Macroeconomics
11th Edition by N. Gregory Mankiw
Complete Chapter Solutions Manual
are included (Ch 1 to 20)
** Immediate Download
** Swift Response
** All Chapters included
,Answers to Textbook Questions and Problems
CHAPTER 1 The Science of Macroeconomics
Questions for Review
1. Microeconomics is the study of how individual firms and households make decisions and how they
interact with one another. Microeconomic models of firms and households are based on principles of
optimization: firms and households do the best they can, given the constraints they face. For example,
households choose which goods to purchase to maximize their utility, whereas firms choose inputs and
outputs to maximize profits. In contrast, macroeconomics is the study of the economy as a whole; it
focuses on issues such as how total output, total employment, and the overall price level are
determined. These economy-wide variables are based on the interaction of many households and many
firms; therefore, microeconomics forms the basis for macroeconomics.
2. Economists build models as a means of summarizing the relationships among economic variables.
Models are useful because they abstract from the many details in the economy and allow one to focus
on the most important economic connections.
3. A market-clearing model is a model in which prices adjust to equilibrate supply and demand. Market-
clearing models are useful in situations where prices are flexible. Yet, in many situations, flexible
prices may not be a realistic assumption. For example, labor contracts often set wages for up to three
years, and firms such as magazine publishers may change their prices only every few years. Most
macroeconomists believe that price flexibility is a reasonable assumption for studying long-run issues.
Over the long run, prices respond to changes in demand or supply, even though in the short run they
may be slow to adjust.
Chapter 1—The Science of Macroeconomics 1
, Problems and Applications
1. First, monetary policy in the United States continues to be a major topic of conversation in 2018. The
Federal Reserve must decide how quickly to raise the federal funds rate. It watches for wage and price
increases as it does so. Second, the United States is implementing more protectionist policies,
restricting international trade and immigration. There is continuing uncertainty regarding how this will
affect consumers, workers, and firms and how other countries will respond. Third, the United States
has enacted tax reforms that will affect the entire economy, altering households’ and firms’ decisions
and posing issues for the federal budget.
2. Many philosophers of science believe that the defining characteristic of a science is the use of the
scientific method of inquiry to establish stable relationships. Scientists examine data, often provided by
controlled experiments, to support or disprove a hypothesis. Economists are more limited in their use
of experiments. They cannot conduct controlled experiments on the economy; they must instead rely
on the natural course of developments in the economy to collect data. To the extent that economists use
the scientific method of inquiry—that is, developing hypotheses and testing them—economics has the
characteristics of a science.
3. We can use a simple variant of the supply-and-demand model for pizza to answer this question.
Assume that the quantity of ice cream demanded depends not only on the price of ice cream and
income but also on the price of frozen yogurt:
Qd = D(PIC, PFY, Y).
We expect that demand for ice cream will rise when the price of frozen yogurt rises because ice cream
and frozen yogurt are substitutes. That is, when the price of frozen yogurt goes up, households will
consume less of it and instead fulfill more of their frozen dessert desires with ice cream. The next part
of the model is the supply function for ice cream, Qs = S(PIC). Finally, in equilibrium, supply must
Chapter 1—The Science of Macroeconomics 2
11th Edition by N. Gregory Mankiw
Complete Chapter Solutions Manual
are included (Ch 1 to 20)
** Immediate Download
** Swift Response
** All Chapters included
,Answers to Textbook Questions and Problems
CHAPTER 1 The Science of Macroeconomics
Questions for Review
1. Microeconomics is the study of how individual firms and households make decisions and how they
interact with one another. Microeconomic models of firms and households are based on principles of
optimization: firms and households do the best they can, given the constraints they face. For example,
households choose which goods to purchase to maximize their utility, whereas firms choose inputs and
outputs to maximize profits. In contrast, macroeconomics is the study of the economy as a whole; it
focuses on issues such as how total output, total employment, and the overall price level are
determined. These economy-wide variables are based on the interaction of many households and many
firms; therefore, microeconomics forms the basis for macroeconomics.
2. Economists build models as a means of summarizing the relationships among economic variables.
Models are useful because they abstract from the many details in the economy and allow one to focus
on the most important economic connections.
3. A market-clearing model is a model in which prices adjust to equilibrate supply and demand. Market-
clearing models are useful in situations where prices are flexible. Yet, in many situations, flexible
prices may not be a realistic assumption. For example, labor contracts often set wages for up to three
years, and firms such as magazine publishers may change their prices only every few years. Most
macroeconomists believe that price flexibility is a reasonable assumption for studying long-run issues.
Over the long run, prices respond to changes in demand or supply, even though in the short run they
may be slow to adjust.
Chapter 1—The Science of Macroeconomics 1
, Problems and Applications
1. First, monetary policy in the United States continues to be a major topic of conversation in 2018. The
Federal Reserve must decide how quickly to raise the federal funds rate. It watches for wage and price
increases as it does so. Second, the United States is implementing more protectionist policies,
restricting international trade and immigration. There is continuing uncertainty regarding how this will
affect consumers, workers, and firms and how other countries will respond. Third, the United States
has enacted tax reforms that will affect the entire economy, altering households’ and firms’ decisions
and posing issues for the federal budget.
2. Many philosophers of science believe that the defining characteristic of a science is the use of the
scientific method of inquiry to establish stable relationships. Scientists examine data, often provided by
controlled experiments, to support or disprove a hypothesis. Economists are more limited in their use
of experiments. They cannot conduct controlled experiments on the economy; they must instead rely
on the natural course of developments in the economy to collect data. To the extent that economists use
the scientific method of inquiry—that is, developing hypotheses and testing them—economics has the
characteristics of a science.
3. We can use a simple variant of the supply-and-demand model for pizza to answer this question.
Assume that the quantity of ice cream demanded depends not only on the price of ice cream and
income but also on the price of frozen yogurt:
Qd = D(PIC, PFY, Y).
We expect that demand for ice cream will rise when the price of frozen yogurt rises because ice cream
and frozen yogurt are substitutes. That is, when the price of frozen yogurt goes up, households will
consume less of it and instead fulfill more of their frozen dessert desires with ice cream. The next part
of the model is the supply function for ice cream, Qs = S(PIC). Finally, in equilibrium, supply must
Chapter 1—The Science of Macroeconomics 2
