Type:
Solution Manual
Resource:
Macroeconomics
Edition:
3rd Edition
Author(s):
R. Glenn Hubbard Anthony Patrick O’Brien
INSTRUCTOR’S RESOURCE MANUAL Edward Scahill Eric Moon University of Toronto
Macroeconomics Third Canadian Edition R. Glenn Hubbard Columbia University
Anthony Patrick O’Brien Lehigh University
Apostolos Serletis University of Calgary
Jason Childs University of Regina
Contents PART 1: INTRODUCTION CHAPTER 1
Economics: Foundations and Models .................................................. 1-1
CHAPTER 2
Trade-offs, Comparative Advantage, and the Market System ............. 2-1
CHAPTER 3
Where Prices Come From: The Interaction of Supply and Demand ... 3-1
PART 2: MACROECONOMIC FOUNDATIONS AND LONG-RUN GROWTH CHAPTER 4
GDP: Measuring Total Production and Income................................... 4-1
CHAPTER 5
Unemployment and Inflation ............................................................... 5-1
CHAPTER 6
Economic Growth, the Financial System, and Business Cycles .......... 6-1
CHAPTER 7
Long-Run Economic Growth: Sources and Policies ........................... 7-1
PART 3: SHORT-RUN FLUCTUATIONS CHAPTER 8
Aggregate Expenditure and Output in the Short Run .......................... 8-1
CHAPTER 9
Aggregate Demand and Aggregate Supply Analysis........................... 9-1
PART 4: MONETARY AND FISCAL POLICY CHAPTER 10 Money, Banks, and the Bank of Canada ............................................ 10-1 CHAPTER 11 Monetary Policy ................................................................................. 11-1 CHAPTER 12 Fiscal Policy ....................................................................................... 12-1 CHAPTER 13 Inflation, Unemployment, and Bank of Canada Policy ..................... 13-1 PART 5: THE INTERNATIONAL ECONOMY CHAPTER 14 Macroeconomics in an Open Economy ............................................. 14-1 CHAPTER 15 The International Financial System ................................................... 15-1
CHAPTER 1 | Economics: Foundations and Models
CHAPTER 1 | Economics: Foundations and Models Brief Chapter Summary and Learning Objectives 1.1
Three Key Economic Ideas (pages 3–6) Explain these three key economic ideas: People are rational. People respond to incentives. Optimal decisions are made at the margin. ▪
1.2
People must make choices as they try to attain their goals. People make choices because resources are scarce. Most of economics analyzes what happens in markets.
The Economic Problem All Societies Must Solve (pages 6–10) Discuss how a society answers these questions: What goods and services will be produced? How will the goods and services be produced? Who will receive the goods and services produced? ▪ ▪
1.3
A limited amount of resources can produce a limited amount of goods and services. The cost of producing more of one good is the value of what must be given up to produce it.
Economic Models (pages 10–13) Understand what economic models are and aren’t, and why they are a good idea. ▪ ▪
1.4
Economists use models—simplified versions of reality—to analyze real-world issues. Economists accept a model if it leads to hypotheses that are confirmed by statistical analysis.
Microeconomics and Macroeconomics (pages 13-14) Distinguish between microeconomics and macroeconomics.
1.5
The Language of Economics (pages 14–15) Define important economic terms. (It’s not all Greek.)
Appendix A: Using Graphs and Formulas (pages 21–32) Review the use of graphs and formulas.
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CHAPTER 1 | Economics: Foundations and Models
Key Terms Allocative efficiency, p. 9. A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it. Centrally planned economy, p. 7. An economy in which the government decides how economic resources will be allocated. Economic model, p. 3. A simplified version of reality used to analyze real-world economic situations. Economic variable, p. 11. Something measurable that can have different values, such as the price of coffee. Economics, p. 2. The study of the choices people make to attain their goals, given their scarce resources. Equity, p. 9. The fair distribution of economic benefits. Macroeconomics, p. 14. The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. Marginal analysis, p. 5. Analysis that involves comparing marginal benefits and marginal costs. Market, p. 3. A group of buyers and sellers of a good or service and the institutions or arrangements by which they come together to trade.
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Market economy, p.8. An economy in which the decisions of households and firms interacting in markets allocate economic resources. Microeconomics, p. 13. The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices. Mixed economy, p. 9. An economy in which most economic decisions result from the interaction of buyers and sellers in markets, but in which the government plays a significant role in the allocation of resources. Normative analysis, p. 12. Analysis concerned with what ought to be. Opportunity cost, p. 6. The highest-valued alternative that must be given up to engage in an activity. Positive analysis, p. 12. Analysis concerned with what is. Productive efficiency, p. 9. A situation in which a good or service is produced at the lowest possible cost. Scarcity, p. 2. A situation in which unlimited wants exceed the limited resources available to fulfill those wants. Trade-off, p. 6. The idea that, because of scarcity, producing more of one good or service means producing less of another good or service. Voluntary exchange, p. 9. A situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction.
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