Hi thanks for the solutions but theer are a few things that I need clarification on.
1. For Chapter 1, the first question asks:
Over the business cycle, real GDP tends to increase during the expansion and decrease during the contraction. Can you name some other macro variables that fluctuate over the business cycle like GDP does? Can you name some macro variables that do not fluctuate like GDP?\
You wrote the following, but which of these variables fluctuates over the business cycle and which one does not?
Employment
Inflation
Consumption
Investment
Savings
2. Question 3 asked, “Explain how stocks and flows are related to each other, and give at least one specific example.”
However, you didn’t write a response to that part of Question 3, could you please do so.
3. Question 10 asked, ” In the text, Table 1.3 shows real GDP expressed in 2009 prices for the years 2006-2012. Given the information in this table, explain how you could express real GDP (for any year) in 2012 prices.
You just wrote, “By use of the prices in 2012 as the base year.” but didn’t give an explanation on why that is. Please give an explanation.
4. For Chapter 2, Question 5 asks, “Suppose C = 1000 + .7Y and I = 500. Find equilibrium income and output. Explain what would happen if production were 10,000.” You wrote
C=1000 +.7Y
=1000 +994+500
=2494
I don’t understand what the equilibrium income is and output in your solution. Also, you didn’t explain what would happen if the production was $10000.
5. For Chapter 2, Question 10 asks, “ Suppose in a closed economy with no government, C = C1 + bcY and I = I1 + bIY. That is, like consumption, investment spending is also positively related to income. Suggest a name for the term bI. Show that equilibrium output will be:”
Y = (C1 + I1) / (1-b), where b = bc + bI.
Expenditure Multiplier
C = C1 + bcY and I = I1 + bIY
but at equilibrium T=G
Could you explain what the name for the b term would be and how the equilibrium output would be what is written?
6. For Chapter 2, question 7, it asks “Relate your answers to Keynes’ paradox of thrift.” But I don’t see an explanation for this answer in your solution. Could you please show it?
The equilibrium output will reduce.
Under recessions and adverse economic times, individuals and households hold save more and invest less which leads to reduced output.
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