Financial crisis
Suppose the current financial crisis in Greece causes many banks to fail as depositors no longer save, but withdraw their money from these institutions. Explain what is likely to happen to real and to nominal interest rates.
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Business cycles
It is a wellknown fact that modern economies are characterized by business cycles. Does this mean that it is very easy for firms to decide whether to expand or not, since entrepreneurs can easily forecast future economic growth? Briefly explain the reasons for your answer. Q73: Go to the Web site of the Federal Reserve
Growth
Briefly explain whether you agree with this statement: “Real GDP in 2014 was $16.1 trillion. This value is a large number. Therefore, economic growth must have been high during 2014.”
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?
Economic growth model
The economic growth model makes a prediction about aneconomy’s initial level of real GDP per capita relative to other economies and how fast the economy will grow in the future. Consider the statistics in the following table: Are these statistics consistent with the economic growth model? Briefly explain. Now consider the statistics in the following
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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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New growth theory
The new growth theory is sometimes referred to as endogenousgrowth theory. Briefly explain the reasons for this alternative label.
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
Supply model
Why is it necessary to make the aggregate demand and aggregate supply model dynamic? What are the consequences of this modification?
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