Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506756
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Question
Chapter 7, Problem 16CQ
(a)
To determine
Calculate the 1960 real GDP.
(b)
To determine
Calculate the 1960 real GDP.
(c)
To determine
Calculate the 1980 GDP deflator.
(d)
To determine
Calculate the 1990 nominal GDP.
(e)
To determine
Calculate the 2000 GDP deflator.
(f)
To determine
Calculate the 2009 real GDP.
(g)
To determine
Calculate the 2015 real GDP.
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Fill in the Table:
The following table shows a money demand schedule, which is the quantity of money demanded at
various price levels (P).
Fill in the Value of Money column in the following table.
Quantity of Money Demanded
(Billions of dollars)
1.5
Price Level (P) Value of Money (1/P)
1.00
1.33
2.0
2.00
3.5
4.00
7.0
Now consider the relationship between the price level and the quantity of money that people
demand. The lower the price level, the
money the typical transaction requires, and the
money people will wish to hold in the form of currency or demand deposits.
Assume that the Fed initially fixes the quantity of money supplied at $3.5 billion.
Use the orange line (square symbol) to plot the initial money supply (MS1) set by the Fed. Then,
referring to the previous table, use the blue connected points (circle symbol) to graph the money
demand curve.
The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output
demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of
output demanded rises to $500 billion.
170
100
180
140
130
120
110
AD
100
00
100
200
300
400 B00
700
OUTPUT (Billians of dollars)
As the price level falls, the cost of borrowing money will
, causing the quantity of output demanded to
Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to
in foreign exchange
markets. The number of domestic products purchased by foreigners (exports) will therefore
and the number of foreign
products purchased by domestic consumers and firms (imports) will
Net exports will therefore
causing the quantity of domestic output demanded to
Chapter 7 Solutions
Macroeconomics: Private and Public Choice (MindTap Course List)
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Similar questions
- The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. 170 160 150 140 130 120 110 AD 100 90 100 200 300 400 500 600 700 800 OUTPUT (Billions of dollars) PRICE LEVELarrow_forwardThe following graph shows a decrease in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the left from AD1AD1 to AD2AD2, causing the quantity of output demanded to fall at all price levels. For example, at a price level of 140, output is now $200 billion, where previously it was $300 billion. The following table lists several determinants of aggregate demand. Complete the table by indicating the change in each determinant necessary to decrease aggregate demand. Change needed to decrease AD Wealth (increase/ decrease) Taxes (increase/ decrease) Expected rate of return on investment (increase/ decrease) Incomes in other countries (increase/ decrease)arrow_forwardThe following table shows a money demand schedule, which is the quantity of money demanded at various price levels (PP). Fill in the Value of Money column in the following table. Price Level (P) Value of Money (1/P) Quantity of Money Demanded 1.00 1.5 1.33 2.0 2.00 3.5 4.00 7.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the (a. more, b. less) money the typical transaction requires, and the (a. more, b. less) money people will wish to hold in the form of currency or demand deposits. Assume that the Fed initially fixes the quantity of money supplied at $3.5 billion. Use the orange line (square symbol) to plot the initial money supply (MS1) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve. (Graph in image) According to your graph, the equilibrium value of…arrow_forward
- The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. 170 160 150 A 140 130 B 120 110 AD 100 90 100 200 300 400 500 600 700 800 OUTPUT (Billions of dollars) As the price level falls, the cost of borrowing money will causing the quantity of output demanded to This phenomenon is known as the effect. Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore and the number of foreign products purchased by domestic consumers and firms (imports) will Net exports will therefore causing the quantity of domestic output demanded to . This phenomenon…arrow_forwardThe following graph shows an increase in aggregate supply (ASAS) in a hypothetical economy. Specifically, aggregate supply shifts to the right from AS1AS1 to AS2AS2, causing the quantity of output supplied at a price level of 125 to rise from $250 billion to $350 billion. The following table lists several determinants of aggregate supply. Complete the table by indicating the changes in the determinants necessary to increase aggregate supply. Determinant Change Needed to Increase ASAS Nominal Wage Rate Tax Rates Technologyarrow_forwardAnswer the question based on the following information: For transactions, households and businesses want to hold an amount of money equal to one-half of nominal GDP. The table shows the amounts of money they want to hold as an asset at various interest rates. If nominal GDP is $300 and the supply of money is $250, the equilibrium interest rate will be Interest Rate Amount of Money Demanded as an Asset 10% $20 8 40 6 60 4 80 2 100 Multiple Choice 4 percent. 10 percent. 6 percent. 8 percent. 2 percent.arrow_forward
- "The demand curves for all products have negative slopes. For instance, the demand curves for milk,automobiles, personal computers, and shirts all have negative slopes. Therefore, because the aggregate demand curve shows the demand for all products, it too must have a negative slope. " Comment on this assertion.arrow_forwardThe following graph plots aggregate demand (AD2027AD2027) and aggregate supply (AS) for the imaginary country of Cotopaxi in the year 2027. Suppose the natural level of output in this economy is $6 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. Economists forecast that if the government takes no action and the economy continues to grow at the current rate, aggregate demand in 2028 will be given by the curve labeled ADAADA, resulting in the outcome given by point A. If, however, the government pursues an expansionary policy, aggregate demand in 2028 will be given by the curve labeled ADBADB, resulting in the outcome given by point B. The following table presents projections for the unemployment rates that would occur at point A and point B. Consider the potential rate of inflation between 2027 and 2028, depending on whether the economy moves from the initial price level of 102 to the…arrow_forwardUse the following graph to answer the following questions. Line Y Price level (P) 100 80 B Line Z Line X2 Line X1 Real GDP (3) If point A occurs chronologically before point B, then this graph could represent a decrease in aggregate demand with a decrease in long-run and short-run aggregate supply. a decrease in aggregate demand with constant long-run and short-run aggregate supply. constant aggregate demand with a decline in long-run aggregate supply. an increase in aggregate demand with constant long-run and short-run aggregate supply. constant aggregate demand with a decline in short-run aggregate supply.arrow_forward
- The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's money supply remains fixed. PRICE LEVEL (CPI) 160 150 140 130 120 110 100 90 80 0 Aggregate Demand 100 200 300 400 500 600 REAL GDP (Billions of dollars) 700 800 ?arrow_forwardDraw the graph (aggregate supply and aggregate demand curves) of an economy that is in equilibrium.arrow_forwardThe following graph shows an increase in short-run aggregate supply (SRAS) in a hypothetical economy. Specifically, short-run aggregate supply shifts to the right from SRAS₁ to SRAS2, causing the quantity of output supplied at a price level of 125 to rise from $250 billion to $350 billion. Review the graph and then complete the table that follows. PRICE LEVEL 200 175 150 125 100 75 50 25 0 0 50 SRAS SRAS₂ 100 150 200 250 300 350 400 REAL GDP (Billions of dollars) ? The following table lists several determinants of short-run aggregate supply. Complete the table by indicating the change needed in each determinant to increase short-run aggregate supply. Determinant Change Needed to Increase SRAS Input Prices increase or decrease Burdensome Regulations increase or decrease Technology decline or improvementarrow_forward
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