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foundations macroeconomics

Questions and Answers of Foundations Macroeconomics

12. What is wage rigidity? List and explain two factors that can increase wage rigidity in the labor market.
11. Sometimes new technology in production reduces the time that a worker takes to complete a task.Technological innovations can also completely replace a factory worker. Does this mean that
10. What is the difference between frictional and structural unemployment?
9. What is meant by job search? How does it lead to frictional unemployment?
8. Would a country with a healthy economy have a zero unemployment rate?
7. Why does the labor supply curve slope upward, and what can cause the labor supply curve to shift?
6. List two factors that can cause a shift in the labor demand curve. Explain why a change in each factor can lead to a shift of the curve.
5. What is the value of the marginal product of labor?Explain how it is computed with an example.
4. What could explain why unemployment is lower among workers with a relatively higher level of education?
3. Consider Exhibit 9.2. What were the three highest rates of unemployment since 1948? When did they occur?
2. Explain whether each of these individuals will be counted as a part of the labor force.a. Chiara is a part-time university lecturer who is raising her daughter by herself.b. Jan recently quit his
1. Unemployment statistics are measured and released by the Bureau of Labor Statistics, a division of the U.S.Department of Labor.a. When does the Bureau of Labor Statistics officially classify a
12. Based on the discussions in this chapter, the preceding chapters, and your own readings, what could be some of the conditions under which aid works and can assist the development of the countries
11. In what situation would foreign aid be not only insufficient but also detrimental to an economy?
10. The process of Schumpeter's creative destruction creates winners and losers in economies. What are some of the options to limit the negative effects on the losers? Why is it imperative to
9. Jointly published by The Wall Street Journal and The Heritage Foundation, “The Freedom Index” gives an annual ranking of most of the countries of the world based on their level of economic
8. Suppose the returns-to and cost-of entrepreneurship curves are described by the following equations (with numbers measured in the thousands):R = 520,000 - 140,000 N C = 120,000 + 180,000 N where R
7. Using a graph like that displayed in Exhibit 8.5, which show returns to entrepreneurship and the opportunity cost of entrepreneurship, illustrate how each of the following historical events
6. Since gaining independence from Malaysia in 1965, Singapore has had impressive growth performance, achieving an average annual growth rate of GDP per capita of 7.46 percent. State-owned
5. The latest OECD Economic Survey of Germany projected growth to top 2 percent for the 2018–19 period.To sustain the remarkable growth of the German economy, OECD Secretary-General Angel Gurría
4. Look at the following map of Nogales, a twin city that is divided by the U.S. border.One part of Nogales lies in the United States, in Arizona, and the other part lies in Sonora, Mexico. Life in
3. Suppose the country of Temria has an abundance of oil and gas. These natural resources were discovered about 40 years ago. Before this discovery was made, the country was a middle-income country
2. In 1974, Cyprus got divided into two parts, the Northern part that got invaded by Turkey and the Southern part that is internationally recognized and a member of the European Union. The Southern
1. A mission "to expand financial access to help underserved communities thrive" is the raison-d'etre of Kiva, a nonprofit organization founded in San Francisco in 2005. It serves as a platform to
14. In 2019, average GDP per capita in the United States was approximately$54,000 and in Mexico was about $18,000 (in PPP-adjusted dollars). A researcher claims that this prosperity gap between the
13. Parts of the world that were relatively more prosperous 500 years ago have experienced a reversal of fortune and are relatively poorer today. What factors could explain this?
12. What is meant by political creative destruction? How would this concept explain the existence of extractive institutions?
11. Suppose a country has well-enforced private property rights for entrepreneurs, but a large fraction of the population does not have access to education and thus cannot become entrepreneurs.
10. In what ways should extractive economic institutions be changed to encourage economic development?
9. What does the return-to-entrepreneurship curve show?What is meant by the opportunity cost of entrepreneurship?
8. How do inclusive economic institutions differ from extractive economic institutions?
7. What does it mean to say that private property rights are well enforced in an economy? How does enforcement of these rights foster economic development?
6. How does the institutions hypothesis explain the difference in prosperity among nations?
5. In the context of this chapter, what is meant by the term institution? What are the three important elements that define institutions?
4. What does the culture hypothesis state?
3. According to the geography hypothesis, what could be done to improve incomes in poor countries?
2. What does the geography hypothesis state?
1. How are the proximate causes of prosperity different from the fundamental causes of prosperity?
12. Challenge Problem: Refer to Exhibit 7.4. If the United States, Guatemala, Haiti, Rwanda, Ghana, Kenya, and India continue to grow at the rates given in the exhibit, how many years (starting from
11. Suppose that a 20 percent increase in the physical capital stock increases GDP by 20 percent. By how much should the capital stock increase next to cause another 20 percent increase in GDP.
10. Increasingly, independent programmers are making their code “open source.” The statistical programming language“R,” for example, is completely free and open; anyone can submit a new
9. The Letting the Data Speak box “Levels versus Growth”points out how one important index of health—life expectancy—has changed in various countries over time.To see a dramatic animation of
8. In Question 8, we discussed the Malthusian cycle prediction.Under what conditions might the Malthusian cycle be a reality as it was in the preindustrial age?
7. The concept of diminishing returns to a factor of production applies not only to physical capital but to labor as well. Use the concept of diminishing returns to labor to explain and illustrate
6. Labor productivity (GDP per hour worked) in the United States increased significantly in the 1990s and 2000s.This can be clearly seen in Exhibits 7.10 and 7.11.a. Based on Exhibit 7.10, is it
5. The graph below shows an index of world GDP per capita from 1000 BC to the year 2000.As you can see, over most of that period, global economic growth was virtually nonexistent. While there were
4. Economists Andrew McAfee and Erik Brynjolfsson have written about “The Great Decoupling”—the divergence between productivity growth and employment. Since the mid-1990s, labor productivity
3. The following table lists GDP per capita from 1970 to 2010 for South Korea and the United States. As you can see, both grew substantially over that 40-year period.a. Plot the five data points for
2. Currently, some of the fastest-growing countries in the world remain desperately poor. For example, of the top five fastest-growing economies in 2016, three—Iraq, Burma, and Nauru—had real per
1. Having experienced an exponential growth in the past few decades due to economic reforms it initiated in the late 1970's, China had a GDP of $305.35 billion in 1980. It witnessed a 10 percent
1. The governor of Mississippi is elected in 2016 on a platform of stimulating economic growth in the state.The state’s GDP per capita in that year is $32,000. The governor ambitiously declares
12. What factors explain the dramatic increases in life expectancy that most countries experienced in the twentieth century?
11. Based on your understanding of the chapter, how can poverty best be reduced?
10. Suppose Italy has experienced a greater average growth rate in GDP per capita than Greece. Based only on this, what would you predict about how the poverty rates changed in the two countries?
9. How did the Industrial Revolution affect economic growth?
8. What did Malthus predict about economic growth? Did his predictions come true? Why or why not?
7. Why was there no sustained economic growth before modern times, that is, before 1800?
6. What explains economic growth in the United States over the past few decades?
5. Holding all else equal, will increasing the efficiency units of labor lead to sustained growth? Why or why not?
4. The chapter emphasizes the importance of saving to economic growth.a. How is the saving rate in an economy defined?b. What factors help households decide whether to consume or save their
3. According to the aggregate production function, how does real GDP increase?
2. What are catch-up growth and sustained growth? Explain with examples.
1. What is meant by economic growth? How has the U.S.economy grown over the past 200 years?
A4. The appendix details the important distinction between arithmetic and geometric averages in determining growth rates. Consider Exhibit 7.4.a. Using the procedure outlined in the Appendix for
A3. Switzerland’s GDP per capita increased from$30,401.892 in 1989 to $81,993.727 in 2019. (Source:World Bank,
A2. In 2016, Guinea topped the list of countries registering the lowest national savings, with savings forming−14.9 percent of GDP. This, however, does not mean that the economy doesn't have good
A1. Use a diagram to represent the Solow growth model using the aggregate production function and the relationship between the physical capital stock and aggregate saving.a. Which point in the figure
12. Give an algebraic and an intuitive explanation of the concept of “efficiency of production.” Why is efficiency of production so important to GDP?
11. In the book Dead Aid, economist Dambisa Moyo9 argues that humanitarian aid—provision of food or medicine to poor families, for example—is an ineffective tool for promoting growth in the
10. According to Central Intelligence Agency data, in 2017, Angola ranked first in a list of countries ranked from highest to lowest birth rates. In the same year, it ranked twentieth in a list of
9. An economy has two types of workers, economics professors and basketball players, and two types of tasks, teaching and playing basketball. Efficiency for each worker is measured in the value of
8. Assume that the country Lusitania has two industries, clothing production and computer chip production. At first, both industries have identical aggregate production functions.The following table
7. In this question, we will use what you learned in the second part of the chapter to compare the performance of an economy in two different time periods, as its physical capital stock and
6. In 2011, China revised its poverty line upward to 2,300 yuan per year, or 6.3 yuan per day. At the prevailing exchange rate, this was equal to a little less than a single U.S. dollar. Some
5. Suppose that the GDP in current dollars for Spectrania is lower than Meleda’s GDP. In addition, using PPP-adjusted dollars, Meleda’s GDP is higher than Spectrania’s GDP. Based on this
4. Suppose you are given the following information for the country Poldan: Characteristic Total population GDP per worker GDP per capita a. What is Poldan's GDP? Value in Poldan 175 million
3. Let us use what we have learned in the first part of the chapter to compare living standards in the United States and Germany in 2015.a. The U.S. GDP in 2015 was approximately $18,120 billion, and
2. The following table lists 2014 PPP GDP per capita for four countries in $. It also lists the price of a Levi’s 501 jeans in local currency in each country in 2014. The price of the Levi’s 501
1. Shutterstock is a photo library and one of the leaders in the microstock industry. Photographers and videographers from around the world upload their files to the site, knowing that each file can
1. Two countries, Ruritania and Francia, have the same population, the same stock of physical capital, and the same human capital per worker in the year 2015. But Ruritania has a GDP per capita of
17. What policies can be used to raise GDP in a country?
16. Why is the average American so much richer than the average Indian?
15. What does Moore’s Law state? Is Moore’s Law borne out by historical data?
14. How do increases in technology affect the aggregate production function?
13. Explain what distinguishes physical capital from natural resources.
12. Explain the difference between the terms “physical capital”and “human capital.”
11. Use the following diagram to explain the relationship between a country’s physical capital stock and GDP, holding all else constant. K= Physical capital stock
10. What are the total efficiency units of labor? What is the relationship between this concept and human capital?
9. What are factors of production? What does the aggregate production function describe?
8. What are the two components of technology?
7. What is productivity? Why does it vary across countries?
6. What does the Human Development Index measure?What is the correlation between this index and PPPadjusted GDP per capita in a country?
5. What is the correlation between GDP per capita and welfare measures like absolute poverty and life expectancy?What does this suggest about GDP per capita as a measure of welfare?
4. Is GDP per capita more relevant to understanding differences in international living standards than GDP per worker?
3. Suppose that country A has higher income per capita than country B. Explain why this does not imply that most citizens of country A have higher incomes than most citizens of country B. Construct
2. What are the disadvantages of using Big Macs to measure PPP?
1. Suppose you are comparing per capita income in Germany and Hungary. According to the International Monetary Fund’s World Economic Outlook Database (April 2017), Hungary’s GDP per capita in
13. Recall the method of calculating real GDP detailed in the chapter. As you may already have noticed, this method has a problem: when calculating aggregate output, this method weights the output of
12. As of September 25, 2020, Jeff Bezos (the CEO of Amazon) had an estimated net worth of $182 billion(https://www.forbes.com/billionaires/). But does this make Bezos the richest person who ever
11. Social Security payments in the United States are currently linked to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This means that as the CPI-W shows an increase

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