Macroeconomics 8th Global Edition Olivier Blanchard - Solutions

Unlock the potential of your economic studies with comprehensive resources from "Macroeconomics 8th Global Edition" by Olivier Blanchard. Access online solutions and a solutions PDF, featuring detailed answers key and step-by-step answers to enhance your understanding. This textbook offers solved problems and a complete test bank, making it an invaluable instructor manual. Explore chapter solutions and questions and answers to reinforce learning. Whether you're seeking a solution manual or looking for a free download of these essential resources, elevate your academic journey with expertly crafted content tailored for your success.

REDUCING THE INFLATION RATE IN THE UNITED STATES Blanchard, in an American edition of this text, fi nds that the U.S. economy can be described by the following three equations: ut - ut-1 = -0.4(gyt - 3%) Okun’s law pt - pt-1 = -(ut - 5%) Phillips curve gyt = gMt - pt aggregate demanda. What is
OKUN’S LAW As shown by equation (13.2) , the estimated Okun’s law for Canada is given by ut - ut-1 = -0.4(gyt - 2.5%)a. What growth rate of output leads to an increase in the unemployment rate of 1% per year? How can the unemployment rate increase even though the growth rate of output is
TRUE/FALSE/UNCERTAINa. The Canadian unemployment rate will remain constant as long as output growth is positive.b. Many fi rms prefer to keep workers around when demand is low (rather than lay them off), even if the workers are underutilized.c. There are several different announcements of GDP
USING THE NATURAL RATE OF UNEMPLOYMENT MODEL [WEB] In the chapter, using data from 1970 to 2012, the equation pt - pt-1 = 3.2% – 0.4ut was found to best predict changes in infl ation in Canada. You can check to see if the equation continues to describe changes in infl ation after this book was
FAVOURABLE OIL SHOCKS, UNEMPLOYMENT, AND INFLATION In sharp contrast to the oil shocks of the 1970s, the price of oil substantially declined in the early part of the 1990s.a. Can this explain the good performance of both infl ation and unemployment in the 1990s?b. What has been the probable effect
+ 0.1m - 2ut where m is the markup of prices over wages. Suppose that m is initially equal to 20% but that as a result of a sharp increase in oil prices, m increases to 40% in year t and after.a. Why would an increase in oil prices result in an increase in m?b. What is the long-run effect of the
OIL SHOCKS, INFLATION, AND UNEMPLOYMENT Suppose that the Phillips curve is given by: pt - pe t =
- 2ut where pe t = pt-1 Suppose that infl ation in year t - 1 is zero. In year t, the authorities decide to keep the unemployment rate at 4% forever.a. Compute the rate of infl ation for years t, t + 1, t + 2, and t + 3. Now, suppose that half the workers have indexed labour contracts.b. What is
INDEXATION OF WAGES Suppose that the Phillips curve is given by: pt - pe t =
- 2ut where pe t = upt-1 Also, suppose that u is initially equal to zero.a. What is the natural rate of unemployment? Suppose that the rate of unemployment is initially equal to the natural rate. In year t, the authorities decide to bring the unemployment rate down to 3% and hold it there
MAINTAINING LOW UNEMPLOYMENT Suppose that the Phillips curve is given by: pt = pe t +
THE PHILLIPS CURVE Discuss the following statements:a. The Phillips curve implies that when unemployment is high, infl ation is low, and vice versa. Therefore, we may experience either high infl ation or high unemployment, but we will never experience both together.b. As long as we do not mind
TRUE/FALSE/UNCERTAINa. The original Phillips curve is the negative relation between unemployment and infl ation fi rst observed by Phillips for the United Kingdom.b. The original Phillips curve relation has proven to be very stable across both countries and time.c. The aggregate supply relation is
SUPPLY SHOCKS AND DEMAND MANAGEMENT Assume that the economy starts at the natural level of output. Now suppose there is an increase in the price of oil.a. In an AS-AD diagram, show what happens to output and the price level in the short run and the medium run.b. What happens to the unemployment
THE TED SPREAD The text described the fl uctuations in the TED spread that occurred during the fi nancial crisis. Do an Internet search and fi nd the recent history of the TED spread. You can fi nd this information easily from various sources.a. Consult Figure 11–8to compare the current value of
THE TROUBLED ASSET RELIEF PROGRAM (TARP) IN THE UNITED STATES Consider a bank that has assets of 100, capital of 20, and short-term credit of 80. Part of the bank’s assets are securitized assets whose value depends on the price of houses. These assets have a value of 50. The remaining assets are
TRADITIONAL MONETARY AND FISCAL POLICY IN A LIQUIDITY TRAP—THE AS-AD VIEW Consider an economy described by Figure 11–5 , with output lower than the natural level of output and the nominal interest rate at zero.a. Draw Figure 11–5and explain why the AD curve is vertical.b. If the central bank
TRADITIONAL MONETARY AND FISCAL POLICY IN A LIQUIDITY TRAP — THE IS-LM VIEW Consider an economy described by Figure 11–4 , with output lower than the natural level of output and the nominal interest rate at zero.a. Redraw Figure 11–4 . Is output at point B less than the natural rate of
TRUE/FALSE/UNCERTAIN Using information in this chapter, label each of the following statements true, false, or uncertain. Explain briefl y.a. The interest rate is zero in a liquidity trap.b. Liquidity traps occur whenever aggregate demand falls.c. An increase in a bank’s leverage ratio tends to
SPENDING SHOCKS, POLICY IN THE SHORT AND MEDIUM RUNSa. Supposed there is an increase in consumer confi dence. Show the short-run effects on these curves: IS, LM, AD, AS. Will output rise or fall in the short run in the absence of policy action? Assume that before the change in consumer confi
INVESTMENT AND MONETARY POLICY Consider the following model of the economy (we ignore the role of G and T on demand; also, to simplify the algebra, we assume that output depends on the difference between M and P rather than on their ratio): AD: Y = c (M - P) AS: P = Pe + d (Y - Yn) where c and d
WHAT IF THE INTEREST RATE HAD NO EFFECT ON INVESTMENT? Suppose that investment is not responsive to the interest rate.a. Can you think of a situation where that may happen?b. What does this imply for the IS curve?c. What does this imply for the LM curve?d. What does this imply for the AD curve?
THE NEUTRALITY OF MONEYa. In what sense is money neutral? Why is monetary policy useful, even though money is neutral?b. Fiscal policy, just like monetary policy, cannot change the natural level of output. Why then is monetary policy considered neutral but fi scal policy is not?c. Discuss this
SPENDING SHOCKS AND THE MEDIUM RUN Using the AS-AD model developed in this chapter, show the effects of each of the following shocks on the position of the IS, LM, AD, and AS curves in the medium run. Then, show the effect on output, the interest rate, and the price level, also in the medium run.
TRUE/FALSE/UNCERTAINa. The aggregate supply relation implies that an increase in output leads to an increase in the price level.b. The natural level of output can be determined by looking only at the aggregate supply relation.c. The aggregate demand relation implies that an increase in the price
THE NATURAL RATE OF UNEMPLOYMENT AND THE NATURAL LEVEL OF OUTPUT Suppose that the fi rms’ mark-up over costs is 5% and the wage-setting equation is W P (1 u ) where u is the unemployment rate.a. What is the real wage as determined by the price-setting relationship?b. Solve for the natural
BARGAINING POWER AND WAGE DETERMINATION Even in the absence of collective bargaining, workers do have some bargaining power that allows them to receive a wage higher than their reservation wage. Each worker’s bargaining power depends both on the nature of the job and on the economy-wide
RESERVATION WAGES In the mid-1980s, a famous supermodel once said that she would not get out of bed for less than $10,000 (presumably per day).a. What is your own reservation wage?b. Did your fi rst job pay more than your reservation wage at the time?c. Relative to your reservation wage at the time
THE LABOUR MARKET AT A GLANCE Go to the Web site maintained by Statistics Canada, www. statcan.gc.ca . Look for the latest release of the Labour Force Survey. This might be found on the opening page of the website or may be found by a search of The Daily.a. What are the latest monthly data on the
LABOUR-MARKET NUMBERS Answer the following questions using the information about Canada in Figure 9–1 .a. As a percentage of the employed workers, what is the size of the fl ows in and out of employment (that is, hires and separations) each month?b. As a percentage of the unemployed workers, what
TRUE/FALSE/UNCERTAINa. Since 1950, the participation rate in Canada has remained roughly constant at 60%.b. Each month, the fl ows in and out of employment are very small compared with the size of the labour force.c. One-third of all unemployed workers exit the unemployment pool each year.d. The
MONETARY POLICY AND THE COMPONENTS OF GDP Consider a monetary expansion in an economy operating under fl exible exchange rates. Discuss the effects on consumption, investment, and net exports.
ELIMINATING A TRADE DEFICIT UNDER FIXED EXCHANGE RATES Consider a small, open IS-LM economy with a fi xed exchange rate, where output is at its natural level but there is a trade defi cit. What is the appropriate fi scal– monetary policy mix?
THE EFFECTS OF CHANGES IN FOREIGN VARIABLES Consider the IS and LM equations in section 8-3 .a. Show the effect of a decrease in foreign output Y* on domestic output Y. Explain in words.b. Show the effect of an increase in the foreign interest rate i* on domestic output Y. Explain in words.c. “A
FIXED EXCHANGE RATES AND MONETARY POLICY Consider a group of open economies with perfect capital mobility among them.a. Assume that there is a Leader country. All other countries (referred to as the Follower countries) fi x their exchange rates to the Leader country. Discuss the effectiveness of
A CURRENCY CRISISa. Consider an economy with fi xed exchange rates. Suppose that government devalues unexpectedly and that investors believe that there will be no further devaluation. What will be the effects of the devaluation on output and on the interest rate?b. Suppose instead that after the
TRUE/FALSE/UNCERTAINa. Because the multiplier is smaller in an open economy than in a closed economy, fi scal policy is more effective in an open economy than in a closed economy.b. Monetary policy is more effective in a closed economy than in an open economy with fl exible exchange rates.c. If fi
EXPORT RATIOS Look at a recent issue of the International Financial Statistics, published monthly by the IMF. Find the list of countries in the table of contents. Make a list of fi ve countries you would expect to have high ratios of exports to GDP. Then, go to the page corresponding to each
DYNAMICS OF A DEPRECIATION Consider an economy with a fi xed exchange rate. Assume that the price level is fi xed.a. What is the effect of a depreciation on equilibrium income and trade balance in the fi rst six months after the depreciation?b. What is the effect of the depreciation on equilibrium
A U.S. RECESSION AND THE CANADIAN ECONOMYa. The share of American spending on Canadian goods is about 80% of Canadian exports, which are themselves equal to about 40% of GDP. What is the share of American spending on Canadian goods relative to Canadian GDP?b. Assume the multiplier in Canada is 2
REAL EXCHANGE RATES AND THE BALANCE OF TRADEa. Using the defi nition of the real exchange rate, verify that the following is true (you may want to use propositions 7 and 8 of Appendix 2 at the end of the book): P P = E E + P* P* - P Pb. If domestic infl ation is higher than foreign infl ation but
TRUE/FALSE/UNCERTAINa. Trade defi cits generally refl ect high investment.b. Budget defi cits cause trade defi cits.c. It is much easier for the government of a small open economy to maintain output at a given level than for the government of a large closed economy.d. The only way a country can
Fill in the missing elements of the table above and answer the following questions:a. Between which years did the domestic nominal exchange rate change?b. Between which years did the domestic real exchange rate change?c. Did the domestic nominal exchange rate depreciate or appreciate between Year
110 121 — 5 — 110 121
4
— 110
3
110 —
2
100 100
REAL EXCHANGE RATES E units of domestic currency per unit of foreign currency; P, P* are the domestic and foreign price index respectively.Year E P P * EP */ P 1
(US$1 C$0.90). What is your realized return in Canadian dollars compared with the realized return you would have made had you held the Canadian dollar bond?e. Are the differences in returns in (d) consistent with the uncovered interest parity condition? Why, or why not?
UNCOVERED INTEREST PARITY Consider the following prices for government bonds and foreign exchange in Canada and the United States. Assume that both government securities are one-year bonds, paying the face value of the bond one year from now. The exchange rate E stands at US$1 C$0.95. The face
BALANCE OF PAYMENTS Consider two fi ctional economies, one the “domestic country” and the other the “foreign country.” Construct a balance of payments for each country given the following list of transactions: The domestic country purchased $100 in oil from the foreign country. Foreign
TRUE/FALSE/UNCERTAINa. Countries with net capital infl ows must be running current account defi cits.b. Although the export ratio can be larger than one (as it is in Belgium and Luxembourg), the same cannot be true of the ratio of imports to GDP.c. That a rich country such as Japan has such a
POLICY RECOMMENDATIONS Suggest a policy or a policy mix to achieve the following objectives:a. Increase Y while keeping i constant.b. Decrease the defi cit while keeping Y constant. What happens to i? To investment?
MONETARY AND FISCAL POLICY WITH AN INTEREST RATE TARGETa. What is the slope of the LM curve when there is an interest rate target?b. What is the intercept of the LM curve when there is an interest rate target?c. If the level of investment responds strongly to the rate of interest, and the central
MONETARY AND FISCAL POLICIES: AN EXAMPLE Consider the following IS-LM model: C 200 0.25YD I 150 0.25Y 1000i G 250 T 200 (M/P) d 2Y 8000i M/P 1600a. Derive the equation for the IS curve. ( Hint: You want an equation with Y on the left-hand side and all else on the right.)b.
THE RESPONSE OF INVESTMENT TO FISCAL POLICYa. Using the IS-LM graph, determine the effects on output and the interest rate of a decrease in government spending. Why is the effect on investment ambiguous? With more information on the parameters of the IS and LM relation, we may be able to
THE MULTIPLIER REVISITED Consider fi rst the goods market model with constant investment that we saw in Chapter 3 : C c0 c1(Y T) , and I, G, and T are given.a. Solve for equilibrium output. What is the value of the multiplier? Now, let investment depend on both sales and the interest rate:
INVESTMENT AND THE INTEREST RATE The chapter argues that the reason investment depends negatively on the interest rate is the following: When the interest rate increases, the cost of borrowing funds also increases, and this discourages investment. However, fi rms often fi nance their investment
TRUE/FALSE/UNCERTAINa. The main determinants of investment are the level of sales and the interest rate.b. If all the exogenous variables in the IS relation are constant, then a higher level of output can be achieved only at a lower interest rate.c. The IS curve is downward sloping because
TARGETING AN INTEREST RATE Suppose that M d $Y (0.25 i) where i is expressed in decimal form, that is 10% 0.10.a. If nominal income is $1000, and the interest rate target is 5%, what money supply must the Bank of Canada provide to achieve its target?b. The interest rate target announced in
THE VELOCITY OF MONEY Let money demand be given by: Md = $Y L(i)a. Derive an expression for velocity as a function of i. How does it depend on i?b. Look at Figure 4–2 . What has happened to the velocity of money from 1975 to 2012?
ATMS AND CREDIT CARDS In this problem, we examine the effect of the introduction of ATMs and credit cards on money demand. For simplicity, let us examine a person’s demand for money over a period of four days. Suppose ATMs and credit cards do not exist and a person goes to the bank once at the
THE MONEY MULTIPLIER Suppose the following assumptions hold: 1. The public holds no currency. 2. The ratio of reserves to deposits is 0.1. 3. The demand for money is given by: Md = $Y (0.8 - 4i) Initially, the monetary base is $100 billion, and nominal income is $5 trillion.a. What is the demand
BOND DEMAND Suppose that a person’s wealth is $50,000 and that her yearly income is $60,000. Also, suppose that her money demand function is given by: Md = $Y (0.35 - i)a. Derive the demand for bonds. What is the effect of an increase in the interest rate of 10% (from, say, 2% to 12%) on the
FINANCIAL MARKETS EQUILIBRIUM Suppose that money demand is given by: Md = $Y (0.25 - i) where $ Y is $100. Also, suppose that the supply of money is $20. Assume equilibrium in fi nancial markets.a. What is the interest rate?b. If the Bank of Canada wants to increase i by 10% (from, say, 2% to 12%),
BONDS AND THE INTEREST RATE A bond promises to pay $100 in one year.a. What is the interest rate on the bond if its price today is $75? $85? $95?b. What is the relation between the price of the bond and the interest rate?c. If the interest rate is 8%, what is the price of the bond today?
MONEY DEMAND Suppose that a person’s wealth is $50,000 and that her yearly income is $60,000. Also, suppose that her money demand function is given by: Md = $Y(0.35 - i)a. What is her demand for money and her demand for bonds when the interest rate is 5%? 10%? Remember that the sum of money and
TRUE/FALSE/UNCERTAINa. Income and fi nancial wealth are both examples of stock variables.b. The demand for money does not depend on the interest rate because only bonds earn interest.c. Given their fi nancial wealth, if people are satisfi ed with the amount of money they hold, then they must also
BALANCED BUDGET VERSUS AUTOMATIC STABILIZERS It is often argued that a balanced budget amendment would actually be destabilizing. To understand this argument, consider the economy of question 6.a. Solve for equilibrium output.b. Solve for taxes in equilibrium. Suppose that the government starts
AUTOMATIC STABILIZERS So far in this chapter, we have been assuming that the fi scal policy variable T is independent of the level of income. In the real world, however, this is not the case. Taxes typically depend on the level of income, so tax revenue tends to be higher when income is higher.
THE BALANCED BUDGET MULTIPLIER For both political and macroeconomic reasons, governments are often reluctant to run budget defi cits. Here, we examine whether policy changes in G and T that maintain a balanced budget are macroeconomically neutral. Put another way, we examine whether it is possible
USING THE MULTIPLIERa. Consider a decline in real GDP of 2%. For the simple economy in question 2, how many units of real GDP equal 2% of equilibrium GDP?b. If the 2% decline in real GDP were caused by a reduction in @ I , how many units would @ I fall?c. If the government wanted to return real
THE CONCEPT OF EQUILIBRIUM For the economy in question 2,a. Assume output is equal to 900. Compute total demand. Is it equal to production? Explain.b. Assume output is equal to 1000. Compute total demand. Is it equal to production? Explain.c. Assume output is equal to 1000. Compute private
A SIMPLE ECONOMY Suppose that the economy is characterized by the following behavioural equations: C = 160 + 0.6YD @ I = 150 G = 150 T = 100 Solve fora. equilibrium GDP ( Y).b. disposable income ( Y D).c. consumption spending ( C).
TRUE/FALSE/UNCERTAINa. The largest component of GDP is consumption.b. Government spending, including transfers, was equal to 22% of GDP in 2012.c. The propensity to consume has to be positive, but beyond that it can take on any positive value.d. Fiscal policy describes the choice of government
Finally, this index is multiplied by nominal GDP in 2007 to give real GDP in chained (2007) dollars. As the index is 1 in 2007, this implies that real GDP in 2007 equals nominal GDP in 2007. Chained refers to the chaining of rates of change described above. ( 2007 ) refers to the year where, by
Look up the value of “real gross domestic product” on the Statistics Canada website www.statcan.gc.ca .a. Do the changes over the most recent four quarters suggest that the economy was in a recession? An expansion? Neither? Explain briefl y.b. For each of the most recent two years, compute
As can be seen from problems 5 and 6, the use of base year prices to compute the rate of change of real GDP and the rate of infl ation has some very unattractive properties. Every time a new base year is selected (e.g., to refl ect the growing share of services in GDP), all past growth rates of
million do not want to work.a. What is the labour force?b. What is the labour-force participation rate?c. What is the offi cial unemployment rate?d. If all discouraged workers were counted as unemployed, what would be the unemployment rate?
million have given up looking for work, and
Suppose that in a given month in Canada, there are 18 million working-age people. Of these, only 14 million have jobs. Of the remainder, 2 million are looking for work.
Use the data from problem 5 to answer the following:a. Using 1998 as the base year, what is the GDP defl ator for 1998 and 1999? What is the rate of infl ation over this period?b. Using 1999 as the base year, what is the GDP defl ator for 1998 and 1999? What is the rate of infl ation over this
An economy produces three goods: cars, computers, and oranges. Production units and prices per unit for years 1998 and 1999 are as follows: 1998 1999 Quantity Price Quantity Price Cars 10 $2000 12 $3000 Computers 4 $1000 6 $500 Oranges 1000 $1 1000 $1a. What is nominal GDP in 1998 and in 1999?b.
During a given year, the following activities occur: i. A silver mining company pays its workers $200,000 to mine 75 kilograms of silver. The silver is then sold to a jewellery manufacturer for $300,000.ii. The jewellery manufacturer pays its workers $250,000 to make silver necklaces, which it
Suppose that instead of cooking dinner for an hour, you decide to work an extra hour, earning an additional $12. You then buy some Chinese food for $10.a. By how much does measured GDP increase?b. Does true GDP increase or decrease? Explain.
Suppose you are measuring annual GDP by adding up the fi nal value of all goods and services produced in the economy. Determine the effect of each of the following transactions on the level of GDP. You may have to consult Appendix 1.a. You buy from a fi sherman $100 worth of fi sh, which you cook
a. The share of labour income in GDP is much smaller than the share of capital income.b. Canadian GDP in 2012 was 5 times higher than Canadian GDP in 1981.c. If a high unemployment rate discourages workers from looking for work, then the unemployment rate can be a poor indicator of labour market
High unemployment rates were also identifi ed as a major issue facing the developed world as of the writing of this chapter. Go to the most recent issue of the Economic Report of the President . Table B-109 contains information about unemployment rates in major industrial countries similar to the
Defi cit reduction, often called an austerity program, is identifi ed as a major issue facing the developed world as of the writing of this chapter. Go to the most recent issue of Fiscal Reference Tables published by the federal Department of Finance ( www.fi n. gc.ca ). There should be a table
Chinese economic growth is the outstanding feature of the world economic scene over the past two decades.a. In 2012, U.S. output was $15.6 trillion, and Chinese output was $8.2 trillion. Suppose that from now on, the output of China grows at an annual rate of 10.5% per year, while the output of
Beware of simplistic answers to complicated macroeconomic questions. Consider each of the following statements and comment on whether there is another side to the story.a. There is a simple solution to the problem of high European unemployment: Reduce labour market rigidities.b. What can be wrong
Using the information in this chapter, label each of the following statements true, false, or uncertain. Explain briefl y.a. Output growth was negative both in advanced and in emerging and developing countries in 2009.b. Stock prices fell between 2007 and 2010 around the world.c. In the 1960s and
Current monetary policy Problem 10 in Chapter 4 asked you to consider the current stance of monetary policy. Here, you are asked to do so again, but with the additional understanding of monetary policy you have gained in this and previous chapters.a. Go to the ECB Web site
The frequency of the zero lower bound around the world Use the FRED database at the Federal Reserve Bank of St. Louis to find the monthly average nominal policy interest rates for four major central banks. The series for these rates are: United States, federal funds (FEDFUNDS); United Kingdom,
From zero lower bound to negative rate Use the official or key interest rates database from the European Central Bank (ECB) Web site (https://www.ecb. europa.eu) and trace the evolution of the decisions of the ECB regarding deposit facility, that is, the remuneration of the commercial bank deposits
Taxes, inflation, and home ownership In this chapter, we discussed the effect of inflation on the effective capital-gains tax rate on the sale of a home. In this question, we explore the effect of inflation on another feature of the tax code—the deductibility of mortgage interest. Suppose you
Bank behavior in the interest rate corridor The United States (unlike other countries) has two types of bank-like financial institutions. Member banks can borrow from the Federal Reserve at the discount rate and must keep currency in their vaults or deposits at the Federal Reserve earning the

Showing 1300 - 1400 of 6303

First
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
Last

Macroeconomics 8th Global Edition Olivier Blanchard - Solutions

Step by Step Answers