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Glenn Hubbard, Tony O'Brien

Chapter 12

Aggregate Expenditure and Output in the Short Run


Problem 1

What is the key idea in the aggregate expenditure macro- economic model?

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Problem 2

What are inventories? What usually happens to inventries at the beginning of a recession? At the beginning of an expansion?

Xiaomin B.
Numerade Educator

Problem 3

Which of the following does the aggregate expenditure model seek to explain: long-run economic growth, the business cycle, inflation, or cyclical unemployment?

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Problem 4

Into which category of aggregate expenditure would each of the following transactions fall?
a. The Jones family buys a new car.
b. The San Diego Unified School District buys 12 new school buses.
c. The Jones family buys a newly constructed house from the Garcia Construction Co.
d. Joe Jones orders a Burberry coat from an online site in the United Kingdom.
e. Prudential insurance company purchases 250 new iPads from Apple.

Xiaomin B.
Numerade Educator

Problem 5

Assume that Intel sells $\$ 1$ billion of computer chips to Dell, Inc., for use in Dell's personal computers. How does this transaction affect aggregate expenditure?

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Problem 6

In reporting on real GDP growth in the second quarter of $2015,$ an article in the Wall Stret 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 than GDP?
b. Assume that the reduction in inventories was unplanned. What would you expect to happen to production in the future following an unplanned reduction in inventories?

Xiaomin B.
Numerade Educator

Problem 7

In the third quarter of $2015,$ business inventories in the United States increased by $\$ 62$ billion. Can we tell from this information whether aggregate expenditure was higher or lower than GDP during the third quarter of 2015$?$ If not, what other information do we need?

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Problem 8

An article in the Wall Street Journal stated that in China, "carmakers continue to grapple with $\ldots$ rising inventories." Why might carmakers in China find that their inventories are unexpectedly rising? How are these car- makers likely to react to the increase in inventories?

Xiaomin B.
Numerade Educator

Problem 9

Unemployed workers receive unemployment insurance payments from the government. Does the existence of unemployment insurance make it likely that consumption will fluctuate more or less over the business cycle than it would in the absence of unemployment insurance? Briefly explain.

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