EXERCISES1.pptVIP

A countrys rate of economic growth is determined solely by the amount of resources available to the country. Comment on this statement. There is always a clear tradeoff between unemployment and inflation. Comment. 3. True or false? Why? Using the consumer price index or the GDP-deflator to calculate changes in the average price level should produce identical inflation rates.“ 4. True or False? Why? The PPI measures the cost of buying a fixed bundle of consumer goods.“ 5. Comment on the following statement: “A country that spends more than its total national income must have a trade deficit.” True or false? Why? The neoclassical growth model predicts that a decrease in the savings rate permanently affects the growth rate of real output.“ Comment on the following statement: The Solow growth model predicts that a country with a low savings rate can eventually achieve the same living standard as a country with a high savings rate as long as both countries have the same rate of population growth and access to the same technology. In the classical aggregate supply curve model, the economy is always at the full-employment level of output and the unemployment rate is always zero. Comment on this statement. The real impact of demand management policy is largely determined by the flexibility of wages and prices. Comment on this statement. 10. Comment on the following statement: An increase in the income tax rate will not affect the level of output or prices in the long run. 11. If nominal money supply is increased over time, how will the level of output and prices behave in the long run? 12. Assume the economy is in a recession. Describe an adjustment process that will ensure that the economy will return to full employment. How can the government speed up this process? Inflation cannot accelerate in a recession, when the rate of unemployment is above its natural rate. Comment on this statement. 15. If everyone had rational expectations, then nominal wages wou