Capital
Why is the assumption of diminishing returns to capital crucial in the growth model illustrated in the Chapter? Is it possible to maintain a sustained long-run growth despite diminishing returns to capital?
December 2020
New growth theory
The new growth theory is sometimes referred to as endogenousgrowth theory. Briefly explain the reasons for this alternative label.
Economic performance
Think about both the Solow growth model and the new growth theory. What can a government do in order to enhance the economic performance of its country?
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Inventories
In reporting on real GDP growth in the second quarter of 2015, an article in the Wall Street Journal noted that the 2.3 percent annual growth rate “would have been stronger if it hadn’t been for companies drawing down inventories.” a. If companies are “drawing down inventories,” is aggregate expenditure likely to have been larger or smaller
Inflation rate
Consider the data of Australia in the following table for 2000 and 2010: a. Compare the Real GDP and Potential GDP in 2000 and 2010. b. Why was there an increase in unemployment rate between 2000 and 2010? c. Was the inflation rate in 2010 likely to have been higher or lower than the inflation
Supply model
Why is it necessary to make the aggregate demand and aggregate supply model dynamic? What are the consequences of this modification?
Dynamic aggregate demand
Explain why you think rising oil prices can aggravate a crisis. Draw a dynamic aggregate demand and aggregate supply graph showing the economy moving from potential GDP in 2017 to potential GDP in 2018, with no inflation. Your graph should contain the AD, SRAS, and LRAS curves for both 2017 and 2018 and should indicate the short-run macroeconomic equilibrium
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Withdraw
Suppose you decide to withdraw $2,000 from your checkingaccount and put the money into a bank certification of deposit (CD). Briefly explain how this action will affect M1 and M2.
Excess reserves
Suppose you deposit $5,000 in currency into your checking account at a branch of PNC Bank, which we will assume has no excess reserves at the time you make your deposit. Also assume that the required reserve ratio is 0.10. a. Use a T-account to show the initial effect of this transaction on PNC’s balance sheet.
Income
An article in the New York Times contains the statement: “Income is only one way of measuring wealth.” Do you agree that income is a way of measuring wealth?