ECON 1012 (ECON1012)

Notes of Gregory Mankiw's 'Principles of Macroeconomics' chapters 1-5 with diagrams and examples

Class notes with clear graphs

1. What happens to the AD curve in each of the following scenarios? a. The U.S. exchange rate increases (appreciation of the U.S. dollar). Appreciation of the U.S. dollar will make U.S. goods and serves less attractive to the foreign market, decreasing exports and potentially increasing imports as U.S. consumers seek cheaper foreign goods, overall decreasing the NX, shifting the AD curve IN. b. State governments replace their sales taxes with new taxes on interest, dividends, and capital gains....

1. Consider the following cases and indicate for each case the direction and amount of changes in NX and NCO for the U.S. (e.g. NX decreases by $2, NCO increases by $3, etc.). Please circle your final numerical answers and explain how you arrived at the numerical answers. a. The Norwegian government uses $500,000 of previously obtained U.S. dollars to buy $500,000 of police cars from a U.S. company When the Norwegian government buys $500,000 USD of police cars, U.S. exports, and NX increases, f...

In the money market model, money demand depends negatively on the value of money, holding income constant. Suppose income decreases overall, how would this impact money demand? Please specify whether money demand increases or decreases, and explain briefly. As people income decreases, the volume of their transactions decreases because they do not have as much money to allow for purchases of goods and services (money as a medium of exchange), which decreases the demand for money. Illustrate th...

a. True. Banks cannot influence the money supply if they are required to hold all deposits in reserve because then there wouldn’t be any loans that banks can make to increase the money supply. b. False. If people hold more currency, they will deposit less money into bank for it to circulate, which decreases the money supply. c. True. Because only under a fractional reserve banking system can banks can take risk and keep a small percentage of deposit (as opposed to the 100% reserve banking sys...

Y = $21 trillion, C = $13 trillion, G = $7 trillion, Budget deficit = $800 billion ($0.8 trillion) Government savings = T - G = Budget Deficit = - $0.8 trillion We have T - G = -$0.8 trillion => Taxes = G - $0.8 trillion = $7 trillion - $0.8 trillion = $6.2 trillion Private savings = Y - T - C = $21 trillion - $6.2 trillion - $13 trillion = $1.8 trillion National savings = Private savings Government savings = $1.8 trillion - $0.8 trillion = $1 trillion Since this is a closed economy, Nati...

Constant (increasing, decreasing) returns to scale imply that proportionate increases in inputs lead to the same (more than, less than) proportionate increases in output. If we were to increase labor and capital by the same proportionate amount (l) in this production function, output would change by the same proportionate amount: lQ = 100(lK) 0.8 (lL) 0.2, or lQ = 100K0.8 L0.2 l(0.8 0.2) = Ql Therefore, this production function exhibits constant returns to scale.

a. Percentage increase in cookie price during the 50 year period:$3-$11*100= 200%increase b. Percentage increase in wage during the 50 year period: $18-$77x 100 = 157% increase c. In 1969, cookie monster has to work $1* 60 minutes$7=9 minutes to buy a box of cookies In 2018, cookie monster has to work $3 * 60 minutes$18=10 minutes to buy a box of cookies d. During the 50 year period, even though cookie monster’s average wage increases, his purchasing power in terms of cookies fall because he n...