
1.1. What was the labor force experience of your grandparents (or others whom you know in that generation)? Of your parents (or others in their generation)? What do you expect your own labor force participation to be like? Do the patterns in your family reflect the national pattern of changes
1. 2. Do you know anyone who is a “discouraged worker”? How about someone who is an “underemployed part-time worker”?
1.1. How would Eurostat classify you, personally, on the basis of your activities last week? Can you think of an example in which someone you think of as working would not be considered by Eurostat to be officially“employed”? Is it true that people who are not working are generally counted as
1. 4. Match each statement in Column A with an answer in Column B.Column A Column Ba. The largest of the three economic sectors by value added 1. Cyclicalb. The smallest of the three economic sectors by value added 2. Fiatc. An example of a business in the primary sector 3. Primaryd. An example of
1. 3. Eurostat’s databases are the sources of much of the data presented in this chapter. Go online and locate the relevant databases. Find the percentage of GDP attributed to the primary, secondary, tertiary, and government sectors for your home country. How does the country compare to the EU?
1. 2. Search the Internet or other news sources for a recent article discussing the loss of European jobs to other countries. Based on what you have learned in this chapter, present an analysis of the article. Can you find any statements in the article that you think may be inaccurate?
1.1. Match each statement in Column A with a percentage in Column B.Column A Column Ba. Share of the employed persons in the EU who work in education 1. around 11 percentb. The tertiary sector’s share of GDP 2.74 percentc. The percentage of EU energy needs covered from petroleum products 3.1.5
1. 14. What trend was emphasized in the chapter concerning retail services?
1. 13. Summarize the state of health care in the European Union.
1. 12. What is meant by “financialization”? What data suggest that advanced economies have become more financialized in recent years?
1. 11. Is the service sector synonymous with low-paying jobs?
1. 10. Are some politicians correct when they say that European manufacturing jobs have been shifted to Asia?
1. 9. Contrast the recent history of the European textile and automobile industries.
1. 8. Why does the number of new housing starts in most countries show a cyclical pattern?
1. 7. What is the largest source of energy in the European Union?
1. 6. Does the declining share of the primary sector imply that it is becoming less important?
1. 5. Summarize how agriculture in the European Union has changed over the past century.
1. 4. What are some of the potential future natural resource constraints on economic activity?
1. 3. How do “technological optimists” view the debate about natural resource constraints?
1. 2. Approximately what percentage of the EU GDP is produced in each of the three sectors? How has this allocation changed over time?
1.1. List and define the three major output sectors of the European economies, as discussed in this chapter.
1. 2. What can be the benefits of a growing financial sector? Why is a growing financial sector not always beneficial for the economy as a whole?
1.1. Economic theory suggests that goods and services provided in competitive markets by private enterprises will result in lower prices.But we have learned that health-care costs in the United States are actually much higher than in Europe, although Americans do not have better health outcomes
1. 2. Some people cite the return from the suburbs to urban areas and the lower percentage of young people getting driver’s licenses as indications that “the age of the automobile is drawing to a close.” Do you think that this is true? If automobile use were to fall in half over the next 15
1.1. During the euro crisis, in many European countries, a significant decline in housing prices could be observed. However, at the same time, the number of homes sold also declined dramatically. Shouldn’t the decline in housing prices have resulted in an increase in home sales, as suggested by a
1. 2. Do you think that the heavy dependence of the European Union on fossil fuels for energy is a problem? How likely is it that this might change in the future?
1.1. How do you obtain most of your food? Does it come from a supermarket, or do you get some from a farmers’ market or grow your own? Are you surprised to learn that less than a tenth of what you spent on food goes to the primary sector, where the food is actually produced?
1. 2. Try to estimate what share of your total expenditures is spent on products from the primary, secondary, and tertiary sectors. How do you think your expenditure patterns will change in the future? For example, assuming that your income will rise after you graduate, do you think that your share
1.1. Think about the businesses and industries in your community. How would you classify those businesses according to each of the three sectors described above? Does your answer to this question concur with the notion that the majority of economic activity takes place in the tertiary sector?
1. 11. Match each concept in Column A with a definition or example in Column B.Column A Column Ba. Depreciation of natural capital 1. Valuing time at the wage that someone gives upb. Satellite accounts 2. Comparison with GDP supports the diminishing marginal utility of incomec. An indicator of
1. 10. Consumption of oil, gas, and coal currently fuels the EU economy but also has other effects. How might the following be accounted for in the respective national accounts, if they were environmentally adjusted?a. Depletion of domestic oil, natural gas, and coal reservesb. Release of
1. 9. In 2011, the Deepwater Horizon oil spill in the Gulf of Mexico caused heavy damage to the fishing and tourism industries of Louisiana and other coastal states. In addition, there were long-term ecological impacts on fish and wildlife. Describe how this might be accounted for in the 2011
1. 8. Which of the following describe a resource function of the natural environment? An environmental service function? A sink function?a. A landfillb. A copper minec. Carbon dioxide (a byproduct of combustion) entering the atmosphered. Wild blueberries growing in a meadowe. A suitable temperature
1. 7. Estimate how much time you spend each week doing two unpaid household production tasks (e.g., cleaning, cooking, or repairs). Then locate data on the typical wages paid to workers who perform these tasks on the Eurostat Web site (http://ec.europa.eu/eurostat/web/labour market/earnings). Based
1. 6. Suppose that you buy a bread-making machine, flour, and other foodstuffs, take them home, and bake bread with a group of young children who are in your care (unpaid). How would these activities be accounted for in current GDP accounting? How might they be accounted for in an expanded account
1. 5. The UNDP Human Development Report is available at its Web site(www.undp.org). Consult this report, and choose a country that is not included in Figure 6.2. Write a paragraph describing this country’s performance on the HDI as well as on three other indicators reported in the tables (such as
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