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1、Chapter1—TheScienceofMacroeconomics1AnswerstoTextbookQuestionsProblemsCHAPTER1TheScienceofMacroeconomicsQuestionsfReview1.Microeconomicsisthestudyofhowindividualfirmshouseholdsmakedecisionshowtheyinteractwithoneanother.M

2、icroeconomicmodelsoffirmshouseholdsarebasedonprinciplesofoptimization—firmshouseholdsdothebesttheycangiventheconstraintstheyface.Fexamplehouseholdschoosewhichgoodstopurchaseindertomaximizetheirutilitywhereasfirmsdecideho

3、wmuchtoproduceindertomaximizeprofits.Incontrastmacroeconomicsisthestudyoftheeconomyasawholeitfocusesonissuessuchashowtotaloutputtotalemploymenttheoverallpricelevelaredetermined.Theseeconomywidevariablesarebasedontheinter

4、actionofmanyhouseholdsmanyfirmstherefemicroeconomicsfmsthebasisfmacroeconomics.2.Economistsbuildmodelsasameansofsummarizingtherelationshipsamongeconomicvariables.Modelsareusefulbecausetheyabstractfromthemanydetailsinthee

5、conomyallowonetofocusonthemostimptanteconomicconnections.3.Amarketclearingmodelisoneinwhichpricesadjusttoequilibratesupplydem.Marketclearingmodelsareusefulinsituationswherepricesareflexible.Yetinmanysituationsflexiblepri

6、cesmaynotbearealisticassumption.Fexamplelabcontractsoftensetwagesfuptothreeyears.firmssuchasmagazinepublisherschangetheirpricesonlyeverythreetofouryears.Mostmacroeconomistsbelievethatpriceflexibilityisareasonableassumpti

7、onfstudyinglongrunissues.Overthelongrunpricesrespondtochangesindemsupplyeventhoughintheshtruntheymaybeslowtoadjust.ProblemsApplications1.MoarypolicyintheUnitedStatestheEuropeanUnionhasbeenabigtopicofconversationinearly20

8、15.TheEUembarkeduponaquantitativeeasingpolicyinMarch2015inanattempttostimulategrowthpreventdeflation.TherehasbeensomeconcernthattheinflationrateinEuropewillturnnegative.IntheUnitedStatesthereiscontinueddiscussionspeculat

9、ionconcerningwhentheFederalReservemightchoosetoincreasethetargetfederalfundsrate.AlsointheUnitedStatestheunemploymentratehasdeclinedtoabout5.5percentthissuggeststhatwagesmaybegintoincrease.TheFederalReservewillbewatching

10、fwagepriceincreasesastheydecidewhentoincreaseinterestrates.2.Manyphilosophersofsciencebelievethatthedefiningacteristicofascienceistheuseofthescientificmethodofinquirytoestablishstablerelationships.Scientistsexaminedataof

11、tenprovidedbycontrolledexperimentstosupptdisproveahypothesis.Economistsaremelimitedintheiruseofexperiments.Theycannotconductcontrolledexperimentsontheeconomytheymustrelyonthenaturalcourseofdevelopmentsintheeconomytocolle

12、ctdata.Totheextentthateconomistsusethescientificmethodofinquirythatisdevelopinghypothesestestingthemeconomicshastheacteristicsofascience.3.Wecanuseasimplevariantofthesupplydemmodelfpizzatoanswerthisquestion.Assumethatthe

13、quantityoficecreamdemeddependsnotonlyonthepriceoficecreamincomebutalsoonthepriceoffrozenyogurt:Qd=D(PICPFYY).Weexpectthatdemficecreamriseswhenthepriceoffrozenyogurtrisesbecauseicecreamfrozenyogurtaresubstitutes.Thatiswhe

14、nthepriceoffrozenyogurtgoesupIconsumelessofitinsteadfulfillmeofmyfrozendesserturgesthroughtheconsumptionoficecream.Chapter2—TheDataofMacroeconomics3AnswerstoTextbookQuestionsProblemsCHAPTER2TheDataofMacroeconomicsQuestio

15、nsfReview1.GDPmeasuresthetotalincomeearnedfromtheproductionofthenewfinalgoodsservicesintheeconomyitmeasuresthetotalexpendituresonthenewfinalgoodsservicesproducedintheeconomy.GDPcanmeasuretwothingsatoncebecausethetotalexp

16、endituresonthenewfinalgoodsservicesbythebuyersmustbeequaltotheincomeearnedbythesellersofthenewfinalgoodsservices.Asthecircularflowdiagraminthetextillustratesthesearealternativeequivalentwaysofmeasuringtheflowofdollarsint

17、heeconomy.2.ThefourcomponentsofGDPareconsumptioninvestmentgovernmentpurchasesexpts.TheconsumptioncategyofGDPconsistsofhouseholdexpendituresonnewfinalgoodsservicessuchasthepurchaseofanewtelevision.TheinvestmentcategyofGDP

18、consistsofbusinessfixedinvestmentresidentialfixedinvestmentinventyinvestment.Whenabusinessbuysnewequipmentthiscountsasinvestment.Governmentpurchasesconsistsofpurchasesofnewfinalgoodsservicesbyfederalstatelocalgovernments

19、suchaspaymentsfnewmilitaryequipment.exptsmeasuresthevalueofgoodsservicessoldtoothercountriesminusthevalueofgoodsservicesfeignerssellus.WhentheU.S.sellscntofeigncountriesitcountsintheexptcategyofGDP.3.Theconsumerpriceinde

20、x(CPI)measurestheoveralllevelofpricesintheeconomy.Ittellsusthepriceofafixedbasketofgoodsrelativetothepriceofthesamebasketinthebaseyear.TheGDPdeflatistheratioofnominalGDPtorealGDPinagivenyear.TheGDPdeflatmeasurestheprices

21、ofallgoodsservicesproducedwhereastheCPIonlymeasurespricesofgoodsservicesboughtbyconsumers.TheGDPdeflatincludesonlydomesticallyproducedgoodswhereastheCPIincludesdomesticfeigngoodsboughtbyconsumers.FinallytheCPIisaLaspeyre

22、sindexthatassignsfixedweightstothepricesofdifferentgoodswhereastheGDPdeflatisaPaheindexthatassignschangingweightstothepricesofdifferentgoods.Inpracticethetwopriceindicestendtomovetogetherdonotoftendiverge.4.TheCPImeasure

23、sthepriceofafixedbasketofgoodsrelativetothepriceofthesamebasketinthebaseyear.ThePCEdeflatistheratioofnominalconsumerspendingtorealconsumerspending.TheCPIthePCEdeflataresimilarinthattheybothonlyincludethepricesofgoodspurc

24、hasedbyconsumerstheybothincludethepriceofimptedgoodsaswellasdomesticallyproducedgoods.ThetwomeasuresdifferbecausetheCPImeasuresthechangeinthepriceofafixedbasketwhereasthegoodsmeasuredbythePCEdeflatchangefromyeartoyeardep

25、endingonwhatconsumersarepurchasinginthatparticularyear.5.TheBureauofLabStatistics(BLS)classifieseachpersonintooneofthefollowingthreecategies:employedunemployednotinthelabfce.Theunemploymentratewhichisthepercentageofthela

26、bfcethatisunemployediscomputedasfollows:UnemploymentRate=.Notethatthelabfceisthenumberofpeopleemployedplusthenumberofpeopleunemployed.6.EverymonththeBureauofLabStatisticsundertakestwosurveystomeasureemployment.FirsttheBL

27、Ssurveysabout60000householdstherebyobtainsanestimateoftheshareofpeoplewhosaytheyarewking.TheBLSmultipliesthissharebyanestimateofthepopulationtoestimatethenumberofpeoplewking.SecondtheBLSsurveysabout160000businessestablis

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