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1、Chapter 12CHAPTER 25Conceptual Problems:5Technical Problems:7Additional Problems9CHAPTER 316Conceptual Problems:16Technical Problems:17Additional Problems23CHAPTER 428Conceptual Problems:28Technical Problems:71Additional Problems74CHAPTER 578Conceptual Problems:78Technical Problems:79Additional Prob

2、lems81CHAPTER 684Conceptual Problems:84Technical Problems:86Additional Problems:87CHAPTER 793Conceptual Problems:94Technical Problems:97Additional Problems:98CHAPTER 8105Conceptual Problems:105Technical Problems:108Additional Problems:110CHAPTER 9114Conceptual Problems:142Technical Problems:142Addit

3、ional Problems:145CHAPTER 10154Conceptual Problems:154Technical Problems:156Additional Problems:160CHAPTER 11168Conceptual Problems:168Technical Problems:170Additional Problems:172CHAPTER 12183Conceptual Problems:183Technical Problems:185Additional Problems:188CHAPTER 13193Conceptual Problems:193Tec

4、hnical Problems:196Additional Problems:198CHAPTER 14217Conceptual Problems:217Technical Problems:220Additional Problems:222CHAPTER 15228Conceptual Problems:228Technical Problems:229Additional Problems:231CHAPTER 16234Conceptual Problems:251Technical Problems:253Additional Problems:255CHAPTER 16251Co

5、nceptual Problems:251Technical Problems:254Additional Problems:255CHAPTER 18262Conceptual Problems:262Technical Problems:287Additional Problems:289CHAPTER 19315Conceptual Problems:316Technical Problems:318Additional Problems:321CHAPTER 20314Conceptual Problems:314Technical Problems:316Additional Pro

6、blems:319CHAPTER 21324Conceptual Problems324Technical Problems:336Additional Problems:338Chapter 1Problems1. "A country's rate of economic growth is determined solely by the amount of resources available to the country." Comment on this statement.Increases in the availability of resour

7、ces, that is, labor and capital used in the production of goods and services account for only part of a nation's economic growth. The efficiency with which these factors of production are used also affects economic growth. Increases in the efficiency of production result from increases in the ed

8、ucation and skill levels of the labor force and from newer and more efficient technology. In addition, the factors of production are not fully employed all the time. During an expansion or recovery, the use of the factors of production increases, which leads to an increase in production and output.

9、2. In the 1960s, increases in the rate of unemployment were generally associated with decreases in the inflation rate and vice versa. But in the 1970s and 1980s unemployment and inflation often moved in the same direction. How can you explain this?A shift in aggregate demand causes the unemployment

10、rate and the inflation rate to move in opposite directions, whereas a shift in aggregate supply causes unemployment and inflation to move in the same direction. Most disturbances in the 1960s came from the demand side, while many of the disturbances in the 1970s and 1980s came from the supply side.3

11、. "Since the long-run AS-curve is vertical, we can conclude that the total real output of a nation cannot grow in the long run." Comment on this statement.The AD-AS framework is a static framework that assumes that the level of potential GDP is fixed. However, the potential GDP of a nation

12、 grows over time as the amount of available resources or the efficiency with which these resources are used increases. Figure 1-4 in the text clearly indicates that the long-run (vertical) AS-curve moves to the right by a small percentage each year.4. "Long-run growth can best be studied by foc

13、ussing on the reasons for business cycles." Comment on this statement.Growth theory focuses primarily on the accumulation of inputs and improvements in technology that allow for an increased standard of living over time. Since growth theory tries to explain the average growth rate of an economy

14、 over many years, it ignores the short-run fluctuations (recessions and booms) that occur over the course of business cycles. 5. "In the very short run real output is fixed and therefore any increase in aggregate demand will simply increase the price level but not affect how many goods and serv

15、ices are produced in an economy." Comment on this statement.The short-run AS-curve is completely horizontal, based on the assumption that prices are constant. An increase in aggregate demand will therefore increase the level of output but will not affect the price level. It follows therefore th

16、at in the short run the level of output is solely determined by aggregate demand.6. "There is always a clear tradeoff between unemployment and inflation." Comment.The short-run Phillips curve describes an empirical relationship between wage and price inflation and the rate of unemployment.

17、 This curve shows that the higher the rate of unemployment, the lower the rate of inflation and vice versa (at least in the short run). However, in the long run there is no clear-cut tradeoff between inflation and unemployment. The economic events of the 1970s and 1980s showed us that unemployment a

18、nd inflation can increase or decrease simultaneously.7. The index of leading economic indicators is supposed to signal future developments in the economy and is calculated from variables in different sectors of the economy. Pick one leading economic indicator from each of the following sectors and b

19、riefly state the rationale for including this indicator in the calculation of the index: (1) the labor sector, (2) business activity, (3) the financial sector, and (4) residential construction. The answer to this question is student specific. Here is a sample answer.The labor sector:Employment figur

20、es as well as the unemployment rate should be used to look for changes in the labor sector. The unemployment rate is more often discussed in the media, but the employment figures have smaller cyclical variations and are thus a better indicator of labor market conditions.Business activity: New orders

21、, changes in inventories, capacity utilization, and industrial production are often used to interpret business activity. When using inventory changes it is important to distinguish between desired inventory changes, which may reflect changes in business expectations, and undesired inventory changes

22、that reflect changes in the demand for the product.The financial sector: Stock market activity, changes in money supply, or credit conditions can be used to show trends in financial markets. While the relationship between changes in stock values and the economy is not as close as it used to be, a co

23、ntinued increase in stock prices generally reflects increased optimism about future economic conditions. It also means an increase in wealth for stockholders and easier access to funds for firms wishing to make new investments.Residential construction: A change in new building permits or housing sta

24、rts may be the first sign of changing economic conditions. The housing sector is very sensitive to interest rate changes and tends to be indicative of other sectors of the economy, which often react in a similar way although to a lesser degree and with a time lag.8. Briefly discuss the usefulness of

25、 each of the following as leading economic indicators: (i) inventory changes, (ii) the GDPdeflator, (iii) the unemployment rate, (iv) the Dow Jones Industrial Average. Desired inventory changes reflect changes in business expectations and can be used as a leading economic indicator. But undesired in

26、ventory changes reflect changes in demand for the product and are therefore a lagging economic indicator. Only if one can separate out desired from undesired inventory changes, will it be possible to spot more clearly signs of an upcoming boom or recession. The GDPdeflator is the most complete price

27、 index, since it measures price changes of all final goods and services currently produced in a country. But the GDPdeflator is a lagging indicator, showing what has happened over the last quarter. In addition, initial GDP data tend to be fairly unreliable and have to be frequently revised. The unem

28、ployment rate has fairly small cyclical variations and is used as a measure for variations in the demand for labor. Changes in the unemployment rate also correspond well with changes in GDP. But the unemployment rate is a concurrent indicator.Changes in stock values generally reflect changes in expe

29、ctations of financial investors about dividends. If stock values go up people may feel wealthier and thus consumer spending may increase. Firms may have an easier time issuing new stock and thus they may invest more. In this case, we can expect an economic upswing. However, changes in stock values o

30、ften may simply be due to speculative behavior and may not be related to real economic activity. 9. In each of the three pairs below, which variable would you choose (and why) as a leading economic indicator: (i) labor productivity or the unemployment rate (ii) the CPI or the PPI (iii) stock market

31、changes or housing startsLabor productivity generally shows long run trends in the labor market and will determine wages and therefore living standards. It is a leading indicator, but cannot be easily used for forecasting. The unemployment rate has fairly small cyclical variations and is used as a m

32、easure for variations in the demand for labor. It is a very accurate measure of economic performance-at least as far as the labor sector is concerned. However, the unemployment rate is a concurrent and not a leading indicator. The CPI measures the price increase of a fixed market basket of 386 goods

33、 and services purchased by an average urban family. The CPI is easily available and is supposed to measure cost of living increases. However, the CPI is a concurrent indicator.The PPI measures average price changes of a market basket of over 1,000 intermediate goods up to the retail stage. It is rel

34、atively easily available and shows future price trends with relative accuracy. The PPI is a leading indicator and does not always correspond exactly with the CPI.Stock market changes reflect changes in expectations of financial investors about dividends arising from a perceived change in economic co

35、nditions. If stock values increase consumers may feel wealthier (and thus spend more), and firms have an easier time issuing new stock (and thus invest more). But while a change in stock values may indicate an upcoming change in economic conditions, it also could simply have been caused by speculati

36、ve behavior. Thus, it is a leading indicator that is, however, not always reliable. The demand for housing is very interest sensitive, since mortgage interest payments are a large part housing costs. Housing starts tend to increase sharply when interest rates drop to low levels, that is, when the ec

37、onomy is at the bottom of a recession. A change in housing starts thus is often seen as a turning point in the economy, since other sectors in the economy are expected to react similarly to changes in interest rates but with a lag and to a lesser degree. The increase in construction work naturally a

38、lso stimulates economic activity in other sectors of the economy. Thus housing starts is seen as a fairly reliable leading economic indicator. CHAPTER 2NATIONAL INCOME ACCOUNTINGSolutions to Problems in the Textbook:Conceptual Problems:1. Government transfer payments (TR) do not arise out of any pro

39、duction activity and are thus not counted in the value of GDP. If the government hired the people who currently receive transfer payments, then their wages would be counted as part of government purchases (G), which is counted in GDP. Therefore GDP would rise.2.a. If the firm buys a car for an execu

40、tive's use, the purchase counts as investment (I). But if the firm pays the executive a higher salary and she then buys a car, the purchase is counted as consumption (C).2.b. The services that a homemaker provides are not counted in GDP (regardless of their value). However, if an individual offi

41、cially hires his or her spouse to perform household duties at a certain wage rate, then the wages earned will be counted in GDP and GDP will increase.2.c. If you buy a German car, consumption (C) will increase but net exports (NX = X - Q) will decrease. Overall GDP will increase by the value added a

42、t the foreign car dealership, since the import price is likely to be less than the sales price. If you buy an American car, consumption and thus GDP will increase. (Note: If the car you buy comes out of the car dealer's inventory, then the increase in C will be partially offset be a decline in I

43、, and GDP will again only increase by the value added.) 3.GDP is the market value of all final goods and services currently produced within the country. (The U.S. GDP includes the value of the Hondas produced by a Japanese-owned assembly plant that is located in the U.S., but it does not include the

44、 value of Nike shoes that are produced by an American-owned shoe factory located in Malaysia.)GNP is the market value of all final goods and services currently produced using assets owned by domestic residents. (Here the value of the Hondas produced by a Japanese-owned Honda plant is not counted but

45、 the value of the Nikes by the American-owned shoe plant is.)Neither is necessarily a better measure of the output of a nation. The actual value of the GDP and GNP for the U.S. is fairly close.4.The NDP (net domestic product) is defined as GDP minus depreciation. Depreciation measures the value of t

46、he capital that wears out during the production process and has to be replaced. Therefore NDP comes closer to measuring the net amount of goods produced in this country. If this is what you want to measure, then NDP should be used.5. Increases in real GDP do not necessarily mean increases in welfare

47、. For example, if the population of a country increases by more than real GDP, then the population of the country is on average worse off. Also some increases in output come from welfare reducing events. For example, increased pollution may cause more lung cancer, and the treatment of the lung cance

48、r will contribute to GDP. Similarly, an increase in crime may lead to overtime work for police officers, whose increased salary will increase GDP. But the welfare of the people in the country may not have increased in either case. On the other hand, GDP does not always accurately measure quality imp

49、rovements in goods or services (faster computers or improved health care) that improve people's welfare.6. The CPI (consumer price index) and the PPI (producer price index) are both measured by looking at a certain market basket. The CPI's basket contains mostly finished goods and services t

50、hat consumers tend to buy regularly in their daily lives. The PPIs basket contains raw materials and semi-finished goods, that is, it measures costs to the producer of a product and its first user. The CPI is a concurrent economic indicator, whereas the PPI is a leading economic indicator.7. The GDP

51、-deflator is a price index that covers the average price increase of all final goods and services currently produced within an economy. It is defined as the ratio of current nominal GDP to current real GDP. Nominal GDP is measured in current dollars, while real GDP is measured in so-called base-year

52、 dollars. Even though early estimates of the GDP-deflator tend to be unreliable, the GDP-deflator can be a more useful price index than the CPI or PPI (both of which are fixed market baskets). This is true for two reasons: first it measures a much wider cross-section of goods and services; second, a

53、 fixed market basket cannot account for people substituting away from goods whose relative prices have changed, while the GDP-deflator, which includes all goods and services produced within the country, can.8. If nominal GDP has suddenly doubled, it is most likely due to an increase in the average p

54、rice level. Therefore, the first thing you would want to check is by how much the GDP-deflator has changed, to calculate by how much real output (GDP) has changed. If nominal GDP and the GDP-deflator have both doubled, then real GDP should be the same.9.Assume the loan you made yields you an annual

55、nominal return of 7%. If the rate of inflation is 4%, then your rate of return in real terms is only 3%. If, on the other hand, if inflation rate is 10%, then you will actually get a negative real rate of return, that is, you will lose 3% of your purchasing power. One way to protect yourself against

56、 such a loss of purchasing power is to adjust the interest rate for inflation, that is, to index the loan. In other words, you can require that, in addition to the specified interest rate of the loan of, lets say, 3%, the borrower also has to pay an inflation premium equal to the percentage change i

57、n the CPI. In this case, a real rate of return of 3% would be guaranteed. Technical Problems:1.The text calculates the change in real GDP in 1992 prices in the following way:RGDP01 - RGDP92/RGDP92 = 3.50 - 1.50/1.50 = 1.33 = 133%.To calculate the change in real GDP in 2001 prices, we first have to calculate the GDP of 1992 in 2001 prices. Thus we take the quantities consumed in 1992 and multiply them by the prices of 2001, as follows: Beer 1 at

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