ECONOMICS-W/CONNECT ACCESS
21st Edition
ISBN: 9781260211726
Author: McConnell
Publisher: MCG
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Question
Chapter 26, Problem 1DQ
To determine
Macroeconomic model.
Expert Solution & Answer
Explanation of Solution
Macroeconomists focus on a three key statistics of
Economics Concept Introduction
Concept introduction:
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Students have asked these similar questions
14)Suppose that the annual rates of growth of real GDP of Econoland over a five-year period are as follows:
Year
Growth Rate (%)
1
3
2
1
3
– 2
4
4
5
5
Instructions: Round your answers to 2 decimal places.
a. What was the average of these growth rates in Econoland over these 5 years?
b. What term would economists use to describe what happened in year 3?
(Click to select) Expansion Recession
c. If the growth rate in year 3 had been a positive 2 percent rather than a negative 2 percent, what would have been the average growth rate?
For the linear IS-LM model, the goods market and the money market are in equilibrium when. Suppose that the economy is characterized by the following equations: (Y;r) = ( 1200 ; 6), Y-C-IG=0, C-Co-c(Y-T)=0,I-Io+hr=0, and kY-ur-M^s=0, which are satisfied for Co=60, lo=150, G=250, T=200, M^s=60, with the parameters c=0.8, k=0.1, h=10, and u=10. How are the equilibrium
and affected,
a) if "h" (the sensivity of the demand for investment to the interest rate) decreases to 5?
b) if "u" (the sensitivity of the demand for real money balances to the interest rate) decreases to 5?
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 4. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? In what direction and by how much will it eventually shift?
Chapter 26 Solutions
ECONOMICS-W/CONNECT ACCESS
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- Learning Outcomes Covered: LO 2. Explain how the following key aggregate economic variables are defined and measured: the price level, national income, employment, unemployment, the labor force, the unemployment rate, the rate of inflation, the exchange rate. LO3. Understand how national expenditure and national product are measured and how the equilibrium level of national income is achieved. Graduate Attributes: Effective communication (1) Scholastic rigor and practical competence (2) Lifelong Learning (4) Autonomy and Accountability (5)arrow_forwardAssume that the real wage in an economy is held above equilibrium.a. Graphically illustrate how an increase in technology that raises the demand for labor willchange the number of unemployed workers. Be sure to label the axes and the quantities oflabor hired before and after the technological progress.b. Explain in words what happens to the number of unemployed as a result of this change.a. The number of unemployed falls from (L – L1) to (L – L2).arrow_forward15. Suppose that the relationship between inflation rate (π) and unemployment rate (u) is described by the following equation: πt – πte = (m + z) – αut where m = 0.05, z = 0.04, and α = 2. In this economy, the authorities keep unemployment rate at 4% forever. a. If the modified Philips curve describes the relationship between π and u correctly, how should “πte” be specified? Rewrite the equation using this specification. Assume that πt–1 = 1%. Compute πt, πt+1, and πt+2. b. Do you believe the answer in part (a)? Why or why not? c. Derive the natural rate of unemployment.arrow_forward
- II. Consider the following IS-LM model:? = 200 + 0.25??? = 150 + 0.25? − 1,000?? = 250? = 200(?/?)? = 2? − 8,000??/? = 1,600a. Derive the IS relation. (Hint: You want an equation with ? on the left side and everythingelse on the right.)b. Derive the LM relation. (Hint: It will be convenient for later use to rewrite this equationwith ? on the left side and everything else on the right.)c. Solve for equilibrium real output. (Hint: Substitute the expression for the interest rategiven by the LM equation into the IS equation and solve for output.)d. Solve for the equilibrium interest rate. (Hint: Substitute the value you obtained for ? inpart (c) into either the IS or LM equation and solve for ?.)e. Solve for the equilibrium values of ? and ? and verify the value you obtained for ? byadding ?, ?, and ?.f. Now suppose that the money supply increases to ?/? = 1,840. Solve for ?, ?, ?, and ?,and describe in words the effects of an expansionary monetary policy.g. Set ?/? equal to its initial…arrow_forwardSuppose that the aggregate demand and aggregate supply schedules for a hypothetical economy are as shown below: a. Use these sets of data to graph the aggregate demand and aggregate supply curves. What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Is the equilibrium real output also necessarily the full-employment real output? Explain.b. Why will a price level of 150 not be an equilibrium price level in this economy? Why not 250?c. Suppose that buyers desire to purchase $200 billion of extra real output at each price level. Sketch in the new aggregate demand curve as AD1. What factors might cause this change in aggregate demand? What is the new equilibrium price level and level of real output?arrow_forwardExplain why proponents of Keynesian economics believe that it is unlikely for wages and prices to decrease, even if cyclical unemployment is high, and therefore the best remedy to correct a recessionary gap is through stimulating AD. How can just a little bit more extra spending in the economy lead to a much greater impact on real GDP produced? (12.2)arrow_forward
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