Macroeconomics: Unemployment and Labor Productivity
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Questions and Answers

Who used early versions of the manuscript in their classes?

  • Ken Beauchemin (correct)
  • Scott Baier
  • Ping Wang
  • Dave Andolfatto

    • Which individual provided critical input and helped improve the manuscript?

  • Marco Cagetti
  • Gabriele Camera (correct)
  • William Blankenau
  • Troy Davig

    • Who was at the University of Western Ontario among the reviewers mentioned?

  • Irasema Alonso
  • David Aschauer
  • Alaa AlShawa (correct)
  • John Graham

    • Which reviewer was associated with Simon Fraser University?

    <p>David Andolfatto</p> Signup and view all the answers

    Who provided help and encouragement at Pearson according to the text?

    <p>Neeraj Bhalla</p> Signup and view all the answers

    Who was associated with College of William and Mary among the reviewers mentioned?

    <p>Troy Davig</p> Signup and view all the answers

    What does the blue line in Figure 1.5 represent?

    <p>Average labor productivity</p> Signup and view all the answers

    In which periods was productivity growth high according to the text?

    <p>1950s and 1960s</p> Signup and view all the answers

    What do the models introduced in Chapter 6 aim to explain?

    <p>Determinants of labor force participation</p> Signup and view all the answers

    Who were the Nobel Prize winners whose work the second model in Chapter 6 is based on?

    <p>Peter Diamond, Dale Mortensen, Christopher Pissarides</p> Signup and view all the answers

    What does the vacancy rate represent?

    <p>Fraction of firms searching for workers to hire</p> Signup and view all the answers

    What is the purpose of understanding fluctuations in unemployment over time according to the text?

    <p>To formulate effective macroeconomic policies for efficient labor markets</p> Signup and view all the answers

    What does gross domestic product (GDP) measure?

    <p>Quantity of goods and services produced within a country's borders</p> Signup and view all the answers

    How is real GDP per capita different from GDP?

    <p>It adjusts for inflation and population growth</p> Signup and view all the answers

    What was the average income for an American in 1900 in 2009 dollars?

    <p>$5,188</p> Signup and view all the answers

    What was the average income for an American in 2014 in 2009 dollars?

    <p>$50,051</p> Signup and view all the answers

    What does sustained growth in per capita real GDP mean in this context?

    <p>Consistent increase over long periods of time</p> Signup and view all the answers

    What are fluctuations in economic growth referred to as in the text?

    <p>Business cycles</p> Signup and view all the answers

    What was the approximate total tax revenue as a percentage of GDP in 2015?

    <p>29%</p> Signup and view all the answers

    In what year did total spending reach about 33% of GDP in the United States?

    <p>2015</p> Signup and view all the answers

    How has the trend in government spending compared to the trend in taxes since 2000?

    <p>Spending has outpaced taxes.</p> Signup and view all the answers

    What effect does increased government activity have on private economic activity?

    <p>It decreases private economic activity.</p> Signup and view all the answers

    What does an increase in the size of government, relative to the aggregate economy, reflect?

    <p>Increase in government spending.</p> Signup and view all the answers

    What is the main impact of government competing for resources with the rest of the economy?

    <p>Crowding out of private economic activity.</p> Signup and view all the answers

    In macroeconomics, why have economists introduced newer, alternative theories of inflation?

    <p>To better fit the data and be more useful for economic policy</p> Signup and view all the answers

    What is the trend of inflation from the 1970s to the 1980s?

    <p>It decreased substantially</p> Signup and view all the answers

    How do interest rates impact consumers and firms?

    <p>They influence how much consumers borrow and lend, and how much firms invest</p> Signup and view all the answers

    What is represented by the short-term nominal interest rate in the United States?

    <p>Interest on 91-day U.S. Treasury bills</p> Signup and view all the answers

    When did the short-term nominal interest rate reach a high of more than 15%?

    <p>1980</p> Signup and view all the answers

    What have movements in interest rates been identified as in the text?

    <p>An important element in the economic mechanism by which monetary policy affects real magnitudes in the short run</p> Signup and view all the answers

    During which decade did the United States experience peaks of about 12% and 14% inflation rates?

    <p>1970s</p> Signup and view all the answers

    What factor did monetary policymakers attribute to driving the high rate of inflation in the 1970s?

    <p>Growth in the money supply</p> Signup and view all the answers

    In what year did the inflation rate fall into the negative range according to the text?

    <p>2009</p> Signup and view all the answers

    What problem are monetary policymakers facing currently in the United States and other countries according to the text?

    <p>Deflation</p> Signup and view all the answers

    What has been the trend of inflation since the Great Recession based on the text?

    <p>Consistently below the Fed's target of 2%</p> Signup and view all the answers

    What have central banks failed to do in recent times based on the text?

    <p>Boost inflation through unconventional means</p> Signup and view all the answers

    What is the estimated real interest rate in neoFisherian theory?

    <p>Nominal interest rate minus the actual rate of inflation</p> Signup and view all the answers

    In the context of inflation control, why might a central bank choose to increase its nominal interest rate target?

    <p>To increase inflation</p> Signup and view all the answers

    What is the relationship between the real interest rate and actual inflation?

    <p>The real interest rate is the nominal interest rate minus the actual rate of inflation</p> Signup and view all the answers

    When consumers and firms correctly anticipate inflation, what does the real interest rate represent?

    <p>Nominal interest rate minus expected inflation</p> Signup and view all the answers

    In the short run, what affects the real interest rate according to the text?

    <p>Both monetary and fiscal policy</p> Signup and view all the answers

    What can be said about the real interest rate over time based on the text?

    <p>It fluctuates greatly</p> Signup and view all the answers

    In the long run, what causes inflation according to the text?

    <p>Growth in the money supply</p> Signup and view all the answers

    What is the main determinant of the inflation rate according to the text?

    <p>Central bank's growth in money supply</p> Signup and view all the answers

    What economic relationship is mentioned that appears to be quite unstable empirically?

    <p>Nominal interest rate and inflation</p> Signup and view all the answers

    Which of the following factors can cause short-run variation in inflation rate?

    <p>Growth in money supply</p> Signup and view all the answers

    What is the relationship between the nominal interest rate and inflation when there is a short-run trade-off with output?

    <p>Positive relationship</p> Signup and view all the answers

    What determines the inflation rate according to economists in relation to the central bank?

    <p>Growth in money supply</p> Signup and view all the answers

    Why is it useful to take the natural logarithm of economic time series data that exhibit growth?

    <p>To calculate the growth rate between periods</p> Signup and view all the answers

    What fundamental macroeconomic question is raised by the events depicted in Figure 1.1?

    <p>Can economic growth continue indefinitely?</p> Signup and view all the answers

    What motivates much of the material in the book mentioned in the text?

    <p>Fundamental macroeconomic questions</p> Signup and view all the answers

    In what way do dramatic decreases and increases in economic growth during the Great Depression and World War II pose a question?

    <p>They question the repeatability of such events</p> Signup and view all the answers

    Should governments act to smooth business cycles according to the text?

    <p>Yes, they should always intervene in business cycles</p> Signup and view all the answers

    Why do macroeconomists focus on economic growth and business cycles?

    <p>To study long-term trends and short-term fluctuations in the economy</p> Signup and view all the answers

    What is the primary reason for building macroeconomic models with microeconomic principles as a foundation?

    <p>To provide a solid theoretical basis for explaining real-world economic phenomena</p> Signup and view all the answers

    Why is there disagreement among macroeconomists according to the text?

    <p>As a result of differing views on how to interpret economic data</p> Signup and view all the answers

    What is the significance of understanding the key features of trend growth and deviations from trend in per capita gross domestic product?

    <p>To assess the long-term health of the economy and potential cyclical patterns</p> Signup and view all the answers

    What key role do models play in macroeconomics according to the text?

    <p>Models are useful for simplifying, explaining, and predicting economic phenomena</p> Signup and view all the answers

    What is the main purpose of an economic model, according to the text?

    <p>To capture essential features of the world for analyzing economic problems</p> Signup and view all the answers

    What is a key similarity between how meteorologists, astronomers, and macroeconomists approach their respective fields?

    <p>They use models to understand and analyze phenomena</p> Signup and view all the answers

    Why are most experiments unlikely to be performed in macroeconomics, according to the text?

    <p>Because macroeconomic experiments are too costly</p> Signup and view all the answers

    How are economic models like an electronic roadmap, based on the text?

    <p>Both are constructed with a particular purpose in mind</p> Signup and view all the answers

    What is the main reason why economic models need to be simple, according to the text?

    <p>To make them useful for analyzing specific economic problems</p> Signup and view all the answers

    What does a roadmap lack in terms of depicting the earth's surface?

    <p>Curvature of the earth</p> Signup and view all the answers

    What is the main purpose of a roadmap?

    <p>To serve its constructed purpose without extraneous detail</p> Signup and view all the answers

    In a macroeconomic model, what is NOT one of the five features described in mathematical and graphical terms?

    <p>Government regulations impacting the economy</p> Signup and view all the answers

    After describing economic actors, goods, and technology in a model economy, what additional feature needs to be specified to make predictions?

    <p>Goals of consumers and firms</p> Signup and view all the answers

    Why is it necessary to know the goals of consumers and firms in a model economy?

    <p>To make accurate economic predictions</p> Signup and view all the answers

    Which economic concept is highlighted in the text as a crucial factor affecting private economic decisions regarding borrowing and lending?

    <p>Interest rates</p> Signup and view all the answers

    What was the trend of inflation from the 1970s to the 1980s as described in the text?

    <p>Inflation increased on trend until the 1970s, before reducing dramatically in the 1980s</p> Signup and view all the answers

    What is the specific measure of interest rate discussed as having risen in the 1950s, 1960s, and reaching a high of more than 15% early in 1980?

    <p>Short-term nominal interest rate</p> Signup and view all the answers

    How did inflation behave from 2013 to 2015 according to the text?

    <p>May be too low</p> Signup and view all the answers

    In economic policy, why are newer, alternative theories of inflation being introduced by macroeconomists?

    <p>To better fit available data and be more useful for economic policy</p> Signup and view all the answers

    Why do macroeconomists focus on economic growth and business cycles?

    <p>To understand the impact of individual economic decisions on the overall economy.</p> Signup and view all the answers

    What is the primary motivation for building macroeconomic models with microeconomic principles as a foundation?

    <p>To incorporate real-world market imperfections and behavioral nuances.</p> Signup and view all the answers

    Why is there disagreement among macroeconomists, according to the text?

    <p>As a result of varying interpretations of economic theories and historical events.</p> Signup and view all the answers

    What is one key aspect of trend growth in per capita gross domestic product discussed in Chapter 1?

    <p>The long-term increase in real GDP per person over time.</p> Signup and view all the answers

    How does the text frame the approach to macroeconomics taken in this book?

    <p>By building macroeconomic models on microeconomic principles.</p> Signup and view all the answers

    What is the main reason for constructing macroeconomic models based on sound microeconomic principles?

    <p>To ensure accurate representations of macroeconomic behavior</p> Signup and view all the answers

    How does macroeconomic research differ from physics in terms of micro-level behavior?

    <p>Micro behavior is usually not ignored in physics</p> Signup and view all the answers

    Why is it not always necessary to include features like international trade or macroeconomic growth in economic models?

    <p>Because their relevance depends on the specific issue being modeled</p> Signup and view all the answers

    In what way does the text suggest that economic models evolve over time?

    <p>By helping us understand economic forces better</p> Signup and view all the answers

    What is emphasized as crucial for constructing useful macroeconomic models?

    <p>Building models based on sound microeconomic principles</p> Signup and view all the answers

    In two-period models discussed in the text, what dynamic decisions do consumers make?

    <p>Save for future consumption needs</p> Signup and view all the answers

    How do consumers' expectations about their future incomes impact their current saving behavior?

    <p>They want to save less in the present</p> Signup and view all the answers

    What makes firms more inclined to invest in new plant and equipment according to the text?

    <p>Anticipation of future technological innovations</p> Signup and view all the answers

    How does consumers' forward-looking behavior impact aggregate production?

    <p>Affects current aggregate production</p> Signup and view all the answers

    What role do consumers and firms play in affecting current macroeconomic events according to the text?

    <p>Significant impact on macroeconomic events</p> Signup and view all the answers

    What key business cycle facts are developed in Chapter 3 that will be used throughout the book?

    <p>Labor market dynamics and unemployment trends</p> Signup and view all the answers

    In the one-period model discussed in Chapter 5, how is the behavior of consumers and firms captured?

    <p>Through a single representative consumer and a single representative firm</p> Signup and view all the answers

    What does Chapter 6 focus on regarding labor market behavior in a macroeconomic context?

    <p>Search models of unemployment to understand determinants</p> Signup and view all the answers

    What is the primary purpose of developing a set of key business cycle facts in Chapter 3?

    <p>To investigate how alternative business cycle theories fit observed facts</p> Signup and view all the answers

    Why is it important to study the impacts of changes in government spending and total factor productivity on aggregate output, employment, and consumption?

    <p>To assess how policy changes affect economic activity and tax revenue</p> Signup and view all the answers

    What is a possible consequence of instructors omitting parts of Chapter 2 according to the text?

    <p>Students may struggle to understand key national income accounting identities.</p> Signup and view all the answers

    What is a potential challenge if instructors do not emphasize concepts introduced in Chapter 3?

    <p>Students may struggle to interpret scatter plots and time series plots.</p> Signup and view all the answers

    What makes Chapter 6 unique in its treatment of labor market issues according to the text?

    <p>It introduces search models to explicitly study unemployment determinants.</p> Signup and view all the answers

    Why is economic growth introduced early in Chapters 7 and 8 according to the text?

    <p>To align with the significance of growth theory in modern macroeconomics.</p> Signup and view all the answers

    What does the explicit treatment of determinants of unemployment in Chapter 6 allow according to the text?

    <p>An interesting analysis of labor market issues.</p> Signup and view all the answers

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