CHAPTER 16 THE FED, MONEY, AND CREDIT Solutions to the Problems in the Textbook: Conceptual Problems: 1. The three tools the Fed has to conduct monetary policy are open market operations, discount rate changes, and reserve requirement changes. If the Fed

CHAPTER 3 GROWTH AND ACCUMULATION Solutions to the Problems in the Textbook Conceptual Problems: 1. The production function provides a quantitative link between inputs and output. For example, the Cobb-Douglas production function mentioned in the text is

CHAPTER 4 GROWTH AND POLICY
Solutions to the Problems in the Textbook Conceptual Problems: 1. Endogenous or self-sustained growth supposedly can be achieved by policies that affect a nation's savings rate and therefore the proportion of GDP that goes towa

CHAPTER 12 INTERNATIONAL LINKAGES
Solutions to the Problems in the Textbook: Conceptual Problems: 1. A country with a balance-of-payments deficit has made more payments of currency to foreigners than it receives and the countrys central bank generally pro

CHAPTER 11 MONETARY AND FISCAL POLICY Solutions to the Problems in the Textbook: Conceptual Problems: 1.a. An open market operation is an exchange of bonds for money or vice versa by the Fed. In an open market purchase, the Fed buys bonds from the public

CHAPTER 10 MONEY, INTEREST, AND INCOME
Answers to Problems in the Textbook: Conceptual Problems: 1. The model in Chapter 9 assumed that both the price level and the interest rate were fixed. But the ISLM model lets the interest rate fluctuate and determin

CHAPTER 9
INCOME AND SPENDING Solutions to the Problems in the Textbook: Conceptual Problems: 1. In the Keynesian model, the price level is assumed to be fixed, that is, the AS-curve is horizontal and the level of output is determined solely by aggregate

CHAPTER 8 POLICY
Solutions to the Problems in the Textbook: Conceptual Problems: 1. The first question you should ask yourself as a policy maker is whether a disturbance is transitory or persistent. You should then ask yourself how long it would take to p

CHAPTER 7 THE ANATOMY OF INFLATION AND UNEMPLOYMENT Solutions to the Problems in the Textbook: Conceptual Problems: 1. The rate of unemployment is affected by the frequency, that is, the number of times that workers become unemployed in a period, and by t

CHAPTER 6 AGGREGATE SUPPLY: WAGES, PRICES, AND UNEMPLOYMENT
Solutions to the Problems in the Textbook: Conceptual Problems: 1. The aggregate supply curve and the Phillips curve describe very similar relationships and both curves can be used to analyze the

CHAPTER 5 Solutions to the Problems in the Textbook Conceptual Problems: 1. The aggregate supply curve shows the quantity of real total output that firms are willing to supply at each price level. The aggregate demand curve shows all combinations of real

CHAPTER 2 NATIONAL INCOME ACCOUNTING Solutions to Problems in the Textbook: Conceptual Problems: 1. Government transfer payments (TR) do not arise out of any production activity and are thus not counted in the value of GDP. If the government hired the peo

CHAPTER 1 INTRODUCTION
Problems 1. "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 resources, that is, labor and capital used in th

CHAPTER 20 ADVANCED TOPICS
Solutions to the Problems in the Textbook: Conceptual Problems: 1. Some of the aspects of the theories discussed in this chapter complement each other, but there are also major disagreements. The real business cycle theory is an

CHAPTER 19 INTERNATIONAL ADJUSTMENT AND INTERDEPENDENCE
Solutions to the Problems in the Textbook: Conceptual Problems: 1.a. A loss of export markets leads not only to an external deficit but also to a decrease in the level of output. Since a policy dilem

CHAPTER 18 BIG EVENTS: THE ECONOMICS OF DEPRESSION, HYPERINFLATION, AND DEFICITS
Solutions to the Problems in the Textbook: Conceptual Problems: 1.a. The Keynesian explanation for the Great Depression concentrates on the fall of investment spending and re

CHAPTER 17 FINANCIAL MARKETS
Solutions to Problems in the Textbook: Conceptual Problems: 1. Financial markets are markets in which assets are bought and sold. These markets transmit changes in government policies and other macroeconomic disturbances to th

CHAPTER 15 THE DEMAND FOR MONEY
Solutions to the Problems in the Textbook: Conceptual Problems: 1. Money is any asset that is widely used as a medium of exchange. People want to hold money since it simplifies their current or future transactions. Since th

CHAPTER 14 INVESTMENT SPENDING Solutions to the Problems in the Textbook: Conceptual Problems: 1. Even if the economy has achieved the desired capital stock some (gross) investment still must take place to keep the capital stock at this level. The level o

CHAPTER 13 CONSUMPTION AND SAVING Solutions to the Problems in the Textbook: Conceptual Problems: 1.a. According to the life-cycle theory of consumption, people try to maintain a fairly stable consumption path over their lifetime. Individuals save during