Write a couple of paragraphs about the state of the economy in the euro area over the past several years. What has happened to inflation, real GDP growth, and unemployment? What about a key policy interest rate set by the European Central Bank (ECB)? [Hint: The ECB sets several key interest rates, including a “deposit rate” (the interest rate that the ECB pays on deposits from banks) and a “lending rate” (the interest rate it charges for overnight loans). All are useful and interesting. To keep everybody on the same page, consider the lending rate.] An extremely helpful resource for this exercise is the ECB’s Statistical Data Warehouse, which you can find using a search engine. In answering this question, it may be helpful to copy some of the ECB’s graphs.
> Figure 12.1 presents a summary of the short- run model. Explain each step in this diagram. Figure 12.1: FIGURE 12.1 The Structure of the Short-Run Model MP IS Phillips curve curve curve Change in inflation, Nominal Real Shor
> What are three insights you gained from studying the micro foundations of the IS curve?
> For the development of the rest of the short- run model in the next two chapters, we could just present the equation for the IS curve,
> What are some examples of changes in the economy that would lead to movements along the IS curve? What are some changes that would shift the IS curve?
> Suppose your retirement account has a balance today of $25,000 and you are 20 years old. If you are invested in a diversified portfolio of stocks, you might hope that the historical return of about 6% continues into the future. Consider how the balance i
> What role does the IS curve play in our short- run model? What kind of economic questions does it allow us to analyze?
> What is leverage, and why is it so important in understanding the financial crisis?
> How severe was the Great Recession? What pieces of economic data would you cite to support your answer?
> Why is Okun’s law a useful rule of thumb to keep in mind when analyzing our short- run model?
> How can you “see” the Phillips curve operating in the graph of inflation in Figure 9.5? Figure 9.5: FIGURE 9.5 Inflation in the United States, 1960-2015 Percent 14 12 10 4 2 1960 1965 1970
> Before the latest financial crisis and recession, when was the largest recession of the past 50 years, and what was the cumulative loss in output over the course of the slowdown?
> Why do we measure short- run output
> How can we understand the Great Inflation of the 1970s? Does the government budget constraint help?
> What is the government budget constraint? How does it help us understand the causes of high inflation?
> What are the costs of inflation, and how can these costs be avoided?
> Suppose xt grows at 2% per year and yt grows at 5% per year, with x0 = 2 and y0 = 1. Calculate the numerical values of zt for t = 0, t = 1, t = 2, t = 10, t = 17, and t = 35 for the following cases: (a) z = x (b) z = y (c) z = x3/4y1/4
> What is the difference between a real interest rate and a nominal interest rate? What is the intuition behind the Fisher equation?
> Why do economists think the classical dichotomy holds in the long run?
> A concise summary of the quantity theory of money is that inflation occurs because of too much money chasing too few goods. Explain.
> Give some examples of economic questions where the concept of present discounted value would be useful.
> Is the unemployment rate in Europe today higher or lower than in the United States? What about hours worked per person? What are some possible explanations for the differences?
> What is the difference between the natural rate of unemployment and cyclical unemployment? How are these related to structural and frictional unemployment?
> What are some examples of changes in the economy that would cause the labor supply curve to shift? What might shift the labor demand curve? How do these changes affect the wage rate and the employment- population ratio?
> What is the definition of the unemployment rate?
> What explains the general rise in the employment- population ratio in the United States? By how much did the ratio decline around the last recession? How many jobs does this represent?
> Why is growth accounting useful?
> Suppose k, l, and m grow at constant rates given by
> The growth rate of output in the Romer model is
> Explain how nonrivalry leads to increasing returns in the two key production functions of the Romer model.
> Suppose a friend of yours decides to write a novel. Explain how ideas and objects are involved in this process. Where do nonrivalry and increasing returns play a role? What happens if the novel is sold at marginal cost?
> What is nonrivalry, and how does it lead to increasing returns? In your answer, what role does the standard replication argument play? Is national defense rivalrous or nonrivalrous?
> What is the principle of transition dynamics? Why does the Solow model lead to this principle, and why is it useful?
> The Solow model implies that differences in total factor productivity are even more important in explaining differences in income across countries than the production model of Chapter 4 suggested. Why?
> What is the solution of the Solow model for consumption per person in the steady state, c∗ ≡ C ∗/L∗? How does each parameter in the solution affect c*, and why?
> What is the mechanism in the Solow model that generates growth? Why is this an appealing mechanism? Why does it fail to deliver economic growth in the long run?
> Look back at Table 4.3. Why do such large differences in capital lead to relatively small differences in predicted GDP across countries? Table 4.3: TABLE 4.3 The Model's Prediction for Per Capita GDP (U.S. = 1) Predicted per
> How does the national income identity show up in the ice cream model?
> In exercise 6, the correct way to compute the average growth rate is to apply equation (3.9). An alternative— but incorrect— way is to take the percentage change divided by the number of years: for example, 1/T × yT − y0/y0 . Compute the growth rates wit
> What is the purpose of macroeconomic models? How can a model of ice cream production be used to explain 50-fold income differences across countries?
> What is the purpose of macroeconomic models? How can a model of ice cream production be used to explain 50-fold income differences across countries?
> Why are the Rule of 70 and the ratio scale useful tools? How do they work together?
> What are the key ingredients of an economic model, and why are models useful?
> What is an equilibrium in the ice cream model?
> How much richer is the typical 40- year- old today than the typical 40- year- old 35 years ago in the United States? What about in South Korea or China?
> Now let the production function for output be Yt = AtKa tL1−a yt . That is, we’ve made the exponent on capital a parameter (
> Consider the combined model studied in this appendix. Suppose the economy begins on a balanced growth path in the year 2000. Then in 2030, the depreciation rate
> Suppose we observe the following growth rates in various economies. Discuss whether or not each economy is on its balanced growth path. (a) A European economy: gY/L = 0.03, gK/L = 0.03. (b) A Latin American economy: gY/L = 0.02, gK/L = 0.01. (c) An Asian
> What is the principle of transition dynamics in the combined Solow- Romer model?
> Indian GDP in 2014 was 119 trillion rupees, while U.S. GDP was $16.5 trillion. The exchange rate in 2014 was 61.0 rupees per dollar. India turns out to have lower prices than the United States (this is true more generally for poor countries): the price l
> The Federal Open Market Committee (FOMC) is the formal name of the group chaired by Yellen, Bernanke, and others that meets every 6 weeks or so to set monetary policy in the United States. Immediately after the meeting, the FOMC issues a statement consis
> Suppose the economy starts with GDP at potential, the real interest rate and the marginal product of capital both equal to 3 percent, and a stable inflation rate of 2 percent. A mild financial crisis hits that raises the financial friction from zero to 2
> (a) Why does the AD curve slope downward? (b) If the AD curve were more steeply sloped, how would the economy respond differently to aggregate demand shocks (shocks to
> (a) Why does the AS curve slope upward? (b) If the AS curve were more steeply sloped, how would the economy respond differently to aggregate demand shocks (shocks to
> In the late 1990s and early 2000s, inflation was actually negative in Japan (look back at Figure 13.19). This question asks you to explore a change in policy to achieve a higher inflation rate. Consider an economy that begins with output at potential and
> Suppose the European and Japanese economies succumb to a recession and reduce their demand for U.S. goods for several years. Using the AS/AD framework, explain the macroeconomic consequences of this shock, both immediately and over time.
> Between 2006 and the middle of 2008, oil prices rose sharply—from around $60 to more than $140 per barrel. By the end of 2008, however, oil prices had fallen even more sharply, to just over $40 per barrel. Think of these events as two separate shocks. (a
> It is common to blame some of the poor macroeconomic performance of the 1970s on the rise in oil prices. In the middle of the 1980s, however, oil prices declined sharply. Using the AS/AD framework, explain the macroeconomic consequences of a one- time ne
> This question asks you to use the FRED database to predict the fed funds rate using the chapter’s monetary policy rule. Of course, there are many possible inflation measures you could use. This question lets you consider two common ones. (a) The Fed like
> Consider the economy from exercise 4. Calculate the inflation rate for the 2020–2021 period using the GDP deflator based on the Laspeyres, Paasche, and chain- weighted indexes of GDP. Data from Exercise 4: Look back at Tab
> Using the FRED database, locate the data on real and nominal GDP for the U.S. economy. You may notice that there are both annual and quarterly data (i.e., measures of production every 3 months) available. For the purpose of this question, let’s stick wit
> What is the meaning of the term expenses? Does the payment of cash by a business indicate that an expense has been incurred? Explain.
> How do dividends affect owners’ equity? Are they treated as a business expense? Explain.
> What are some of the limitations of a trial balance?
> What is the meaning of the term revenue? Does the receipt of cash by a business indicate that revenue has been earned? Explain.
> Does net income represent a supply of cash that could be distributed to stockholders in the form of dividends? Explain.
> On May 26, Breeze Camp Ground paid KPRM Radio $500 cash for ten 30-second advertisements. Three of the ads were aired in May, five in June, and two in July. a. Apply the realization principle to determine how much advertising revenue KPRM Radio earned f
> Happy Trails, Inc., is a popular family resort just outside Yellowstone National Park. Summer is the resort’s busy season, but guests typically pay a deposit at least six months in advance to guarantee their reservations. The resort is currently seeking
> Visit the home page of PC Connection at the following Internet location: www.pcconnection. com Follow the “Investor Relations” link at the bottom of the company’s home page and access its most recent 10-K by following the link to “SEC Filings.” Locate th
> Wagner Excavating organized as a corporation on January 18 and engaged in the following transactions during its first two weeks of operation. Jan. 18 Issued capital stock in exchange for $400,000 cash. Jan. 22 Borrowed $100,000 from its bank by issuing
> Kim Morris purchased Print Shop, Inc., a printing business, from Chris Stanley. Morris made a cash down payment and agreed to make annual payments equal to 40 percent of the company’s net income in each of the next three years. (Such “earn-outs” are a co
> Record the following selected transactions in general journal form for Quantum Clinic, Inc. Include a brief explanation of the transaction as part of each journal entry. Oct. 1 The clinic issued 5,000 additional shares of capital stock to Doctor Soges
> Listed as follows in random order are the eight steps comprising a complete accounting cycle. Prepare a trial balance. Journalize and post the closing entries. Prepare financial statements. Post transaction data to the ledger. Prepare an adjuste
> Explain the effect of operating profitably on the balance sheet of a business entity.
> What requirement is imposed by the double-entry system in the recording of any business transaction?
> State briefly the rules of debit and credit as applied to asset accounts and as applied to liability and owners’ equity accounts.
> List some of the more analytical functions performed by professional accountants.
> Explain the rules of debit and credit with respect to transactions recorded in revenue and expense accounts.
> In what accounting period does the matching principle indicate that an expense should be recognized?
> When do accountants consider revenue to be realized? What basic question about recording revenue in accounting records is answered by the realization principle?
> Using the information in the ledger accounts presented in Exercise 3.3, prepare a trial balance for Avenson Insurance Company dated November 30. Data from Exercise 3.3: Transactions are first journalized and then posted to ledger accounts. In this exer
> The realization principle determines when a business should recognize revenue. Listed are three common business situations involving revenue. After each situation, we give two alternatives as to the accounting period (or periods) in which the business mi
> Listed as follows are eight technical accounting terms introduced in this chapter Realization principle Credit Time period principle Accounting period Matching principle Expenses Net income Accounting c
> Listed as follows are descriptions of six transactions, followed by a table listing six unique combinations of financial statement effects (I is for increase, D is for decrease, and NE is for no effect). In the blank space to the left of each transaction
> Listed as follows are descriptions of six transactions, followed by a table listing six unique combinations of financial statement effects (I is for increase, D is for decrease, and NE is for no effect). In the blank space to the left of each transaction
> Listed are eight transactions the Foster Corporation made during November. a. Issued stock in exchange for cash. b. Purchased land. Made partial payment with cash and issued a note payable for the remaining balance. c. Recorded utilities expense for N
> The following information came from a recent balance sheet of The Coca Cola, Co. a. Determine the amount of total liabilities reported in Coca-Cola’s balance sheet at the beginning of the year. b. Determine the amount of total owners
> Harley Consulting has provided the following information regarding cash payments to its employees in May and June. Salary payments in May for work performed by employees in April $25,000 Salary payments in May for work performed by employees in May 30,0
> Sky Bound Airlines has provided the following information regarding cash received for ticket sales in September and October. Cash received in September for October flights $1,700,000 Cash received in October for October flights 1,300,000 Cash received in
> Hewitt Corporation’s Retained Earnings account balance was $108,000 on January 1. During January, the company recorded revenue of $600,000, expenses of $312,000, and dividends of $18,000. The company also paid a $42,000 account payable during the period.
> Five account classifications are shown as column headings in the following table. For each account classification, indicate the manner in which increases and decreases are recorded (i.e., by debits or by credits). Owners' Rovenue Expensos Assets Lla
> Transactions are first journalized and then posted to ledger accounts. In this exercise, however, your understanding of the relationship between the journal and the ledger is tested by asking you to study some ledger accounts and determine the journal en
> During March, the activities of Evergreen Landscaping included the following transactions and events, among others. Which of these items represented expenses in March? Explain. a. Purchased a copying machine for $3,300 b. Paid $192 for gasoline purchas
> The purpose of this exercise is to demonstrate the matching principle in a familiar setting. Assume that you own a car that you drive about 15,000 miles each year. a. List the various costs to you associated with owning and operating this car. Make an e
> Throughout this text, we have many assignments based on the financial statements of Home Depot, Inc., in Appendix A. Refer to the financial statements to respond to the following items. a. Does the company’s fiscal year end on December 31? How can you t
> Elaine Consulting incorporated on February 1, current year. The company engaged in the following transactions during its first month of operations. Feb.1 Issued capital stock in exchange for $800,000 cash. Feb.5 Borrowed $100,000 from the bank by is
> Georgia Corporation incorporated on September 2, current year. The company engaged in the following transactions during its first month of operations. Sept.2 Issued capital stock in exchange for $1,170,000 cash. Sept.4 Purchased land and a building for
> Janet Enterprises incorporated on May 3, current year. The company engaged in the following transactions during its first month of operations. May 3 Issued capital stock in exchange for $950,000 cash. May 4 Paid May office rent expense of $1,800. M
> A number of transactions of Claypool Construction are described as follows in terms of accounts debited and credited. 1. Debit Wages Expense; credit Wages Payable. 2. Debit Accounts Receivable; credit Construction Revenue. 3. Debit Dividends; credit C
> Satka Fishing Expeditions, Inc., recorded the following transactions in July. 1. Provided an ocean fishing expedition for a credit customer; payment is due August 10. 2. Paid Marine Service Center for repairs to boats performed in June. (In June, Satka
> Does the term debit mean increase and the term credit mean decrease? Explain.
