Problems for Macroeconomics, 2/e
Blanchard Macroeconomia 3 edio
Answers to end-of-chapter problems
Chapter 1
Quick Check
1. a.True.
b.True.
c. True/Uncertain. Average growth is lower since 1973. However,
since the mid-1990s, output per worker has growth at about the
pre-1973 rate. It's too soon to tell whether this marks a return to
pre-1973 growth rates or simply a few lucky years.
d.True.
e.False.
f.False.
2. a.
1960-2000 2001-2002
US
3.5% 0.9%
EU
3.1% 1.6%
Japan
5.5% -0.9%
b. Probably closer to long-run average, because averages over
short time periods reflect business cycles. However, Japan was
growing exceptionally fast in the early postwar period as it caught
up to the United States. Even if Japan recovers from its current
slump over the next decade, it may not resume growth as high as its
previous average.
3. a.Low unemployment might lead to an increase in
inflation.
b. Although measurement error may contribute to the measured
slowdown in growth, there are other relevant issues, including the
productivity of new research and the accumulation of new capital.
c. Although labor market rigidities may be important, it is also
important to consider that these rigidities may not be excessive,
and that high unemployment may arise from flawed macroeconomic
policies.
d.Although poor regulation of the financial system may be
contributing to the length of Japan's slump, most economists
believe that the collapse in Japanese asset prices triggered the
economic downturn. Moreover, tightening regulation would likely
involve more pain in the short run since some banks and firms would
be forced to close.
e.Although the Euro will remove obstacles to free trade between
European countries, each country will be forced to give up its own
monetary policy.
Dig Deeper
4. Discussion question.
5.a.10 years: (1.01)10=1.10 or 10 % higher; 20 years: 22%
higher;
50 years: 64% higher
b.29%; 67%; 261% higher
c. Take output per worker as a measure of the standard of
living.
10 years: 1.29/1.1=1.17, so the standard of living would be
about 17% higher;
20 years: 37% higher; 50 years: 120% higher
d. No. Labor productivity growth fluctuates a lot from year to
year. The last few years may represent good luck. It is too soon to
tell whether there has been a change in the trend observed since
1973.
6. 9.9(1.03)t=1.1(1.08)t
9=(1.049)t
t = ln(9)/ln(1.049) 46 yrs
Explore Further
7. a-c. As of June 2002, there have been 8 recessions. The
numbers are seasonally-
adjusted annual percentage growth rates of GDP in chained 1996
dollars.
1949:1
-5.5
1974:3
-4.4
1949:2
-1.1
1974:4
-2.2
1975:1
-5.0
1953:3
-2.5
1953:4
-6.3
1980:2
-7.9
1954:1
-2.0
1980:3
-0.6
1957:4
-4.1
1981:4
-4.6
1958:1
-10.3
1982:1
-6.5
1969:4
-7.9
1990:3
-0.7
1970:1
-0.6
1990:4
-3.2
1991:1
-2.0
d. No. Growth rates for 2001:
2001:1 1.3%
2001:2
0.3%
2001:3
-1.3%
2001:4
1.7%
8. a-b.% point increase in unemployment rate for the 8
recessions
1949
1.9
1974-753.1
1953-54
3.1
1980
0.6
1957-58
2.2
1981-821.1
1969-70
0.7
1990-911.3
The unemployment rate increased by 1.4 percentage points between
January 2001 and
January 2002.
Chapter 2Quick Check
1.a. False.
b. Uncertain: real or nominal GDP.
c. True.
d. True.
e. False. The level of the CPI means nothing. Its rate of change
tells us about inflation.
f. Uncertain. Which index is better depends on what we are
trying to measureinflation faced by consumers or by the economy as
a whole.
2.a. +$100; Personal Consumption Expenditures
b.no change: intermediate good
c. +$200 million; Gross Private Domestic Fixed Investment
d.+$200 million; Net Exports
e.no change: the jet was already counted when it was produced,
i.e., presumably when Delta (or some other airline) bought it new
as an investment.
3.a. $1,000,000 the value of the silver necklaces.
b.1st Stage: $300,000. 2nd Stage:
$1,000,00-$300,000=$700,000.
GDP: $300,000+$700,000=$1,000,000.
c.Wages: $200,000 + $250,000=$450,000.
Profits: ($300,000-$200,000)+($1,000,000-$250,000-300,000)
=$100,000+$450,000=$550,000.
GDP: $450,000+$550,000=$1,000,000.
4. a.2001 GDP: 10*$2,000+4*$1,000+1000*$1=$25,000
2002 GDP: 12*$3,000+6*$500+1000*$1=$40,000
Nominal GDP has increased by 60%.
b.2001 real (2001) GDP: $25,000
2002 real (2001) GDP: 12*$2,000+6*$1,000+1000*$1=$31,000
Real (2001) GDP has increased by 24%.
c.2001 real (2002) GDP: 10*$3,000+4*$500+1,000*$1=$33,000
2002 real (2002) GDP: $40,000.
Real (20021) GDP has increased by 21.2%.
d.The answers measure real GDP growth in different units.
Neither answer is incorrect, just as measurement in inches is not
more or less correct than measurement in centimeters.
5.a. 2001 base year:
Deflator(2001)=1; Deflator(2002)=$40,000/$31,000=1.29
Inflation=29%
b. 2001 base year:
Deflator(2001)=$25,000/$33,000=0.76; Deflator(2002)=1
Inflation=(1-0.76)/0.76=.32=32%
c. Analogous to 4d.
6.a. 2001 real GDP = 10*$2,500 + 4*$750 + 1000*$1 = $29,000
2002 real GDP = 12*$2,500 + 6*$750 + 1000*$1 = $35,500
b.(35,500-29,000)/29,000 = .224 = 22.4%
c.Deflator in 2001=$25,000/$29,000=.86
Deflator in 2002=$40,000/$35,500=1.13
Inflation = (1.13 -.86)/.86 = .314 = 31.4%.
d.Yes, see appendix for further discussion.
Dig Deeper
7.a.The quality of a routine checkup improves over time.
Checkups now may include EKGs, for example. Medical services are
particularly affected by this problem due to constant improvements
in medical technology.
b. You need to know how the market values pregnancy checkups
with and without ultra-sounds in that year.
c. This information is not available since all doctors adopted
the new technology simultaneously. Still, you can tell that the
quality-adjusted increase will be lower than 20%.
8. a. Measured GDP increases by $10+$12=$22. (Strictly, this
involves mixing the final goods and income approaches to GDP.
Assume here that the $12 per hour of work creates a final good
worth $12.)
b. True GDP should increase by much less than $22 because by
working for an extra hour, you are no longer producing the work of
cooking within the house. Since cooking within the house is a final
service, it should count as part of GDP. Unfortunately, it is hard
to measure the value of work within the home, which is why measured
GDP does not include it.
9. Answers will vary depending on the website is accessed.
Chapter 3Quick Check
1.a.True.
b.False. Government spending without transfers was 18% of GDP
without transfers.
c.False. The propensity to consume must be less than one for our
model to be well defined.
d.True.
e.False.
f.False. The increase in output is one times the multiplier.
g.True.
2.a. Y=160+0.6*(Y-100)+150+150
Y=1000
b. YD=Y-T=1000-100=900
c.C=160+0.6*(900)=700
3. a.Equilibrium output is 1000. Total
demand=C+I+G=700+150+150=1000. Total demand equals production. That
is the equilibrium condition used to solve for output.
b.Output falls by: 40*multiplier = 40/.4=100. So equilibrium
output is now 900. Total demand=C+I+G=160+0.6*(800)+150+110=900.
Again, total demand equals production.
c.Private saving=Y-C-T=900-160-0.6*(800)-100=160. Public saving
=T-G=-10. National saving (or in short, saving) equals private plus
public saving, or 150. National saving equals investment. This
statement is mathematically equivalent to the equilibrium condition
that total demand equals production. Thus, national saving equals
investment is an alternative statement of the equilibrium
condition.
Dig Deeper
4.a.Y increases by 1/(1-c1)
b.Y decreases by c1/(1- c1)
c.The answers differ because spending affects demand directly,
but taxes affect demand
through consumption, and the propensity to consume is less than
one.
d.The change in Y equals 1/(1-c1) - c1/(1- c1) = 1. Balanced
budget changes in G and T are
not macroeconomically neutral.
e. The propensity to consume has no effect because the balanced
budget tax increase aborts the multiplier process. Y and T both
increase by on unit, so disposable income, and hence consumption,
do not change.
5. a. Y=c0+c1YD+I+G implies
Y=[1/(1-c1+c1t1)]*[c0-c1t0+I+G]
b.The multiplier = 1/(1-c1+c1t1)