{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

EvenSolutions16-20

# EvenSolutions16-20 - Solutions to Even-Numbered...

This preview shows pages 1–3. Sign up to view the full content.

Solutions to Even-Numbered, End-of-Chapter Questions, Problems, and Exercises Chapter 16 What Macroeconomics Tries to Explain Review Questions 2. To make sense of the economy and to create workable models, macroeconomics uses aggregation —the process of combining distinct things into a single entity. There are many examples of aggregation in macroeconomics, so answers will vary widely. One example would be the interest rate—obtained by combining all the different interest rates in the economy into a single aggregate. Another example is gross domestic product (GDP)—obtained by combining all the different types of goods and services in the economy into a single aggregate. 4. In addition to the growth rate of output, we would need to know the growth rate of the population. A rise in the average standard of living requires that output grow faster than the population, so that output per person rises. Problems and Exercises 2. a. Real GDP in 2000 would have been \$4123 x (1 + 8%) 27 = \$32,934.78 billion. b. Output per person in 2000 would have been \$117,202.85. It would have increased by 502.64% since 1973, instead of by 69%. 4 . a. Year Real GDP (in billions) 2000 \$5,000 2001 \$5300 2002 \$5618 2003 \$5955.08 2004 \$6312.38 2005 \$6691.13 2006 \$7092.60 No, the real GDP line gets steeper because, as real GDP rises from an increasingly higher and higher level, the same percentage growth rate causes greater and greater absolute increases in GDP. b. Year Real GDP (in billions) 2000 \$5,000 2001 \$5300 2002 \$5300 x 1.05 = \$5565 2003 \$5565 x 1.04 = \$5787.60 2004 \$5961.23 2005 \$6080.45 2006 \$6141.26 No, the real GDP line gets flatter due to the relatively large decrease in the growth rate. 57

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Solutions to Even-Numbered, End-of-Chapter Questions, Problems, and Exercises Economic Applications and Exercises 2. a. 1. Because the Labor Department’s consumer price index decreased by 0.3 percent in April, and only rose by 0.2 percent in June. 2. Moderate inflation would prevent declining profits and set the stage for sustained recovery. 3. Given the small rise in prices, the Fed would probably not change the interest rates. b. Greider believes that the United States is experiencing a low-grade depression that may last for years. Persistent deflation would create a vicious spiral of negatives--falling profits, more closed factories, shrinking employment and incomes, accompanied by waves of failing debtors, both corporations and families. Chapter 17 Production, Income and Employment Review Questions 2. Since, by definition, private investment is the increase in the nation’s capital stock during the year, if net investment (investment minus depreciation) is positive, then the capital stock is growing. On the contrary, if net investment is negative, the capital stock will shrink. The three components of private investment are business purchases of plant, equipment, and software, new home construction, and changes in inventories. 4. Nominal variables are measured over time in dollars, with no adjustment for the dollar’s changing value. Real variables are adjusted for the dollar’s changing value. The problem with using nominal variables to track the economy is that when prices are changing (so the purchasing
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}