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macroeconomics principles

Questions and Answers of Macroeconomics Principles

Plot the exchange rate of the Hong Kong dollar relative to the U.S. dollar from January 1981 to the present. Was the Hong Kong dollar generally appreciating or depreciating relative to the U.S.
Plot data on the exchange rate between the dollar and the euro, along with the FRED series for the trade weighted broad exchange rate for the United States. How do the patterns of the two exchange
If you were a member of the NBER business-cycle dating committee, would you declare that the U.S. economy is now in a recession? Why? Describe the major variables that you would look at to determine
When a recession occurs, do economists expect it to be temporary? Or is there some degree of permanence? What is the empirical evidence for this?
What are the two components of a theory of business cycles?
Figure 8.1 shows that business cycle peaks and troughs are identified with peaks and troughs in the level of aggregate economic activity, which is consistent with current NBER methodology. However,
The following data give real GDP, Y, capital, \(K\), and labor, \(N\), for the U.S. economy in various years.Units and sources are the same as in Table 3.1. Assume that the production function is
Suppose the production function is \(Y=A K^{0.3} N^{0.7}\) and that in 2000, \(K=1000, N=100\), and \(Y=199.5\). In 2010, capital, labor, and output have doubled, so \(K=2000\), \(N=200\), and
Suppose the economy's production function is \(Y=\) \(A K^{0.3} N^{0.7}\) and that \(K=200, N=2000\), and \(A=1\). Calculate the marginal products of labor and capital.
Self-employed workers in the United States must pay Social Security taxes equal to \(12.4 \%\) of any income up to \(\$ 147,000\) in 2022 . This income level of \(\$ 147,000\) is known as the "cap."
Calculate and graph the growth rate of total factor productivity since 1960 using FRED series MFPNFBS. This series is not the same as used in Table 3.1, but is similar. How would you characterize the
Using monthly seasonally adjusted data from 1960 to the present, calculate and graph the total workingage population (called the civilian noninstitutional population), the number of employed workers,
Plot a graph of quarterly data for real GDP and fullemployment GDP from 1970 to the present. (In the FRED database, full-employment GDP is called Real Potential GDP.) Which variable is "smoother"?
Figure 3.11 shows the relative price of energy. In this exercise, we derive the series plotted in that figure and examine recent data. First, find data on the producer price index for fuels and
Define the expected real after-tax interest rate. If the tax rate on interest income declines, what happens to the expected real after-tax interest rate?
Huxley, the owner of the Missing Link Chain-Link Fence Company is trying to determine how many chain-link fabricating machines to buy for its factory. If we define a chain-link fence of some
A consumer has initial real wealth of 20 , current real income of 90 , and future real income of 110 . The real interest rate is \(10 \%\) per period.a. Find the consumer's PVLR.b. Write the equation
(Appendix 4.A) A consumer lives three periods, called the learning period, the working period, and the retirement period. Her income is 200 during the learning period, 800 during the working period,
Draw a budget line and indifference curves for a consumer who initially is a borrower. Be sure to indicate the no-borrowing, no-lending point and the optimal consumption point. Then show the effect
Consumers typically pay a higher real interest rate to borrow than they receive when they lend (by making bank deposits, for example). Draw a consumer's budget line under the assumption that the real
Graph the index of consumer sentiment, using quarterly data since 1965. Construct scatter plots relating the consumer sentiment index to the growth rate of real consumption expenditures, using
The Wilshire 5000 stock market index measures the total dollar value of a large set of stocks traded on the stock market. The real value of the Wilshire 5000 index, which measures the real value of
This problem asks you to calculate the actual (as opposed to the expected) real after-tax interest rate using annual data from 1961 to the present. The formula for the actual real after-tax interest
Using quarterly data from 1947 to the present, graph residential fixed investment relative to GDP.a. Compare the graph of residential fixed investment relative to GDP to a graph of the civilian
The chapter claims that interest rates tend to move together. Using monthly data since 1975, graph the interest rate on three-month Treasury bills, the yield on high-grade corporate bonds, the 30
Graph real private nonresidential fixed investment in(a) structures,(b) equipment, (c) intellectual property products since 1999 . How has the relative emphasis on the three types of investment
A U.S. publisher sells $200 worth of books to a resident of Brazil. By itself, this item increases the U.S. current account balance. Describe some offsetting transactions that could ensure that the
Generally, what types of changes in desired saving and desired investment lead to large current account deficits in a small open economy? What factors lead to these changes in desired saving and
In what periods has the United States had twin deficits? In what periods did the deficits move in opposite directions?
A popular measure of a country's "openness" to international trade is an index computed as the sum of the country's exports and imports divided by its GDP. Calculate and graph the openness index for
Using quarterly data since 1960, graph output and absorption (both in real terms) in the same figure. In another figure, graph real investment, national saving, and the current account balance for
Using quarterly data since 1960, graph the following four series, expressing each as a percent of GDP: exports of goods (sometimes called merchandise), exports of services, imports of goods
In FRED, find and plot data on the ratio of outstanding total international debt to GDP for(a) the Euro area,(b) the United States,(c) Japan. These amounts represent the international indebtedness
How did technology increase U.S. economic growth in the 1990s?
Explain what is meant by a steady state. In the Solow model, which variables are constant in a steady state?
What types of government policies can increase long-run living standards?
Describe the main ideas of endogenous growth theory. What does it say about the role of government in economic growth?
This problem asks you to do your own growth accounting exercise. Using data since 1960, make a table of annual growth rates of real GDP, the capital stock, and civilian employment. Assuming
Graph the U.S. capital-labor ratio since 1960 (use private fixed assets from the Fixed Assets section of the BEA website, www.bea.gov, Table 6.2 as the measure of capital, and civilian employment as
According to the Solow model, if countries differed primarily in terms of their capital-labor ratios, with rich countries having high capital-labor ratios and poor countries having low capital-labor
In FRED, get data on the levels of real GDP per capita for both the United States and China for the most recent year that such data are available for both countries. By what percentage does real GDP
Describe what is meant by the expectations theory of the term structure of interest rates. Why isn’t the expectations theory sufficient to describe the data on interest rates that we observe? What
What are the major components of M1? What are the major components of M2? Describe each component.
Suppose the interest rate on a one-year bond today is \(6 \%\) per year, the interest rate on a one-year bond one year from now is expected to be \(4 \%\) per year, and the interest rate on a
Jason has wealth of \(\$ 100,000\) that he invests entirely in money (a checking account) and government bonds. Jason instructs his broker to invest \(\$ 50,000\) in bonds, plus \(\$ 5000\) more in
What happens to M1 and M2 due to each of the following changes?a. You take \(\$ 500\) out of your checking account and put it into a passbook savings account.b. You take \(\$ 1000\) out of your
Graph the CPI inflation rate, M1 money growth, and M2 money growth for the United States, using annual data since 1959. Find annual growth rates for December to December.) Also graph the three-year
Graph the three-month Treasury bill interest rate, the ten-year government bond interest rate, and the CPI inflation rate (based on the percentage change in the CPI from one year earlier) on the same
Find and plot data since 1960 on the net worth as a percentage of disposable personal income of households and nonprofit organizations. In which periods was net wealth as a percentage of income
How have total output and output per worker changed over time in the United States? How have these changes affected the lives of typical people?
Define inflation and deflation. Compare the behavior of consumer prices in the United States in the years before and after World War II.
Define trade deficit and trade surplus. In recent years, has the U.S. economy had trade deficits or trade surpluses? What was the U.S. experience from 1900 to 1970?
What was stagflation, and when did it occur? How did it change economists’ views about macroeconomics?
Here are some macroeconomic data for Canada for the years 2019 and 2020.Canada’s output is real GDP measured in constant Canadian dollars. Data are from the Federal Reserve Bank of St. Louis FRED
In the FRED database, find data on nominal gross domestic product (a measure of total output), nominal exports, nominal imports, the Federal government’s current receipts, and Federal government
Prices were much higher in the United States in 2022 than in 1890. Does this fact mean that people were economically better off in 1890? Why or why not?
In 2002, President George W. Bush imposed tariffs on certain types of imported steel. He argued that foreign steel producers were dumping their steel on the U.S. market at low prices. The foreign
Graph the behavior of the civilian unemployment rate from 1961 until the present using monthly data. Vertical gray bars in FRED indicate periods of recession. In terms of the unemployment rate, how
Using monthly data on the consumer price index (CPI) for all urban consumers, calculate and graph the U.S. inflation rate as the percentage change in the price index from one year ago for each year
In FRED, find data for GDP for the United States, Japan, and Mexico. Calculate the annual average growth rate of GDP for the last five years for which the data are available. How do the growth rates
Plot the FRED data on gross federal debt held by the public as a percent of GDP for the United States. In which periods within the postwar era did the United States experience prolonged declines in
How does GDP differ from GNP? If a country employs many foreign workers, which is likely to be higher: GDP or GNP?
Describe the three approaches to measuring the volume of economic activity that occurs during a period of time and explain why they all lead to identical measurements.
What is the most significant difference between GDP and GNP for countries that have many citizens who work abroad?
How are net exports, net factor payments from abroad, and the current account balance related?
In the country of Kwaki, people produce canoes, fish for salmon, and grow corn. In one year, they produced 5000 canoes using only labor and natural materials but sold only 4000 as the economy had
In one year in the country of Countem, workers earned \($4150,\) the proprietor’s income was \($392,\) rental income was \($20,\) corporate profits were \($683,\) net interest was \($228,\) taxes
ABC Computer Company has a ₹1.4 billion (Indian rupees) factory in Bangalore, India. During the current year, ABC builds ₹140 million worth of computer components. ABC’s costs for labor are
For each of the following transactions, determine the contribution to the current year’s GDP. Explain the effects on the product, income, and expenditure accounts.a. On January 1, you purchase 10
Loretta agrees to lend Ted $500,000 to buy computers for his consulting firm. They agree to a nominal interest rate of 8%. Both expect the inflation rate to be 2%.a. Calculate the expected real
The GDP deflator in Econoland is 200 on January 1, 2021. The deflator rises to 242 by January 1, 2023, and to 266.2 by January 1, 2024.a. What is the annual rate of inflation over the twoyear period
A reputable study shows that a particular new workplace safety regulation will reduce the growth of real GDP. Is this an argument against implementing the regulation? Explain.
Graph the main expenditure components of GDP (consumption, investment, government consumption expenditures and gross investment, exports, and imports), in real terms, since the first quarter of 1947.
Graph South Africa’s national saving and investment as fractions of GDP from 2004 to the present. (Note that national saving is called gross saving and gross investment is called capital formation
Graph the annual CPI inflation rate and the annual GDP deflator inflation rate for Indonesia since 2000. What are the conceptual differences between these two measures of inflation? Judging from your
If the real interest rate were approximately constant, then in periods in which inflation is high, the nominal interest rate should be relatively high (because the nominal interest rate equals the
In theory, in the national income and product accounts, income should equal expenditures. However, when we add up income from various sources, it differs from expenditures, in part because the
Plot the growth rate of real GDP from 1960 to last year in three different ways: (1) annualized quarterly growth rates, (2) quarterly data using the percent change from a year ago, and (3) quarterly
Label each of the following statements true, false, or uncertain. Explain briefly.a. If the nominal exchange rate is fixed, the real exchange rate is fixed.b. When domestic inflation equals foreign
Consider a country operating under fixed exchange rates. The IS curve is given by equation (20.1)a. Explain the term \(\left(i^{*}-\pi^{e}ight)\). Why does the foreign nominal interest rate appear in
Policy choices when the real exchange rate is "too high" and the nominal exchange rate is fixed An overvalued real exchange rate is a rate such that domestic goods are too expensive relative to
An exchange rate crisis occurs when the peg (the fixed exchange rate) loses its credibility. Bond holders no longer believe that next period's exchange rate will be this period's exchange rate.a.
Equation (20.5) provides insight into the movements of nominal exchange rates between a domestic and a foreign country. Remember that the time periods in the equation can refer to any time unit. The
Look at Figure 1 in the box "The 1992 EMS Crisis."European nominal exchange rates had been fixed between the major currencies from roughly 1979 to 1992.a. Explain how to read the vertical axis of
Real and nominal exchange rates for Canada and Mexico Two of the largest trading partners of the United States are Canada and Mexico. The FRED database at the Federal Reserve Bank of St. Louis
a. Download the series EXCHUS from the FRED database. This expresses the exchange rate between the yuan (one of the names for the Chinese currency) as the number of yuan per US dollar. Convert that
Label each of the following statements true, false, or uncertain. Explain briefly.a. There is so much uncertainty about the effects of monetary policy that we would be better off not using it.b.
You are the economic adviser to a newly elected president. In four years he or she will face another election. Voters want a low unemployment rate and a low inflation rate. However, you believe that
Suppose the government amends the constitution to prevent government officials from negotiating with terrorists.What are the advantages of such a policy? What are the disadvantages?
In 1989, New Zealand rewrote the charter of its central bank to make low inflation its only goal.Why would New Zealand want to do this?
In 2018 New Zealand rewrote the charter of its central bank to include high employment as well as low inflation as its goals.Why would New Zealand want to do this?
Political expectations, inflation, and unemployment Consider a country with two political parties, Democrats and Republicans. Democrats care more about unemployment than Republicans, and Republicans
Suppose there is a budget deficit. It can be reduced by cutting military spending, by cutting welfare programs, or by cutting both. The Democrats have to decide whether to support cuts in welfare
Games, pre-commitment, and time inconsistency in the news Current events offer abundant examples of disputes in which the parties are involved in a game, try to commit themselves to lines of action
Label each of the following statements true, false, or uncertain. Explain briefly.a. The deficit is the difference between real government spending and taxes net of transfers.b. The primary deficit
Consider the following statement:A deficit during a war can be a good thing. First, the deficit is temporary, so after the war is over, the government can go right back to its old level of spending
Consider an economy characterized by the following facts:i. The official budget deficit is \(4 \%\) of GDP.ii. The debt-to-GDP ratio is \(100 \%\).iii. The nominal interest rate is \(10 \%\).iv. The
Assume that money demand takes the formwhere \(Y=1,000\) and \(r=0.1\).a. Assume that, in the short run, \(\pi^{e}\) is constant and equal to \(25 \%\). Calculate the amount of seignorage for each
Consider the economy described in Problem 3 and assume that there is a fixed exchange rate, \(\bar{E}\). Suppose that financial investors worry that the level of debt is too high and that the
Ricardian equivalence and fiscal policy First consider an economy in which Ricardian equivalence does not hold.a. Suppose the government starts with a balanced budget. Then, there is an increase in

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