ANSWERS TO END-OF-CHAPTER PROBLEMS
Uncertain. It is true that the growth of output per worker increased in the mid-1990s, but
economists disagree about the degree to which this increase
CHAPTER 27. EPILOGUE: THE STORY
How Have the Core Ideas of Macroeconomics Developed?
Modern macroeconomics starts with Keynes. Since his General Theory appeared, there have been a
series of challenges and counter c
CHAPTER 26. FISCAL POLICY: A SUMMING UP
What Do Macroeconomists Know about Fiscal Policy?
Fiscal policy affects output in the short runthrough its effect on aggregate demandand in the long
runthrough its effect on investment. Fiscal
CHAPTER 25. MONETARY POLICY: A SUMMING UP
What Do Macroeconomists Know about Monetary Policy?
In the long run, monetary policy affects only the inflation rate. Thus, a central bank should adopt a
target inflation rate, based on the
CHAPTER 24. SHOULD POLICYMAKERS
Should External Limits be Imposed on Policymakers?
Perhaps, but not because the effects of policy are uncertain. Policymakers understand that uncertainty
provides an argument for modera
CHAPTER 23. HIGH INFLATION
How Do Macroeconomists Account for Episodes of High Inflation?
Historically, hyperinflations have always followed the same pattern: governments have budget deficits
that they are unable or unwilling to fin
CHAPTER 22. DEPRESSIONS AND SLUMPS
How Do Macroeconomists Account for Prolonged Episodes of Low Growth or
The IS-LM model, augmented to account for deflation and liquidity traps, can explain how an adverse
CHAPTER 21. EXCHANGE RATE REGIMES
How Does the Exchange Rate Regime Affect Macroeconomic Adjustment?
Under fixed nominal exchange rates, there are two methods of adjustment: relatively slow, medium-run
adjustment through the movemen
CHAPTER 20. OUTPUT, THE INTEREST RATE,
AND THE EXCHANGE RATE
How Are Output, the Interest Rate, and the Exchange Rate Determined
Simultaneously in the Short Run in an Open Economy?
Output, the interest rate, and the exchange rate ar
CHAPTER 19. THE GOODS MARKET
IN AN OPEN ECONOMY
How Is Output Determined in the Short Run in an Open Economy?
As in a closed economy, output is determined by goods market equilibrium, the condition that goods supply
equals goods dem
CHAPTER 18. OPENNESS IN GOODS
AND FINANCIAL MARKETS
How Does Openness Modify the Closed Economy, IS-LM, AD-AS Model?
An open economy allows domestic residents to choose between home and foreign goods and between
home and foreign ass
CHAPTER 17. EXPECTATIONS, OUTPUT,
How Do Expectations Influence the Determination of Output and the Effects of
Monetary and Fiscal Policy?
Consumption and investment are influenced by expected future output, and investmen
CHAPTER 16. EXPECTATIONS, CONSUMPTION,
How Do Expectations about the Future Influence Consumption and Investment?
Consumers are to some degree forward looking, and resources can be transferred over time through
CHAPTER 15. FINANCIAL MARKETS
How Do Expectations Affect Asset Prices?
An asset is expected to provide a stream of future payments to the owner. Putting aside speculative
bubbles, an assets value (its price) at any
CHAPTER 14. EXPECTATIONS: THE BASIC TOOLS
How Can Consumers and Firms Compare Present and Future Economic
Future economic opportunities (payments received or made) can be expressed in terms of the present
by using a d
CHAPTER 13. TECHNOLOGICAL PROGRESS,
UNEMPLOYMENT, AND WAGES
Does Technological Progress Create Unemployment?
In the medium run, the answer is no. If there is any relationship between productivity growth and
unemployment, it is an in
CHAPTER 11. SAVING, CAPITAL ACCUMULATION,
Does the Saving Rate Affect Growth?
In the long run, saving does not affect growth, but does affect the level of per capita output. An
increase in the saving rate can increase gro
CHAPTER 10. THE FACTS OF GROWTH
What Do Economists Know about Growth?
The chapter answers this question from two perspectives. First, it describes the empirical facts about growth
across a spectrum of economies in the postwar period
CHAPTER 9. INFLATION, ACTIVITY, AND
NOMINAL MONEY GROWTH
How Are Output Growth, the Inflation Rate, and the Unemployment Rate
Determined in the Medium Run?
The medium-run economy consists of three relationships: Okuns law, which li
CHAPTER 8. THE NATURAL RATE OF
UNEMPLOYMENT AND THE PHILLIPS CURVE
How Are the Inflation Rate and the Unemployment Rate Related in the Short and
Since about 1970, the U.S. data can be characterized as a negative relation
CHAPTER 7. PUTTING ALL MARKETS TOGETHER:
THE AS-AD MODEL
How Are Output, the Unemployment Rate, and the Interest Rate Determined in the
Short and Medium Run?
Output, the unemployment rate, and the interest rate are determined by sim
CHAPTER 6. THE LABOR MARKET
How Is the Unemployment Rate Determined in the Medium Run?
In the medium run, the unemployment rate tends to return to the so-called natural rate, determined by
equilibrium in the labor market when the ex
CHAPTER 5. GOODS AND FINANCIAL MARKETS:
THE IS-LM MODEL
How Are Output and the Interest Rate Determined Simultaneously in the Short
Output and the interest rate are determined by simultaneous equilibrium in the goods and money
CHAPTER 4. FINANCIAL MARKETS
How Is the Interest Rate Determined in the Short Run?
The interest rate is determined by equilibrium in the money market, i.e., by the condition that money
supply equals money demand. Since the text abst
CHAPTER 3. THE GOODS MARKET
How Is Output Determined in the Short Run?
Output is determined by equilibrium in the goods market, i.e., by the condition that supply (production
of goods) equals demand. This condition always determines
CHAPTER 2. A TOUR OF THE BOOK
How Do Economists Define Output, the Unemployment Rate, and the
Inflation Rate, and why Do Economists Care about these Variables?
Output and the unemployment rate are defined in the usual fashion. T
CHAPTER 1. A TOUR OF THE WORLD
What Is Macroeconomics?
The chapter does not provide an explicit or formal answer. Instead, it describes the issues of concern
to macroeconomists who study the United States, Europe, and Japan. A worki
CHAPTER 1 A Tour of the World
CHAPTER 2 A Tour of the Book
CHAPTER 3 The Goods Market
CHAPTER 4 Financial Market
CHAPTER 5 Goods and Financial Markets: The IS-LM Model
CHAPTER 6 The Labor Market
CHAPTER 7 Putting All Markets Toget