INSTRUCTOR’S MANUAL Andrew Wong University of Alberta
Macroeconomics Ninth Canadian Edition Andrew B. Abel The Wharton School of the University of Pennsylvania
Ben S. Bernanke Brookings Institution
Dean Croushore Robins School of Business, University of Richmond
Ronald D. Kneebone The School of Public Policy, University of Calgary
Contents Chapter 1: Introduction to Macroeconomics ..................................................................................... 1 Learning Objectives ................................................................................................ 1 Teaching Notes ....................................................................................................... 1 Additional Issues for Classroom Discussion .......................................................... 5 Answers to Textbook Problems .............................................................................. 7 Review Questions ....................................................................................... 7 Numerical Problems.................................................................................... 9 Analytical Problems .................................................................................. 10 Chapter 2: The Measurement and Structure of the Canadian Economy.......................................... 12 Learning Objectives .............................................................................................. 12 Teaching Notes ..................................................................................................... 12 Additional Issues for Classroom Discussion ........................................................ 20 Answers to Textbook Problems ............................................................................ 22 Review Questions ..................................................................................... 22 Numerical Problems.................................................................................. 24 Analytical Problems .................................................................................. 29 Chapter 3: Productivity, Output, and Employment ......................................................................... 30 Learning Objectives .............................................................................................. 30 Teaching Notes ..................................................................................................... 30 Additional Issues for Classroom Discussion ........................................................ 38 Answers to Textbook Problems ............................................................................ 41 Review Questions ..................................................................................... 41 Numerical Problems.................................................................................. 43 Analytical Problems .................................................................................. 48 Chapter 4: Consumption, Saving, and Investment .......................................................................... 51 Learning Objectives .............................................................................................. 51 Teaching Notes ..................................................................................................... 51 Additional Issues for Classroom Discussions ....................................................... 59 Answers to Textbook Problems ............................................................................ 62 Review Questions ..................................................................................... 62 Numerical Problems.................................................................................. 64 Analytical Problems .................................................................................. 68 Chapter 5: Saving and Investment in the Open Economy ............................................................... 74 Learning Objectives ................................................................................................. 74 Teaching Notes ........................................................................................................ 74 Additional Issues for Classroom Discussion ........................................................... 81 Answers to Textbook Problems............................................................................... 83 Review Questions ........................................................................................ 83 Numerical Problems .................................................................................... 85 Analytical Problems .................................................................................... 89 . ii
Chapter 6: Long-Run Economic Growth......................................................................................... 94 Learning Objectives ................................................................................................. 94 Teaching Notes ........................................................................................................ 94 Additional Issues for Classroom Discussion ......................................................... 101 Answers to Textbook Problems............................................................................. 103 Review Questions ...................................................................................... 103 Numerical Problems .................................................................................. 105 Analytical Problems .................................................................................. 108 Chapter 7: The Asset Market, Money, and Prices ......................................................................... 112 Learning Objectives ............................................................................................... 112 Teaching Notes ...................................................................................................... 112 Additional Issues for Classroom Discussion ......................................................... 121 Answers to Textbook Problems............................................................................. 123 Review Questions ...................................................................................... 123 Numerical Problems .................................................................................. 124 Analytical Problems .................................................................................. 126 Chapter 8: Business Cycles ........................................................................................................... 128 Learning Objectives ............................................................................................... 128 Teaching Notes ...................................................................................................... 128 Additional Issues for Classroom Discussion ......................................................... 133 Answers to Textbook Problems............................................................................. 134 Review Questions ...................................................................................... 134 Analytical Problems .................................................................................. 135 Chapter 9: The IS-LM-FE Model: A General Framework for Macroeconomic Analysis ............. 136 Learning Objectives ............................................................................................... 136 Teaching Notes ...................................................................................................... 136 Additional Issues for Classroom Discussion ......................................................... 150 Answers to Textbook Problems............................................................................. 151 Review Questions ...................................................................................... 151 Numerical Problems .................................................................................. 154 Analytical Problems .................................................................................. 158 Chapter 10: Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy .................................................................................................... 161 Learning Objectives ............................................................................................... 161 Teaching Notes ...................................................................................................... 161 Additional Issues for Classroom Discussion ......................................................... 181 Answers to Textbook Problems............................................................................. 182 Review Questions ...................................................................................... 182 Numerical Problems .................................................................................. 184 Analytical Problems .................................................................................. 186
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Chapter 11: Classical Business Cycle Analysis: Market-Clearing Macroeconomics .................... 188 Learning Objectives ............................................................................................... 188 Teaching Notes ...................................................................................................... 188 Additional Issues for Classroom Discussion ......................................................... 200 Answers to Textbook Problems............................................................................. 201 Review Questions ...................................................................................... 201 Numerical Problems .................................................................................. 203 Analytical Problems .................................................................................. 207 Chapter 12: Keynesian Business Cycle Analysis: Non-Market-Clearing Macroeconomics ......... 211 Learning Objectives ............................................................................................... 211 Teaching Notes ...................................................................................................... 211 Additional Issues for Classroom Discussion ......................................................... 227 Answers to Textbook Problems............................................................................. 229 Review Questions ...................................................................................... 229 Numerical Problems .................................................................................. 232 Analytical Problems .................................................................................. 237 Chapter 13: Unemployment and Inflation ..................................................................................... 246 Learning Objectives ............................................................................................... 246 Teaching Notes ...................................................................................................... 246 Additional Issues for Classroom Discussion ......................................................... 258 Answers to Textbook Problems............................................................................. 259 Review Questions ...................................................................................... 259 Numerical Problems .................................................................................. 261 Analytical Problems .................................................................................. 263 Chapter 14: Monetary Policy and the Bank of Canada ................................................................. 265 Learning Objectives ............................................................................................... 265 Teaching Notes ...................................................................................................... 265 Additional Issues for Classroom Discussion ......................................................... 275 Answers to Textbook Problems............................................................................. 277 Review Questions ...................................................................................... 277 Numerical Problems .................................................................................. 279 Analytical Problems .................................................................................. 281 Chapter 15: Government Spending and Its Financing................................................................... 284 Learning Objectives ............................................................................................... 284 Teaching Notes ...................................................................................................... 284 Additional Issues for Classroom Discussion ......................................................... 296 Answers to Textbook Problems............................................................................. 297 Review Questions ...................................................................................... 297 Numerical Problems .................................................................................. 299 Analytical Problems .................................................................................. 302
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CHAPTER 1: INTRODUCTION TO MACROECONOMICS LEARNING OBJECTIVES I. Goals of Part I: Introduction A. B.
Introduce students to the main concepts in macroeconomics (Ch. 1) Introduce national income accounting and major economic magnitudes (Ch. 2)
II.
Goals of Chapter 1 A. Major economic issues—growth, business cycles, unemployment, inflation, the international economy, macroeconomic policy, aggregation (Sec. 1.1) B. What macroeconomists do—forecasting, analysis, research, data development (Sec. 1.2) C. Why macroeconomists disagree—Classicals vs. Keynesians, the text’s approach (Sec. 1.3)
III.
Notes to Eighth Edition Users A. Sections on economic theory and data development are combined into the section titled macroeconomic research. B. Answer for numerical question #2 was updated.
TEACHING NOTES I.
What Macroeconomics Is About (Sec. 1.1) 1. Long-run economic growth 1. Growth of real output in Canada over time 2. Sources of growth—rising population, increase in the average labour productivity
This may be a good place to introduce students to the calculation of a growth-rate, which is used throughout the textbook. You can write it first in general terms, as %∆X = [(Xt+1 – Xt)/Xt] × 100% = [(Xt+1/Xt) – 1] x 100%. Then you might use an example with something you’re talking about, such as real GDP growth over the past year, or the inflation rate. We also recommend explaining how the growth rate of a ratio is approximately the growth rate of the numerator minus that of the denominator. Throughout the text, students may come across mathematical calculations that are unfamiliar to them. The Appendix at the end of the textbook contains some helpful basic guidance to mathematical topics, including discussions of functions and graphs, slopes of functions, elasticities, functions of several variables, shifts of a curve, exponents, and growth rate formulas. 2. 3.
Business cycles Unemployment and Price Instability
Analytical Problem 1 asks students to think about average labour productivity and unemployment and their relationship to output.
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