Solution Manual for Macroeconomics 6/E 6th
Edition Olivier Blanchard, David W. Johnson
download
https://testbankmall.com/product/solution-manual-for-
macroeconomics-6-e-6th-edition-olivier-blanchard-david-w-johnson/
Find test banks or solution manuals at testbankmall.com today!
We believe these products will be a great fit for you. Click
the link to download now, or visit testbankmall.com
to discover even more!
Test Bank for Macroeconomics, Fifth Canadian Edition, 5/E
5th Edition Olivier Blanchard, David W. Johnson
https://testbankmall.com/product/test-bank-for-macroeconomics-fifth-
canadian-edition-5-e-5th-edition-olivier-blanchard-david-w-johnson/
Solution Manual for Macroeconomics 7th Edition Olivier
Blanchard
https://testbankmall.com/product/solution-manual-for-
macroeconomics-7th-edition-olivier-blanchard/
Test Bank for Macroeconomics 7th Edition Olivier Blanchard
https://testbankmall.com/product/test-bank-for-macroeconomics-7th-
edition-olivier-blanchard/
Life Span Development 16th Edition Santrock Solutions
Manual
https://testbankmall.com/product/life-span-development-16th-edition-
santrock-solutions-manual/
Test Bank for Human Resource Management, 12th Edition :
Ivancevich
https://testbankmall.com/product/test-bank-for-human-resource-
management-12th-edition-ivancevich/
Test Bank for Money Banking and Financial Markets 2nd
Edition by Ball
https://testbankmall.com/product/test-bank-for-money-banking-and-
financial-markets-2nd-edition-by-ball/
Test Bank for Cultural Psychology 2nd Edition Steven J
Heine
https://testbankmall.com/product/test-bank-for-cultural-
psychology-2nd-edition-steven-j-heine/
Test Bank for Fundamentals of Sectional Anatomy 2nd
Edition by Lazo
https://testbankmall.com/product/test-bank-for-fundamentals-of-
sectional-anatomy-2nd-edition-by-lazo/
Solutions Manual to accompany Managerial Accounting:
Decision Making and Motivating Performance
https://testbankmall.com/product/solutions-manual-to-accompany-
managerial-accounting-decision-making-and-motivating-performance/
Managing Supply Chain and Operations An Integrative
Approach 1st Edition Foster Solutions Manual
https://testbankmall.com/product/managing-supply-chain-and-operations-
an-integrative-approach-1st-edition-foster-solutions-manual/
2. Assumptions
Implicit in the Tour of the World is the assumption that the same basic
macroeconomic tools can be used to analyze economies throughout the world. It
might be worth making this point explicitly. The macroeconomic framework
developed in the text would be neither terribly useful, nor compelling as a theory,
if it applied only to the United States, and not to the other market economies.
IV. SUMMARY OF THE MATERIAL
1. The Crisis
Included in the 6th edition of the textbook is a discussion around the major
macroeconomic crisis that occurred in 2008. Table 1-1 outlines the output
growth rates for the world economy, the advanced economics and for the
other countries separately since 2000. From 2000 to 2007 the world
economy had a sustained expansion. Annual average world output growth
was 3.2%, with advanced economies growing at 2.6% per year, and
emerging and developing economies growing at an even faster 6.5% per
year. By 2008, the world, advanced and emerging economy output growth
rate began to decline marking the beginning of the macroeconomic crisis.
Highlights of the Macroeconomic Crisis:
U.S. Housing prices, which had doubled since 2000, started to decline
in 2007.
Mortgage loans which had been given out during the earlier expansion
were of poor quality causing many borrowers to increasingly be unable
to make mortgage payments.
Declining housing prices caused the mortgage of the homes to exceed
the market price of housing thus creating an incentive to default.
Banks that mortgaged the loans often bundled, packaged and
repackaged the loans into new securities and then sold them to other
banks and investors. The holdings of securities, instead of mortgages by
banks, created a complex understanding of the value of the asset
making it impossible to appraise.
Copyright © 2013 Pearson Education, Inc.Publishing as Prentice Hall
The complexity of the value of the securities and the quality of the
assets made banks reluctant to lend to each other.
September 15, 2008, a major bank, Lehman Brothers, went bankrupt
causing other banks that were also unable to borrow, and holding assets
of an uncertain value to be perceived as a risk. Within weeks the whole
financial system was in jeopardy.
Figure 1-1 shows how financial crisis became an economic crisis with
the evolution of the three stock price indexes (for the United States,
Euro area and emerging economies) declining by the end of 2008,
loosing half or more of its value by the previous peak.
The decline in housing prices and the collapse in stock prices lead to a
decline in consumption of goods and services.
Businesses' concerns over sales and continuous decline in housing
prices caused a sharp cut back on investment along a decline in the
building of new homes.
Despite strong actions by the Fed, to cut the interest rate, and the U.S.
government which cut taxes and increased government spending, the
demand and output continued to decline in the U.S.
A decline in the U.S. importing goods from abroad along with U.S.
banks needing repatriate funds from other countries moved a U.S. crisis
into a world crisis.
By 2009, average growth in advanced economies was -3.7%, by far the
lowest annual growth rate since the Great Depression. Growth in
emerging and developing economies remained positive but was nearly 4
percentage points lower than the 2000–2007 average.
Table 1-1, shows by 2010, both advanced countries and emerging and
developing economies began to turn positive, thanks to strong monetary
and fiscal policies and the slow repair of the financial system.
Figure 1-2 displays consistantly high unemployment rates for the
United States and Euro area since the beginning of the crisis. The
chapter discusses the factors behind the high unemployment rates and
low growth of output, which are:
o Housing prices are still declining.
o Housing investment re-mains very low.
Copyright © 2013 Pearson Education, Inc.Publishing as Prentice Hall
o Banks are still not in great shape, and bank lending is still tight.
o Consumers who have seen the value of their housing and their
financial wealth fall are cutting consumption.
o The crisis has also led to serious fiscal problems.
2. The United States
In the United States, just before the crisis, the rate of growth of the economy
was 2.6% which was a bit lower than the previous 20-year average, but still
fairly high for an advanced country. On average, the unemployment rate and
the inflation rate was lower over this period than over the period since 1980.
During the crisis output did not grow in 2008 and declined by 3.5% in 2009.
The economy rebounded by 2010, with growth of 3%. Unemployment
increased dramatically, to nearly 10%. Inflation declined, being slightly
negative in 2009 and then staying positive but low since then. The numbers of
2011 and 2012 are forecast as of fall of 2011.
The high unemployment rate along with the very large budget deficit in the
United States tends to be the preeminent issues facing the United States.
Figure 1-4 shows the evolution of the U.S. federal budget surplus since 1990.
The 1990s - After an increase in deficits due to the 1990–1991 recession,
the rest of the decade was associated with a steady improvement in the
budget, and by 1998, the budget had actually gone from deficit to
surplus.
o The main reasons for the steady improvement were twofold.
First, strong output growth for most of the decade led to strong
growth of government revenues. Second, rules were devised
and implemented to contain government spending, from the use
of spending caps on some categories of spending to the
requirement that any new spending program be associated with
an equal increase in revenues. - (Once the budget surplus
appeared Congress became willing to break its own rules and
allow for more spending.)
The Early 2000s - The budget deficit returned due to Bush administration
convincing Congress to cut taxes with the goal of spurring growth.
The Crisis - The budget deficit in 2007 was 1.7% of GDP increased to
9% of the GDP to 2010 due to:
o Lower output growth which has led to lower government revenues.
Copyright © 2013 Pearson Education, Inc.Publishing as Prentice Hall
o A decline in Federal revenues, from 18.9% of GDP in 2007, to
16.2% of GDP in 2010.
o Increase in Federal spending, from 20.6% in 2007, to 25.3% in
2010.
There is an agreement that the budget deficit must be reduced but the
disagreement is based upon when and how.
o When- Some economist argue the deficit should start now and proceed
rapidly to convince people that the U.S. government will do what is
needed to stabilize debt. Other, economist argue that too fast a
reduction through an increase in taxes and a decrease in spending will
slow down growth at time when the unemployment rate is persistently
high.
o How - Republican s believe the deficit reduction show be achieved
through a decrease in government spending. Democrats most
programs are justified and the adjustment should occur through an
increase in taxes.
2. Europe
Figure 1-5 displays a map the EU17 that uses the Euro as a common
currency along with the 2010 output of the Euro area's output for the
countries of France, Germany, Italy and Spain. Table 1-3 shows that over the
2000-2007 time period right before the crisis, the Euro Area together
experienced positive but relatively low growth The Euro Area also endured
low inflation and continued high unemployment. The crisis caused growth to
decline to negative 4.2% by 2009 and the unemployment rate to reach 10.1%
by 2010.
The issues facing the Euro area are:
How to reduce unemployment.
How to function effectively as a common currency area.
How to reduce unemployment
The debate over remedies for high unemployment in Europe is characterized
by two polar views. According to the first view, high unemployment is the
result of tight monetary policy by the European Central Bank. The suggested
remedy is lower interest rates. According to the second view, high
unemployment is a result of rigid labor market institutions, particularly with
respect to worker protection. Thus, the suggested remedy is to restructure
labor market institutions—in fact to model them after the institutions in the
United States. The United Kingdom has followed this approach, evidently
with some success in reducing the unemployment rate. Some economists,
Copyright © 2013 Pearson Education, Inc.Publishing as Prentice Hall
however, remain skeptical that the U.K.’s approach is the right model for
Europe. These economists point out that Denmark and the Netherlands have
low unemployment rates, despite providing generous social insurance for
workers. The way forward, the skeptics argue, is to study the details of
worker protection policies in places where such policies have been
consistent with low unemployment, and to apply the lessons to other
European economies.
How to function effectively as a common currency area
The Euro offers political and economic benefits. Politically, the adoption of
a single currency provides a strong symbol of European unification after the
wars of the 20th century and before. Economically, the Euro has eliminated
exchange rate uncertainty among participating countries, and thus may
facilitate trade and contribute to the economic development of Europe as,
perhaps, the largest economic power in the world. On the other hand, the
adoption of a single currency has eliminated the discretion of each country
individually to use monetary policy to stimulate output and reduce
unemployment. Countries that participate in the Euro have a common
monetary policy, in the same way that states in the United States have a
common monetary policy. This situation creates the possibility of policy
conflicts when some countries are in recession and others are in an economic
boom.
The chapter points to the recent policy conflicts surfing among Euro
members. Highlighting the deep recessions of countries from Ireland, to
Portugal, to Greece, unable to individually decreasedtheir interest rate or
depreciated their currency. This has prompted some economists argue that
they should drop out of the Euro. Others argue that such an exit would be
both unwise, as it would give up on the other advantages of being in the
Euro, and extremely disruptive, leading to even deeper problems for the
country that has exited. Policy issues associated with monetary union are
discussed further in Chapter 21.
4. China
China’s economy commands the attention of macroeconomists because of its
exceptional growth over the last three decades. Since 1980, China's output has
grown at roughly 10% a year. Table 1-4 shows that the crisis has had little effect
on the Chinese economy. While, Chinese exports slowed down during the crisis it
was nearly fully offset by a major fiscal expansion by the Chinese government.
The result was sustained growth of demand and, in turn, of output.
Copyright © 2013 Pearson Education, Inc.Publishing as Prentice Hall
Although official Chinese statistics are not as accurate as in richer countries,
research suggests that there is no clear bias in the numbers. In other words, high
growth in China is a fact, and not an artifact of poor statistics. China has achieved
high growth through rapid accumulation of capital (investment rates exceeding of
output) and fast technological progress. The latter achievement is in part a result
of the Chinese government’s strategy of encouraging foreign firms—which are
typically more productive than Chinese firms—to produce in China. The
government has also encouraged joint ventures between foreign and Chinese firms.
Such joint ventures allow Chinese firms to learn from more productive foreign
firms.
Although China’s success seems to provide a model for other developing countries
to follow, questions remain about the operational lessons to draw from China’s
experience. In most other cases, the transition from central planning to a market
economy has been accompanied by a large decline in output. Some argue that the
slow pace of China’s transition—thirty years and still incomplete—was an
important factor in China’s success. Others argue that the political control of the
Communist party during the transition has enabled better protection of property
rights for firms, thereby creating incentives for investment.
V. PEDAGOGY
1. Points of Clarification
Chapter 1 mentions in passing that an annual growth rate of 10% means output will
double in about 7 years. The “rule of 70” is discussed in a margin note in Chapter
10, but instructors may wish to mention it here. Also, the text does not use
logarithms, although it does use graphs on logarithmic scales. Instructors who wish
to use logarithms in the course can use the rule of 70 as a way to reacquaint
students with the use of the natural logarithm.
2. Alternative Sequencing
i. The Global Crisis. Indeed, instructors could use the global crisis as the
running example to introduce most the material. The 6th Edition features a
streamlined organization where an early and continuous examination of the
global crisis provides an integrated framework to think about the short,
medium run, and long run.
Copyright © 2013 Pearson Education, Inc.Publishing as Prentice Hall
ii. Output, the Unemployment Rate, and the Inflation Rate.
Output, the unemployment rate, and the inflation rate are not defined
precisely until Chapter 2. Some instructors may prefer to cover the
definitions from Chapter 2, and possibly the discussion of why
macroeconomists care about these variables, before discussing the
material in this chapter.
3. Enlivening the Lecture
An alternative to posing the motivating question of this chapter is to ask
students what they hope to learn from the course. The answers can be used
to construct a description of what the course—and macroeconomics—is
about. Another alternative is to begin a lecture on this chapter (and the
course) by asking what the Congress should do at federal budget deficit and
the debt. Students should develop alternative opinions based on illustrative
newspaper quotes or student answers.
VI. EXTENSIONS
1. The Rest of the World
The Tour of the World presented in this chapter focuses attention on the
United States, Europe, and China. Economic events in other regions are
discussed only briefly at the end of the chapter. Current economic events in
some of these regions are discussed at various places throughout the text.
However, instructors may wish to devote more time to these regions at the
outset, especially if the course will consider the open economy.
2. Positive and Normative Economics, Policy Disagreements,
and Methodology
Instructors may wish to distinguish between positive and normative
economics and to discuss how normative perspectives can lead economists
to different policy prescriptions even when they agree on the facts.
Instructors may also wish to remind students of the difficulties that
economists and other social scientists face because of the inability to
conduct controlled experiments. A discussion of this sort was presented in
Chapter 1 of the first edition of the text.
3. Distribution of Economic Benefits
Copyright © 2013 Pearson Education, Inc.Publishing as Prentice Hall
The second edition of the text included a discussion about wage inequality in
the section on the U.S. economy. In subsequent editions, including the
current edition, wage inequality is discussed in Chapter 13. Instructors may
wish to raise this issue in the introductory discussion of the U.S. economy.
Copyright © 2013 Pearson Education, Inc.Publishing as Prentice Hall
Random documents with unrelated
content Scribd suggests to you:
back
back
back
back
back
back
back
back
back
back
Welcome to our website – the perfect destination for book lovers and
knowledge seekers. We believe that every book holds a new world,
offering opportunities for learning, discovery, and personal growth.
That’s why we are dedicated to bringing you a diverse collection of
books, ranging from classic literature and specialized publications to
self-development guides and children's books.
More than just a book-buying platform, we strive to be a bridge
connecting you with timeless cultural and intellectual values. With an
elegant, user-friendly interface and a smart search system, you can
quickly find the books that best suit your interests. Additionally,
our special promotions and home delivery services help you save time
and fully enjoy the joy of reading.
Join us on a journey of knowledge exploration, passion nurturing, and
personal growth every day!
testbankmall.com
