1、ANSWERS TO END-OF-CHAPTER PROBLEMSCHAPTER 1Quick Checka. True.b. False. Although output growth returned to a positive value, the level of output growth was lower after the 2009 recession.c. True/Uncertain. Most stock markets have recovered to their pre-recession levels but have since retreated as of
2、 June 2016.d. True. The unemployment rate in the United Kingdom has been lower than in much of the rest of Europe.e. False. There are problems with the statistics, but the consensus is that growth in China has been high.f. False. European unemployment rates have been higher for several decades.g. Tr
3、ue.h. Mostly true although the gap between output per person in the United States and the richer European countries is not wide as the same gap between the United States and China.i. Truea. More flexible labor market institutions may lead to lower unemployment, but there are questions about how prec
4、isely to restructure these institutions. The United Kingdom has restructured its labor market institutions to resemble more closely U.S. institutions and now has a lower unemployment rate than before the restructuring. On the other hand, Denmark and the Netherlands have relatively low unemployment r
5、ates while maintaining relatively generous social insurance programs for workers.l. 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 Deeper3 a.17.4( 1.022/= 10.4( 1.065)zt = Zn( 17.4/10.4)/n( 1.065/1.
6、022)t h 12.49 yrsThis answer can be confirmed with a spreadsheet, for students unfamiliar with the use of logarithms.m. No. At current growth rates, total Chinese output will exceed U.S. output within 9 years, but Chinese output per person (the Chinese standard of living) will still be less than U.S
7、 output per person.n. China has increased the amount of capital per person. This is possible in the United States. China has imported a lot of technology from the United States and other countries. This is more difficult to do in the United States since the number of technologies available for the
8、United States to import that they do not already have is fewer.o. The demand for money falls by 50%.p. A 1% increase (decrease) in income leads to a 1% increase (decrease) in money demand. This effect is independent of the interest rate.3. a. i=lQQ/$PB-U i=33%; 18%; 5% when $PB =$75; $85; $95.b. Whe
9、n the bond price rises, the interest rate falls.c. $Pb =100/(1.08) = $93a. $20=MD=$ 100(.25-0 i=5%b. M=$100(25-15)M=$10Dig Deepera. BP = 50,000 - 60,000 (.35-i)If the interest rate increases by 10 percentage points, bond demand increases by $6,000.b. An increase in wealth increases bond demand, but
10、has no effect on money demand, which depends on income (a proxy for transactions demand).c. An increase in income increases money demand, but decreases bond demand, since we implicitly hold wealth constant.d. First of all, the use of money in this statement is colloquial. Income“ should be substitut
11、ed for “money. Second, when people earn more income, their wealth does not change right away. Thus, they increase their demand for money and decrease their demand for bonds.4. Essentially, the reduction in the price of the bond makes it more attractive. A bond promises fixed nominal payments. The op
12、portunity to receive these fixed payments at a lower price makes a bond more attractive.5. a. $16 is withdrawn on each trip to the bank.Money holdings are $16 on day one; $12 on day two; $8 on day three; and $4 on day four.b. Average money holdings are ($ 16+$ 12+$8+$4)/4=$ 10.c. $8 is withdrawn on
13、each trip to the bank.Money holdings are $8, $4, $8, and $4.d. Average money holdings are $6.e. $16 is withdrawn on each trip to the bank. Money holdings are $0, $0, $0, and $16.f. Average money holdings are $4.g. Based on these answers, ATMs and credit cards have reduced money demand.6. a. All mone
14、y is in checking accounts, so demand for central bank money equals demand for reserves. Therefore, demand for central bank money=0.1 ($Y)(.8-4z).b. $100B = 0.1($5,000B)(.8-40i=15%c. Since the public holds no currency,money multiplier = 1 /reserve ratio 二 l/.l=10.M=(10)$100B=$l,000BM- Md at the inter
15、est derived in part (b).d. If H increases to $300B the interest rate falls to 5%.e. The interest rate falls to 5%, since when H equals $300B, M=(10)$300B=$3,000B.7. Choosing the quantity of money or choosing the interest rateM= 100 (.25 -.05) = 20 Ba. M= 100 (.25-. 10)= 15 BBoth assets (bonds) and l
16、iabilities (money) will fall by the same amount. To reduce the money supply and raise interest rates, the Federal Reserve must sell bonds.8. Monetary policy in a liquidity trap.a. $20 B$20 Bb. Yes, the central bank can continue to increase the money supply. But interest rates will not fall any furth
17、er.c. Figure 1 in the Focus Box “The Liquidity Trap in Action“ shows many years where the interest rate remained at zero while the money supply continuously expanded.Explore Further11.Answers will vary depending on when students visit the FOMC website.CHAPTER 5Quick Check1.a.b. c. d. e. f.True.True.
18、False.False. The balanced budget multiplier is positive (it equals one), so the IS curve shifts right. TrueFalse. As you move along the horizontal LM curve, as output rises, the demand for real money rises and the central bank must increase the supply of real money to keep the interest rate constant
19、gFalse. The real money supply falls when the nominal money supply is constant and the price level risesh.True. The nominal money supply rose by 10%. The price level rose by 2%. The ratio M/P increased.*1.False. The level of output will rise and at the same interest rate along the horizontal LM curv
20、e, investment will rise2.a.r=l/(l-ei)c0-ciT+/+Gl The multiplier is l/(l-ci).b.Y=l /(1) co-ci T+如岳 i+GThe multiplier is l/(l-ci-Z?i). Since the multiplier is larger than the multiplier in part (a), the effect of a change in autonomous spending is bigger than in part (a). An increase in autonomous spe
21、nding now leads to an increase in investment as well as consumption.c. You simply replace the interest rate from the expression in (b) with its policy value i bar., r=l/(l- c-b) co - ci T+ bq-bzi bar+ G.3.a.The IS curve shifts left. Output falls at the same interest rate. Investment, which depends p
22、ositively on the level of output and negatively on the interest rate, also falls. The interest rate remains the same. Output falls. So investment falls.b.From the answer to 2(b), y=l/(l-ci-/?i) co- c T+ b-bii bar + Gc.I- bu+b、Y-b2i=bo+ bi 1/(1-Ci-Z?i) co- c T+ bbii bar + G - bi I barThis is obtained
23、 by substitution of the equilibrium level of income into the equation forinvestment.d.From part (b), the equilibrium level of income is y=l/(l-ci-/7i) (?o- c T+ bo-b2i bar + G.This value is substituted into the LM relation so thatM/P = di l/(l-ci-Z?i) co - ci T+ b-b2i bar + G - d2 i bar4.a.The real
24、money supply is on the left hand side of the equationb.The demand for real money is on the right hand side of the equationc. The function L(i) is a downward sloping line . Its value increases as the interest rate falls.d. The horizontal axis needs to be relabeled at the real money supply. The variab
25、le that shiftsthe demand for real money is real income. If real income is larger, the real money demand function shifts to the right.e. (1) The real money demand function will shift rights as Y rises. To keep the interest rate constant, the central bank must increase the real money supply. (2) The r
26、eal money demand function will shift left as Y falls. To keep the interest rate constant, the central bank must decrease the real money supply5. a.F=C+/+G=200+.25( F200)+150+.25 K-l 000z+2501100-2000/b. Substitute the interest rate of 5% (numerical value .05) into Y = 1100 - 2000 x (.05)= 1000c Now
27、substitute both equilibrium income of 1000 and the interest rate of 5% into the right hand side of the real money demand expressionM/P = 2000 - (.05 x 8000) = 1600d. C=400; /=350; G=250; C+/+G=1000K=1040; C=410; /=380 The reduction in the interest rate increases output consumption increases because
28、output increases. Investment increases because output increases and the interest rate decreases.f At the initial interest rate of 5%, Y equals 1300 when G is increased to 400. A fiscal expansion increases output. Consumption increases because output increases. When the central bank keeps interest ra
29、tes at 5% then investment increases as output increases, The new level of investment is 425. The new level of consumption is 475.Dig DeeperFirms deciding how to use their own funds will compare the return on bonds to the return on investment. When the interest rate on bonds increases, bonds become m
30、ore attractive, and firms are more likely to use their funds to purchase bonds, rather than to finance investment projects.6. a. The reduction in T shifts the IS curve to the right. The decrease in interest rates shifts the LM curve down by the amount of the decrease in the interest rates. Output in
31、creases.b. The Clinton-Greenspan policy mix was (loosely) contractionary fiscal policy (IS left) and expansionary monetary policy (LM down).c. In 2001, there was a recession, which was triggered by a fall in investment spending following the decline in the stock market. The events of September 11, w
32、hich came after the recession had begun, had only a limited effect. In fact, the economy had positive growth in the fourth quarter of 2001. The expansionary monetary and fiscal policies tended to weaken the recession, but the policies came too late to avoid a recession.7. a. The central bank keeps t
33、he interest rate constant. Fiscal policy is expansionary as either G is increased or T is decreased. Investment will increase as output rises.b. The central bank will cut interest rates as the fiscal authorities either reduce G or raise T (or both).8. a. The IS curve shifts left. The value of the pa
34、rameter co falls. Output falls.b. The level of consumption falls with the fall in output. There is a lower level of output and a lower level of co. Both factors lead to a decline in consumption.The analysis of investment is more complex. Investment will also fall. Investment depends on output and th
35、e interest rate. The interest rate is unchanged. Output falls. Investment must fall.Finally, we analyze the level of saving. The level of savings at the same income would rise as c()falls. But we are not at the same level of output. So one factor raises savings and the other factor lowers savings. W
36、e saw private investment fell. If we started with a balanced budget and continued to have a balanced budget so G=T, we can use expression (3.10) to conclude that savings must also have fallen. If there was no change in G or T, then the same argument is made, the decline in private investment must be
37、 accompanied by a decline in private saving.Explore Furthera. The fall in G and the increase in T shift the IS curve to the left. If the Federal Reserve did not change interest rates, Y would fall. Thus to keep output at the same level, the Federal reserve must cut interest rates and the LM curve wi
38、ll shift down. Investment will increase since output remains the same and interest rates are lower.b. Receipts rose, outlays fell, and the budget deficit fell.c. On September 4, 1992, the FOMC reduced the intended federal funds rate by 25 basispoints. Subsequent changes in federal funds rate over th
39、e period 1993-2000 are given below.Changes in the Intended Federal Funds RateIn real terms, investment was 11.9% of GDP in 1992 and increased every year over the period to reach 17.6% of GDP in 2000.September 4, 19923March 25, 19975.5February 4, 19943.25September 29, 19985.25March 22, 19943.5October
40、 15, 19985April 18, 19943.75November 17, 19984.75May 17, 19944.25June 30, 19995August 16, 19944.75August 24, 19995.25November 15, 19945.5November 16, 19995.5February 1, 19956February 2, 20005.75July 6, 19955.75March 21, 20006December 19, 19955.5May 16, 20006.5January 31, 19965.25d. Over the period 1
41、993-2000, the average annual growth rate of GDP per person was 2.6%, Over the period first four years of the period, the average annual growth rate was 2%; over the second four years, the average annual growth rate was 3.2%.9. a. Growth was negative in 2001:1 and 2001:IILInvestment had a bigger perc
42、entage change, and unlike consumption, growth in investment was negative for every quarter in 2000 and 2001, except 2000:11. Overall investment was generally more variable than nonresidential fixed investment in 2000 and 2001. Moreover, nonresidential fixed investment had positive growth during 2000
43、 but negative growth in 2001.b. Investment had a substantially larger decline in its contribution to growth in 2000 and 2001. The proximate cause of the recession of 2001 was a fall in investment demand.c. Investment fell in the last two quarters of 2001, but began growing again in the first quarte
44、r of 2001. Consumption growth was slow for the first three quarters of 2001, but grew rapidly in the fourth quarter. As mentioned in the text, the Fed reduced the federal funds rate several times during the fourth quarter of 2001. Moreover, automobile manufacturers offered large discounts. These act
45、ions may have helped to generate strong consumer spending. In any event, it is clear that the events of September 11 did not cause the recession of 2001. The recession had started well before these events.CHAPTER 6Quick Check1. a. False. Nominal interest rates are expressed in dollars; real rates in
46、 goods.b. TrueTruec. Uncertain. The statement is true when the nominal rate of interest does not change.d. False. Bonds vary significantly in terms of default risk.e. TrueTruef. False. There could be a change in the risk premiumTrueg. TrueTrueh. False. Prices fell significantly beginning in 2006.i.
47、Truen.True2. a. exact: r- (1+.04)/( 1+.02)-1 = 1.96%; approximation: r .04-.02 = 2%b.3.60%;4%3. The table is filled ina.Situation C and ESituationnominal policy interest rateexpected inflationreal policy interest raterisk premiumnominal borrowing interest ratereal borrowing interest rateA303033B4221
48、53C02-2442D431263E0-22335c.c.5.48%; 8%b. Situation C and Ec. Situation C has the highest risk premium. Default and risk aversion.d. When expected inflation is negative, real rates are higher than nominal rates. High real rates depressaggregate demand. Aggregate demand and output are likely to be low at the Zero Lower Bound.4. a.AssetsLiabilitiesBank Assets100Checking Deposits80Net Worth Capita
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