ANSWERS TO END-OF-CHAPTER PROBLEMS
CHAPTER 1
Quick Check
1. a. True.
b. Uncertain. Output growth returned to a positive value after the negative values in 2009. A
complete return to the high levels of growth immediately before the recession never
occurred with the time span presented in Figure 1-1. By the end of the time portrayed in
Figure 1-1 you could make the case the world output growth returned to the levels of
growth seen around the year 2000
c. True/Uncertain. Most stock markets have recovered to their pre-recession levels but have
since retreated as of 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. True.
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. False. The interest rate in the United Sates was at or near zero until 2016. Since 2016 it
has gradually risen.
2. a. More flexible labor market institutions may lead to lower unemployment, but there are
questions
about how precisely 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 rates while maintaining relatively
generous social insurance programs for workers.
b. Although the Euro removed an obstacle (switching currencies to make transactions) to
free trade
between European countries, each country is forced to give up its own monetary policy.
Dig Deeper
3. a. This calculation is complicated by the fact that the data in China start in 2017 and the
data in the United States start in 2018. Your spreadsheet needs to take that into account.
The formula your spreadsheet will solve is:
20.5(1.022)t=13.5(1.079)t+1
(20.5/13.5) = (1.07)(t+1)/ (1.022)t
ln(20.5/13.5)/[ln(1.07)(t+1)/ (1.022)t]
0.417 = (t+1)(.076) – t(.021)
, t ≈ 6.21 years
Since China’s output started in 2017 and the US output starts in 2018, in roughly 6 years
after
2018, the two outputs are equal. That would be 2023. Thus in 2024, total output in China
is
larger than in the United States.
The spreadsheet that confirms this answer is:
Year U.S. Output China Output
2017 13.50
b. No. At current growth rates,
2018 20.50 14.57 total Chinese output will exceed U.S.
output in 2024, but Chinese output per
2019 20.95 15.82 person (the Chinese standard of living)
will still be less than U.S. output per
2020 21.41 17.18 person.
c. China has increased the amount
2021 21.88 18.66 of capital per person. This is possible in
the United States. China has imported a
2022 22.36 20.26 lot of technology from the United States
and other countries. This is more
2023 22.86 22.00 difficult to do in the United States since
the number of technologies available for
2024 23.36 23.90 the United States to import that they do
not already have is relatively smaller.
2025 23.87 25.95 d. China does provide a model for
other developing countries. Raising
2026 24.40 28.18 output per person by increasing capital
per person and by importing technology
2027 24.94 30.61 is a sensible development strategy.
2028 25.48 33.24 4. a. When the value of the level of
output per hour increases from 100 in
2009 to 103.2 in 2010, the percentage
rate of growth in 2010 is ((103.2-100)/100) x 100 = 3.2%. This means for the same hour
of work, output per person rose by 3.2% in 2010. We call this increase the rate of (labor)
productivity growth.
b. The decade average growth rates of productivity are: 1970-79, 2.1%; 1980-89, 1.6%;
1990-99, 2.1%; 2000-2009, 2.6%; 2010-2017, 1.0%. Productivity growth averages from
2010 to 2017 is lower than any other recent 10-year period. The last decade with
productivity growth less than 2 percent per year was the 1980s.
c. This answer will vary with the issue of the Economic Report of the President used.
Explore Further
,5. a/c. As of February 2019, there had been 6 occasions since 1960, quarter 2, with two
consecutive quarters of negative economic growth. There are many quarters of negative
economic growth.
Seasonally adjusted annual percentage growth rates of GDP where two or more quarters in a
row have negative growth are given below.
1969:4 -1.9 1981:4 -4.9
1970:1 -0.6 1982:1 -6.4
1974:3 -3.8 1990:4 -3.5
1974:4 -1.6 1991:1 -1.9
1975:1 -4.8
2008:3 -3.7
1980:2 -7.9 2008:4 -8.9
1980:3 -0.7 2009:1 -6.7
2009:2 -0.7
The recession in 2008-09 had the largest fall in output (2008:4) and lasted 4 quarters. Other
recessions lasted 2 or 3 quarters. The next largest quarterly fall in output was 1980:2.
6. a-b. Behavior of the unemployment rate over the 6 recessions above:
Recession Unemployment Unemployment Change Unemployment Change from
(year and Rate in month rate in month over rate peak after before
quarter) prior to at end of recession recession recession to
recession recession peak month
quarter quarter
1969:4-1970:1 3.5 4.4 0.9 6.1 (Dec. 1970) 2.6
1974:3-1975:1 5.4 8.6 3.2 9.0 (May 1975) 3.6
1980:2-1980:3 6.3 7.5 1.2 7.5 (Sept. 1980) 1.2
1981:4-1982:1 7.6 9.0 1.4 10.8 (Dec. 1982 3.2
1990:4-1991:1 5.9 6.8 0.9 7.8 (June 1992) 1.9
2008:3-2009:2 5.6 9.5 3.9 10.0 (Oct. 2009) 4.4
a. The answers are in the table above.
b. The recession from 2008:3 to 2009:2 resulted in an increase in unemployment of 4.4
percentage points. This is the largest increase.
7. a/b. Answers could vary with the data found. In the early part of 2019, the unemployment
rate in the United Kingdom was lower than that in the European Union. The peak
unemployment rate in the European Union in April 2013 was 11% and this fell as of the
time of writing to around 6.7%. In Spain the peak unemployment rate in April 2013 was
26.3% and it falls to 14.7% in November 2017. Thus, the unemployment rate in Spain
fell much more quickly than in the rest of Europe.
,
CHAPTER 1
Quick Check
1. a. True.
b. Uncertain. Output growth returned to a positive value after the negative values in 2009. A
complete return to the high levels of growth immediately before the recession never
occurred with the time span presented in Figure 1-1. By the end of the time portrayed in
Figure 1-1 you could make the case the world output growth returned to the levels of
growth seen around the year 2000
c. True/Uncertain. Most stock markets have recovered to their pre-recession levels but have
since retreated as of 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. True.
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. False. The interest rate in the United Sates was at or near zero until 2016. Since 2016 it
has gradually risen.
2. a. More flexible labor market institutions may lead to lower unemployment, but there are
questions
about how precisely 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 rates while maintaining relatively
generous social insurance programs for workers.
b. Although the Euro removed an obstacle (switching currencies to make transactions) to
free trade
between European countries, each country is forced to give up its own monetary policy.
Dig Deeper
3. a. This calculation is complicated by the fact that the data in China start in 2017 and the
data in the United States start in 2018. Your spreadsheet needs to take that into account.
The formula your spreadsheet will solve is:
20.5(1.022)t=13.5(1.079)t+1
(20.5/13.5) = (1.07)(t+1)/ (1.022)t
ln(20.5/13.5)/[ln(1.07)(t+1)/ (1.022)t]
0.417 = (t+1)(.076) – t(.021)
, t ≈ 6.21 years
Since China’s output started in 2017 and the US output starts in 2018, in roughly 6 years
after
2018, the two outputs are equal. That would be 2023. Thus in 2024, total output in China
is
larger than in the United States.
The spreadsheet that confirms this answer is:
Year U.S. Output China Output
2017 13.50
b. No. At current growth rates,
2018 20.50 14.57 total Chinese output will exceed U.S.
output in 2024, but Chinese output per
2019 20.95 15.82 person (the Chinese standard of living)
will still be less than U.S. output per
2020 21.41 17.18 person.
c. China has increased the amount
2021 21.88 18.66 of capital per person. This is possible in
the United States. China has imported a
2022 22.36 20.26 lot of technology from the United States
and other countries. This is more
2023 22.86 22.00 difficult to do in the United States since
the number of technologies available for
2024 23.36 23.90 the United States to import that they do
not already have is relatively smaller.
2025 23.87 25.95 d. China does provide a model for
other developing countries. Raising
2026 24.40 28.18 output per person by increasing capital
per person and by importing technology
2027 24.94 30.61 is a sensible development strategy.
2028 25.48 33.24 4. a. When the value of the level of
output per hour increases from 100 in
2009 to 103.2 in 2010, the percentage
rate of growth in 2010 is ((103.2-100)/100) x 100 = 3.2%. This means for the same hour
of work, output per person rose by 3.2% in 2010. We call this increase the rate of (labor)
productivity growth.
b. The decade average growth rates of productivity are: 1970-79, 2.1%; 1980-89, 1.6%;
1990-99, 2.1%; 2000-2009, 2.6%; 2010-2017, 1.0%. Productivity growth averages from
2010 to 2017 is lower than any other recent 10-year period. The last decade with
productivity growth less than 2 percent per year was the 1980s.
c. This answer will vary with the issue of the Economic Report of the President used.
Explore Further
,5. a/c. As of February 2019, there had been 6 occasions since 1960, quarter 2, with two
consecutive quarters of negative economic growth. There are many quarters of negative
economic growth.
Seasonally adjusted annual percentage growth rates of GDP where two or more quarters in a
row have negative growth are given below.
1969:4 -1.9 1981:4 -4.9
1970:1 -0.6 1982:1 -6.4
1974:3 -3.8 1990:4 -3.5
1974:4 -1.6 1991:1 -1.9
1975:1 -4.8
2008:3 -3.7
1980:2 -7.9 2008:4 -8.9
1980:3 -0.7 2009:1 -6.7
2009:2 -0.7
The recession in 2008-09 had the largest fall in output (2008:4) and lasted 4 quarters. Other
recessions lasted 2 or 3 quarters. The next largest quarterly fall in output was 1980:2.
6. a-b. Behavior of the unemployment rate over the 6 recessions above:
Recession Unemployment Unemployment Change Unemployment Change from
(year and Rate in month rate in month over rate peak after before
quarter) prior to at end of recession recession recession to
recession recession peak month
quarter quarter
1969:4-1970:1 3.5 4.4 0.9 6.1 (Dec. 1970) 2.6
1974:3-1975:1 5.4 8.6 3.2 9.0 (May 1975) 3.6
1980:2-1980:3 6.3 7.5 1.2 7.5 (Sept. 1980) 1.2
1981:4-1982:1 7.6 9.0 1.4 10.8 (Dec. 1982 3.2
1990:4-1991:1 5.9 6.8 0.9 7.8 (June 1992) 1.9
2008:3-2009:2 5.6 9.5 3.9 10.0 (Oct. 2009) 4.4
a. The answers are in the table above.
b. The recession from 2008:3 to 2009:2 resulted in an increase in unemployment of 4.4
percentage points. This is the largest increase.
7. a/b. Answers could vary with the data found. In the early part of 2019, the unemployment
rate in the United Kingdom was lower than that in the European Union. The peak
unemployment rate in the European Union in April 2013 was 11% and this fell as of the
time of writing to around 6.7%. In Spain the peak unemployment rate in April 2013 was
26.3% and it falls to 14.7% in November 2017. Thus, the unemployment rate in Spain
fell much more quickly than in the rest of Europe.
,
