Macroeconomics 11th Edition Andrew B Abel - Solutions

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How does monetary policy affect economic stability?How does it affect inflation?
Can monetary policy stimulate real GDP in the short run? Can it do so in the long run?
How does monetary policy affect interest rates, output, and employment?
How has the Federal Reserve responded to the financial crisis of 2008–2009?
What are the major tools with which the Federal Reserve controls the supply of money?
What are the major functions of the Federal Reserve System?
What is a fractional reserve banking system? How does it influence the ability of banks to create money?
What is money? How is money supply defined?
How can fiscal policy be used to promote economic stability and full employment?
What is the multiplier? What does it imply about the stability of a market economy?
What determines the equilibrium level of output in the Keynesian model?
Why did it lead to the development of Keynesian Economics?
How did the Great Depression alter views about the stability of markets?
How can fiscal policy be used to promote economic stability and full employment?
What is the multiplier? What does it imply about the stability of a market economy?
What determines the equilibrium level of output in the Keynesian model?
Why did it lead to the development of Keynesian Economics?
How did the Great Depression alter views about the stability of markets?
What does the AD–AS model reveal about the economic crisis of 2008?
When an economy is in a recession, will market forces help direct it back to full employment? If so, how rapidly will this adjustment process work?
What causes recessions and booms?
How will an economy adjust to unanticipated changes in aggregate demand? How will it adjust to unanticipated changes in aggregate supply?
What factors change aggregate demand? What factors change aggregate supply?
What determines the exchange rate? How is a nation’s trade balance related to the attractiveness of the economy to investors?
What is the difference between the real interest rate and the money interest rate? Does inflation help borrowers relative to lenders?
What determines the equilibrium level of GDP of an economy? When equilibrium is present, how will the actual rate of unemployment compare with the natural rate?
Why is an increase in the price level likely to expand output in the short run, but not in the long run?
Why is the aggregate demand for goods and services inversely related to the price level?
What is the circular flow of income? What are the major markets that coordinate macroeconomic activities?
How are anticipated and unanticipated inflation different? What are some of the dangers that accompany inflation?
What do economists mean by full employment? How is full employment related to the natural rate of unemployment?
Why do economies experience unemployment? Are some types of unemployment worse than others?
What is a business cycle? How much economic instability has the United States experienced?
Is GDP a good measure of output? What are its strengths and weaknesses?
What do price indexes measure? How can they be used to adjust for changes in the general level of prices?
When making comparisons over time, why is it important to adjust nominal GDP for the effects of inflation?
What is GDP? How is GDP calculated?
How does economic organization influence the efficiency of resource use?
What are the differences and similarities between market and government actions?
On page 52, we noted that the growth rate of per capita GDP in the United States between 1870 and 1929 was slightly lower than 2.0%, while the growth rate between 1950 and 2015 was slightly higher. Using the following table, calculate the actual average annual growth rates during these two
By how much does GDP rise in each of the following scenarios? Explain.(a) You spend $5,000 on college tuition this semester.(b) You buy a used car from a friend for $2,500.(c) The government spends $100 million to build a dam.(d) Foreign graduate students work as teaching assistants at the local
Select one of the macroeconomic questions in this chapter. Describe what you think the answer is.
How does macroeconomics study these questions?
Given your current knowledge, what do you think are the answers to these questions?
Which questions in macroeconomics interest you the most? Why?
You can think of the United States as a set of 50 separate economies with no trade barriers. In such an open environment, each state specializes in the products that it produces best.a. What product or products does your state specialize in?b. Can you identify the source of the comparative
The text mentions that in the developing world, teacher absenteeism is a serious problem, averaging 19 percent across six poor countries. An article in the Journal of Economic Perspectives states that absenteeism of health care workers in the five of those countries where data was available
Access the Discovering Data exercise for Chapter 18 online to answer the following questions.a. Using the most current data available, how has the exchange rate changed for Mexico, the United Kingdom, and Switzerland?b. By how much did each of these three currencies appreciate and depreciate
Access the Discovering Data exercise for Chapter 16 online to answer the following questions.a. How much did the monetary base change in the last year?b. How did the change in the monetary base help in the government’s efforts to finance its deficit?c. Why is it important for the central bank to
Access the Discovering Data exercise for Chapter 13 online to answer these questions.a. Which of these six countries-United States, France, Italy, Greece, Germany, and United Kingdom-had the largest amount of government debt as a percent of GDP as of 2015? Which had the smallest?b. Calculate the
Access the Discovering Data exercise for Chapter 9 online to answer the following questions.a. What is the average annual growth rate of real GDP per capita for each of the following countries: India, Canada, China, the United States?b. Does this data provide evidence in support of the convergence
Access the Discovering Data exercise for Chapter 7 online to answer the following questions.a. What was GDP for the Canada last year?b. Calculate the absolute change in Canadian GDP between last year and the year before.c. Which component of GDP was the largest last year? Which was the smallest?
Access the Discovering Data exercise for Chapter 6 online to answer the following questions.a. What is the percentage decline in industrial production for Greece from 2007 to 2009? What is it from 2007 to 2014?b. What country has the largest decline in industrial production from 2007 to 2009? Rank
What is the effect on the monetary base of an open market purchase of U.S. Treasury securities? What is the effect on the money supply?
What is the reserve–deposit ratio, and how does it affect bank runs?
Besides open-market operations, what other means does the Federal Reserve have for controlling the money supply? Explain how these alternative methods work.
Besides open-market operations, what other means does a central bank like the European Central Bank use to control the money supply? Explain how these alternative methods work.
Describe how the federal funds rate is determined in a regime of abundant reserves.
Describe the main sources of uncertainty that affect monetary policymakers and give an example of each.
Define the main tools the Fed used in the Great Recession to avoid problems caused by the zero lower bound.
Describe the Taylor rule. What are the variables that determine the recommended interest rate according to the rule? How has the rule performed historically?
How does the use of inflation targeting improve central bank credibility? What is the main disadvantage of inflation targeting?
How would the following monetary decisions of the European Central Bank influence individuals?a. A decrease in interest ratesb. An asset purchase program to support struggling member-statesc. A target inflation rate of $2 \%$d. A fixed exchange rate to the U.S. dollare. An abolition of cash
Since 1989, many central banks have adopted inflation targeting as a strategy for conducting monetary policy. What is inflation targeting? What influence do the following decisions have on inflation?a. An increase in interest ratesb. Reduction of income taxesc. Government support programs for small
Describe the following measures of monetary policy the Fed used to fight the Great Recession starting in 2007. What effect did they have on the U.S. economy?a. Zero lower bound and forward guidanceb. Credit easingc. Quantitative easingd. Increased limit for coverage on deposits from $\$ 100,000$
Why do many governments have policies against negotiating with hostage-taking terrorists? Under what conditions, if any, are such policies likely to reduce hostage taking? Discuss the analogy to monetary rules.
During much of the postwar period, the Fed attempted to stabilize nominal interest rates. However, during 1979-1982 the Fed under Paul Volcker greatly reduced its emphasis on interest rate stabilization to focus on fighting inflation. Calculate and graph the quarter-to-quarter change in the
As discussed in the text, if money demand is unstable, the Fed may prefer to target interest rates rather than the money supply itself. When the Fed follows an interest-rate-targeting policy, "Fed watchers" in financial markets and the media typically look to changes in short-term interest rates
Plot monthly data, beginning in 1990 , on the U.S. monetary base and excess reserves of depository institutions. How would you characterize the relationship between the two variables before and after the financial crisis in the fall of 2008? What explains this changing relationship?
Explain the difference between the overall government budget deficit, the current deficit, and the primary current deficit. Why are three deficit concepts needed?
Who bears the burden of government debt? Explain why. Under what circumstances is there no burden to be borne?
How is real seignorage revenue related to inflation? How does the quantity of real seignorage revenue change as inflation rises from zero to a positive level, to still higher levels?
At the beginning of year one, there is no government debt outstanding. The government runs a $\$ 100$ billion deficit in year one. Interest at a nominal rate of $10 \%$ must be paid starting in year two. Assume nominal GDP in year one is $\$ 2$ trillion, and the nominal growth rate of GDP is
Find the largest nominal deficit that the government can run without raising the debt-GDP ratio, under each of the following sets of assumptions:a. Nominal GDP growth is $10 \%$ and outstanding nominal debt is 1000 .b. Real GDP is 5000 and remains constant, nominal GDP is initially 10,000 ,
In this problem you are asked to analyze the question: By issuing new bonds and using the proceeds to pay the principal and interest on its old bonds, can government avoid ever repaying its debts?a. Suppose that nominal GDP is $\$ 1$ billion and the government has $\$ 100$ million of bonds
Why is some state and local spending paid for by grants in aid from the Federal government instead of entirely through taxes levied by states and localities on residents? What are the advantages and disadvantages of a system of grants in aid?
a. Use the fact that the nominal deficit equals the nominal primary deficit plus nominal interest payments on government debt to rewrite Equation (15.4) showing the change in the debt-GDP ratio as a function of the ratio of the primary deficit to GDP, the ratio of debt to GDP, and the difference
A constitutional amendment has been proposed that would force Congress to balance the budget each year (that is, outlays must equal revenues in each year). Discuss some advantages and disadvantages of such an amendment. How would a balanced-budget amendment affect the following, if in the absence
Using quarterly data since 1959, graph Federal government expenditures and receipts as a percentage of GDP. Separately, graph state and local government expenditures and receipts as a percentage of GDP. Compare the two graphs. How do Federal and state/local governments compare in terms of(a) growth
Using quarterly data since 1948, graph the Federal deficit as a percentage of GDP. What is the cyclical behavior of the Federal deficit? Repeat this exercise for the deficits of state and local governments. Are state and local deficits more or less cyclically sensitive than Federal deficits?
Go to the website of the Congressional Budget Office (www.cbo.gov) and find projections for the government budget deficit for the coming five years. Compare the size of the deficit and the full-employment deficit (which the CBO calls the budget deficit without automatic stabilizers) relative to
Discuss the potential relationship between government deficits and inflation. In this question, you will investigate the data on government debt as a share of GDP and the monetary base as a share of GDP. First, find data on the amount of U.S. Federal government debt held by the public as a share of
An economic variable is persistent if declines in the variable tend to be followed by more declines, and increases by more increases. This question asks you to study the persistence of the civilian unemployment rate. Using data since 1961, identify all quarters in which the unemployment rate
How does each of the following variables behave over the business cycle? Develop graphs to show your results and give economic explanations.a. Real importsb. Federal government receiptsc. Housing startsd. Capacity utilization rate, manufacturinge. Average weekly hours, manufacturing
It has been argued that the stock market predicts recessions. Using quarterly data since 1961, plot the real value of the stock market index (the Wilshire 5000 index in the last month of the quarter divided by the GDP deflator). Do you find the stock market to be a good economic forecaster?
Graph the levels of real GDP for the United States, Canada, and Germany (data can be found at www.oecd.org under Statistics and then under National Accounts). Are U.S. and Canadian business cycles closely related? U.S. and German business cycles?
In the FRED database, find a variable that is available in both a seasonally adjusted form and a not seasonally adjusted form. Plot both over time and describe how large the seasonal variation in the variable is.
In a particular economy the real money demand function is\[ \frac{M^{d}}{P}=3000+0.1 Y-10,000 i \]Assume that $M=6000, P=2.0$, and $\pi^{e}=0.02$.a. What is the real interest rate, $r$, that clears the asset market when $Y=8000$ ? When $Y=9000$ ? Graph the $L M$ curve.b. Repeat part (a)
For each of the following changes, what happens to the real interest rate and output in the very short run, before the price level has adjusted to restore general equilibrium?a. Wealth declines.b. The money supply declines.c. The future marginal productivity of capital declines.d. Expected
Which school of economists, classical or Keynesian, supports government intervention in the face of economic shock? Explain your answer based on the underlying assumptions.
During a recession, some workers would urge the government to increase its purchases temporarily (for example, by building roads) so as to increase employment and raise wages. If you were a classical economist, would you agree with this statement? Explain your answer in terms of the labor market,
An expansion of economic activities is observed to be followed by an increase in money supply. How would classical economists explain this—does the latter cause the former or vice versa? Explain.
In the classical model, money is neutral in both the short run and the long run. Explain how the introduction of price misperception and unanticipated change in monetary policy to the classical model changes the result of money neutrality.
In a certain economy, the production function is\[ Y=A\left(150 N-N^{2}\right), \]where $Y$ is the output, $A$ is productivity, and $N$ is the total hours worked. The marginal product of labor associated with this production function is\[ M P N=A(150-2 N) \]Initially, $A=1.0$, but a
A simplified model of the economy of Finland is described as follows:Desired consumption Desired investment$C^{d}=100+0.5(Y-T)-50 r$.Real money demand Full-employment output$I^{d}=150-50 r$.$L=0.5 Y-100 i$.Expected inflation $\quad \pi^{e}=0.02$.In this economy, the government always has a
Consider the following economy.Desired consumption $\quad C^{d}=200+0.4(Y-T)-400 r$.Desired investment $\quad I^{d}=300-400 r$.Real money demand $\quad L=0.6 Y-400 i$.Full-employment output $\bar{Y}=900$.Expected inflation $\quad \pi^{e}=0$.a. Suppose that $T=G=175$ and that
An economy has the following $A D$ and $A S$ curves.\[\begin{array}{ll}A D \text { curve } & Y=400+25(M / P) . \\A S \text { curve } & Y=Y_{f}+15\left(P-P^{e}\right) .\end{array}\]Here, $Y_{f}=500$ and $M=160$.a. Suppose that $P^{e}=40$. What are the equilibrium values of the price level,
Output in an economy is given by the production function $Y=A K^{0.3} N^{0.7}$, where $Y$ is output, $A$ measures productivity, the capital stock, $K$, is fixed at 30 , and employment $N$ is fixed at 100 . Output equals 100 in the year 2021 and equals 105 in 2022.a. Find the Solow
Suppose firms invest in a new artificial intelligence program that develops high caliber robots that can handle large amounts of data and deliver instructions to workers.a. Explain how the investment plan affects the IS, $L M$, and $A D$ curves.b. Suppose the workers' productivities and
According to the real business cycle theory, productivity shocks are an important source of business cycles. Using the Cobb-Douglas production function and annual data since 1961, calculate and graph U.S. total factor productivity. Use real GDP for $Y$, the capital stock from the source listed in

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Macroeconomics 11th Edition Andrew B Abel - Solutions

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