Macroeconomics 8th edition N. Gregory Mankiw solutions manual and test bank

Macroeconomics 8th edition N. Gregory Mankiw solutions manual and test bank
http://www.mediafire.com/view/3kolvmw0xba8jo6/Macroeconomics_8e_Gregory_Mankiw_TB2.pdf

http://www.mediafire.com/view/e3cjr6vfqpqk8gd/Mankiw8eSM_(macro)_Chap02_005-10.pdf

• Publisher: Worth Publishers; Eighth Edition edition (June 1, 2012)
• Language: English
• ISBN-10: 1429240024
• ISBN-13: 978-1429240024

the download link of the sample of  Macroeconomics 8th edition N. Gregory Mankiw   Solutions Manual (in pdf format)
 http://www.mediafire.com/view/e3cjr6vfqpqk8gd/Mankiw8eSM_(macro)_Chap02_005-10.pdf
C H A P T E R 2 The Data of Macroeconomics
Questions for Review
1. GDP measures the total income earned from the production of the new final goods and
services in the economy, and it measures the total expenditures on the new final goods
and services produced in the economy. GDP can measure two things at once because
the total expenditures on the new final goods and services by the buyers must be equal
to the income earned by the sellers of the new final goods and services. As the circular
flow diagram in the text illustrates, these are alternative, equivalent ways of measuring
the flow of dollars in the economy.
2. The consumer price index measures the overall level of prices in the economy. It tells
us the price of a fixed basket of goods relative to the price of the same basket in the
base year. The GDP deflator is the ratio of nominal GDP to real GDP in a given year.
The GDP deflator measures the prices of all goods and services produced, whereas the
CPI only measures prices of goods and services bought by consumers. The GDP deflator
includes only domestically produced goods, whereas the CPI includes domestic and foreign
goods bought by consumers. Finally, the CPI is a Laspeyres index that assigns
fixed weights to the prices of different goods, whereas the GDP deflator is a Paasche
index that assigns changing weights to the prices of different goods. In practice, the two
price indices tend to move together and do not often diverge.
3. The Bureau of Labor Statistics classifies each person into one of the following three categories:
employed, unemployed, or not in the labor force. The unemployment rate,
which is the percentage of the labor force that is unemployed, is computed as follows:
Unemployment Rate = × 100.
Note that the labor force is the number of people employed plus the number of people
unemployed.
4. Every month, the Bureau of Labor Statistics (BLS) undertakes two surveys to measure
employment. First, the BLS surveys about 60,000 households and thereby obtains an
estimate of the share of people who say they are working. The BLS multiplies this
share by an estimate of the population to estimate the number of people working.
Second, the BLS surveys about 160,000 business establishments and asks how many
people they employ. Each survey is imperfect; so the two measures of employment are
not identical.
Problems and Applications
1. A large number of economic statistics are released regularly. These include the following:
Gross Domestic Product—the market value of all final goods and services produced in a
year.
The Unemployment Rate—the percentage of the civilian labor force who do not have a
job.
Corporate Profits—the income of corporations after payments to workers and creditors.
It gives an indication of the general financial health of the corporate sector.
5
Number of Unemployed
Labor Force
C H A P T E R 2 The Data of Macroeconomics
The Consumer Price Index (CPI)—a measure of the average price that consumers pay
for the goods they buy; changes in the CPI are a measure of inflation.
The Trade Balance—the difference between the value of goods exported abroad and the
value of goods imported from abroad.
In looking at the economic statistics, most people want to see a low and stable inflation
rate of about 2–3 percent, a low and stable unemployment rate of about 5 percent, and
GDP growth in the 3–4-percent range. This indicates the economy is “healthy” and performing
at its long-run average level. In early 2012, the unemployment rate fell to 8.3
percent, its lowest level in three years. In addition, the percentage of the working-age
population that was in the labor force fell to its lowest level in 29 years. Inflation
remains at about 2 percent. GDP growth was 2.8 percent (annualized rate) in the
fourth quarter of 2011, up from 1.8 percent the previous quarter. The federal funds
rate remained near zero, where it has been since 2008.
2. Value added by each person is the value of the good produced minus the amount the person
paid for the materials needed to make the good. Therefore, the value added by the
farmer is $1.00 ($1 – 0 = $1). The value added by the miller is $2: she sells the flour to the
baker for $3 but paid $1 for the flour. The value added by the baker is $3: she sells the
bread to the engineer for $6 but paid the miller $3 for the flour. GDP is the total value
added, or $1 + $2 + $3 = $6. Note that GDP equals the value of the final good (the bread).
3. When a woman marries her butler, GDP falls by the amount of the butler’s salary. This
happens because measured total income, and therefore measured GDP, falls by the
amount of the butler’s loss in salary. If GDP truly measured the value of all goods and
services, then the marriage would not affect GDP since the total amount of economic
activity is unchanged. Actual GDP, however, is an imperfect measure of economic activity
because the value of some goods and services is left out. Once the butler’s work
becomes part of his household chores, his services are no longer counted in GDP. As
this example illustrates, GDP does not include the value of any output produced in the
home. Similarly, GDP does not include other goods and services, such as the imputed
rent on durable goods (e.g., cars and refrigerators) and any illegal trade.
4. a. The airplane sold to the Air Force counts as government purchases because the
Air Force is part of the government.
b. The airplane sold to American Airlines counts as investment because it is a capital
good sold to a private firm.
c. The airplane sold to Air France counts as an export because it is sold to a foreigner.
d. The airplane sold to Amelia Earhart counts as consumption because it is sold to a
private individual.
e. The airplane built to be sold next year counts as investment. In particular, the
airplane is counted as inventory investment, which is where goods that are produced
in one year and sold in another year are counted.
5. Data on parts (a) to (g) can be downloaded from the Bureau of Economic Analysis
(www.bea.doc.gov—follow the links to Gross Dometic Product). Most of the data
(not necessarily the earliest year) can also be found in the Economic Report of the
President. By dividing each component (a) to (g) by nominal GDP and multiplying
by 100, we obtain the following percentages:
1950 1980 2005 2012
a. Personal consumption expenditures 65.5% 63.0% 70.0% 71.1%
b. Gross private domestic investment 18.4% 17.2% 16.9% 13.1%
c. Government consumption purchases 15.9% 20.3% 18.9% 19.7%
d. Net exports 0.2% –0.5% –5.8% –3.8%
e. National defense purchases 6.7% 6.0% 4.7% 5.3%
f. State and local purchases 7.0% 11.6% 11.9% 11.7%
g. Imports 3.9% 10.5% 16.2% 17.7%
(Note: These data were downloaded February 8, 2012, from the BEA Web site.)
6 Answers to Textbook Questions and Problems
Among other things, we observe the following trends in the economy over the period
1950–2012:
(a) Personal consumption expenditures have been around two-thirds of GDP, although the
share increased markedly between 1980 and 2005.
(b) The share of GDP going to gross private domestic investment fell slightly from 1950 to
2005. It fell sharply from 2005 to 2012 due to the 2007–2009 recession.
(c) The share going to government consumption purchases rose sharply from 1950 to 1980.
(d) Net exports, which were positive in 1950, have been negative since that time.
(e) The share going to national defense purchases has fallen slightly.
(f) The share going to state and local purchases rose from 1950 to 1980.
(g) Imports have grown rapidly relative to GDP.
6. a. i. Nominal GDP is the total value of goods and services measured at current
prices. Therefore,
Nominal GDP2000 = (P × Q ) + (P × Q )
= ($50,000 × 100) + ($10 × 500,000)
= $5,000,000 + $5,000,000
= $10,000,000.
Nominal GDP2010 = (P × Q ) + (P × Q )
= ($60,000 × 120) + ($20 × 400,000)
= $7,200,000 + $8,000,000
= $15,200,000.
ii. Real GDP is the total value of goods and services measured at constant
prices. Therefore, to calculate real GDP in 2010 (with base year 2000), multiply
the quantities purchased in the year 2010 by the 2000 prices:
Real GDP2010 = (P × Q ) + (P × Q )
= ($50,000 × 120) + ($10 × 400,000)
= $6,000,000+ $4,000,000
= $10,000,000.
Real GDP for 2000 is calculated by multiplying the quantities in 2000 by the
prices in 2000. Since the base year is 2000, real GDP2000 equals nominal
GDP2000, which is $10,000,000. Hence, real GDP stayed the same between
2000 and 2010.
iii. The implicit price deflator for GDP compares the current prices of all goods
and services produced to the prices of the same goods and services in a base
year. It is calculated as follows:
Implicit Price Deflator2010 = .
Using the values for Nominal GDP2010 and real GDP2010 calculated above:
Implicit Price Deflator2010 =
= 1.52.
This calculation reveals that prices of the goods produced in the year 2010
increased by 52 percent compared to the prices that the goods in the economy
sold for in 2000. (Because 2000 is the base year, the value for the implicit
price deflator for the year 2000 is 1.0 because nominal and real GDP are the
same for the base year.)
iv. The consumer price index (CPI) measures the level of prices in the economy.
The CPI is called a fixed-weight index because it uses a fixed basket of goods
Chapter 2 The Data of Macroeconomics 7
2000
cars
2000
cars
2000
bread
2000
bread
2010
cars
2010
cars
2010
bread
2010
bread
2000
cars
2010
cars
2000
bread
2010
bread
Nominal GDP2010
Real GDP2010
$15,200,000
$10,000,000
over time to weight prices. If the base year is 2000, the CPI in 2010 is an
average of prices in 2010, but weighted by the composition of goods produced
in 2000. The CPI2010 is calculated as follows:
CPI2010 =
=
=
= 1.6.
This calculation shows that the price of goods purchased in 2010 increased by 60
percent compared to the prices these goods would have sold for in 2000. The CPI
for 2000, the base year, equals 1.0.
b. The implicit price deflator is a Paasche index because it is computed with a changing
basket of goods; the CPI is a Laspeyres index because it is computed with a
fixed basket of goods. From (6.a.iii), the implicit price deflator for the year 2010 is
1.52, which indicates that prices rose by 52 percent from what they were in the
year 2000. From (6.a.iv.), the CPI for the year 2010 is 1.6, which indicates that
prices rose by 60 percent from what they were in the year 2000.
If prices of all goods rose by, say, 50 percent, then one could say unambiguously
that the price level rose by 50 percent. Yet, in our example, relative
prices have changed. The price of cars rose by 20 percent; the price of bread rose
by 100 percent, making bread relatively more expensive.
As the discrepancy between the CPI and the implicit price deflator illustrates,
the change in the price level depends on how the goods’ prices are weighted.
The CPI weights the price of goods by the quantities purchased in the year
2000. The implicit price deflator weights the price of goods by the quantities purchased
in the year 2010. The quantity of bread consumed was higher in 2000 than
in 2010, so the CPI places a higher weight on bread. Since the price of bread
increased relatively more than the price of cars, the CPI shows a larger increase
in the price level.
c. There is no clear-cut answer to this question. Ideally, one wants a measure of the
price level that accurately captures the cost of living. As a good becomes relatively
more expensive, people buy less of it and more of other goods. In this example,
consumers bought less bread and more cars. An index with fixed weights, such as
the CPI, overestimates the change in the cost of living because it does not take
into account that people can substitute less expensive goods for the ones that
become more expensive. On the other hand, an index with changing weights, such
as the GDP deflator, underestimates the change in the cost of living because it
does not take into account that these induced substitutions make people less well
off.
7. a. The consumer price index uses the consumption bundle in year 1 to figure out how
much weight to put on the price of a given good:
CPI2 =
=
= 2.
According to the CPI, prices have doubled.
8 Answers to Textbook Questions and Problems
($2 × 10) + ($1 × 0)
($1 × 10) + ($2 × 0)
( ) ( )
( ) (
P Q P Q
P Q P Q
red red green green
red red green gre
2 1 2 1
1 1 1
+
+ en
1 )
×
×
×
×
$16,000,000
$10,000,000
($60,000 × 100) + ($20 × 500,000)
($50,000 × 100) + ($10 × 500,000)
( ) ( )
(
P Q P Q
P Q
cars cars bread bread
cars c
2010 2000 2010 2000
2000
+
ars bread bread
2000 ) + (P2000 Q2000 )
×
×
×
×
the download link of the sample of  Macroeconomics 8th edition N. Gregory Mankiw test bank  (in pdf format )

http://www.mediafire.com/view/3kolvmw0xba8jo6/Macroeconomics_8e_Gregory_Mankiw_TB2.pdf