Chapter 33, Macroeconomics: Events and Ideas Video Solutions, Economics

Problem 1

Since the crash of its stock market in $1989,$ the Japanese economy has seen little economic growth and some deflation. The accompanying table from the Organization for Economic Cooperation and Development (OECD) shows some key macroeconomic data for Japan for 1991 (a "normal" year) and $1995-2003$.
a. From the data, determine the type of policies Japan's policy makers undertook at that time to promote growth.
b. We can safely consider a short-term interest rate that is less than $0.1 \%$ to effectively be a $0 \%$ interest rate. What is this situation called? What does it imply about the effectiveness of monetary policy? Of fiscal policy?

Jennifer Stoner

Numerade Educator

01:53

Problem 2

The National Bureau of Economic Research (NBER) maintains the official chronology of past U.S. business cycles. Go to its website at www.nber.org/cycles/ cyclesmain.html to answer the following questions.
a. How many business cycles have occurred since the end of World War II in 1945 ?
b. What was the average duration of a business cycle when measured from the end of one expansion (its peak) to the end of the next? That is, what was the average duration of a business cycle in the period from 1945 to $2001 ?$
c. When was the last announcement by the NBER's Business Cycle Dating Committee, and what was it?

Doris Bennett

Numerade Educator

01:03

Problem 3

The fall of its military rival, the Soviet Union, in 1989 allowed the United States to significantly reduce its defense spending in subsequent years. Using the data in the following table from the Economic Report of the President, replicate Figure $33-3$ for the $1990-2000$ period. Given the strong economic growth in the United States during the late $1990 \mathrm{~s}$, why would a Keynesian see the reduction in defense spending during the 1990 s as a good thing?

Jennifer Stoner

Numerade Educator

00:47

Problem 4

In the modern world, central banks are free to increase or reduce the money supply as they see fit. However, some people harken back to the "good old days" of the gold standard. Under the gold standard, the money supply could expand only when the amount of available gold increased.
a. Under the gold standard, if the velocity of money were stable when the economy was expanding, what would have had to happen to keep prices stable?
b. Why would modern macroeconomists consider the gold standard a bad idea?

Jennifer Stoner

Numerade Educator

02:32

Problem 5

The chapter explains that Kenneth Rogoff proclaimed Richard Nixon "the all-time hero of political business cycles." Using the upcoming table of data from the Economic Report of the President, explain why Nixon may have earned that title. (Note: Nixon entered office in January 1969 and was reelected in November $1972 .$ He resigned in August $1974 .)$

Tommy Nguyen

Numerade Educator

01:40

Problem 6

The economy of Albernia is facing a recessionary gap, and the leader of that nation calls together five of its best economists representing the classical, Keynesian, monetarist, real business cycle, and Great Moderation consensus views of the macroeconomy. Explain what policies each economist would recommend and why.

Jennifer Stoner

Numerade Educator

02:18

Problem 7

Which of the following policy recommendations are consistent with the classical, Keynesian, monetarist, and/or Great Moderation consensus views of the macroeconomy?
a. Since the long-run growth of GDP is $2 \%$, the money supply should grow at $2 \%$
b. Decrease government spending in order to decrease inflationary pressure.
c. Increase the money supply in order to alleviate a recessionary gap.
d. Always maintain a balanced budget.
e. Decrease the budget deficit as a percent of GDP when facing a recessionary gap.

Jennifer Stoner

Numerade Educator

03:17

Problem 8

Using a graph like Figure $33-4,$ show how a monetarist can argue that a contractionary fiscal policy need not lead to a fall in real GDP given a fixed money supply. Explain.

Kanishk Mishra

Numerade Educator

08:22

Problem 9

Monetarists believed for a period of time that the velocity of money was stable within a country. However, with financial innovation, the velocity began shifting around erratically after 1980 . As would be expected, the velocity of money is different across countries depending upon the sophistication of their financial systems-velocity of money tends to be higher in countries with developed financial systems. The accompanying table provides money supply and GDP information in 2013 for six countries.

a. Calculate the velocity of money for each of the countries. The accompanying table shows GDP per capita for each of these countries in 2013 in U.S. dollars.
b. Rank the countries in descending order of per capita income and velocity of money. Do wealthy countries or poor countries tend to "turn over" their money more times per year? Would you expect wealthy countries to have more sophisticated financial systems?

Oluwadamilola Ameobi

Numerade Educator