宏观经济学第四章

Business Cycles SOLUTIONS TO END-OF-CHAPTER EXERCISES Answers to Thinking Critically Questions

1. The demand for air travel tends to decrease in a recession. In a free market, a decrease in demand results in a lower equilibrium price and equilibrium quantity. If the government kept airline ticket prices from falling, then there would be a surplus in the market as the quantity supplied exceeds the quantity demanded. Therefore, the government regulation on U.S. airline ticket prices would likely reduce the profits of U.S. airlines.

2. Such a policy would not likely succeed in raising the long-term profitability of the airline industry. As we learned in this chapter, the process of long-term economic growth depends on the financial market, in which the market interest rate is determined by the interaction of borrowers and lenders. If the government decided to provide failing airlines with low-interest loans, regardless of their creditworthiness, then there would be no incentive for those firms to run efficiently in the long run.

9.1 Long-Run Economic Growth

Learning Objective: Discuss the importance of long-run economic growth.

Review Questions

1.1Real GDP per capita measured in 2005 dollars increased from $5,600 in 1900 to $43,700 in 2008, representing a nearly 8 fold increase. The increase in real GDP per capita is likely to be smaller than the true increase in living standards because many of today’s goods and services, such as antibiotics, air conditioners, and televisions, were not available in 1900.

1.2The most important factor that explains increases in real GDP per capita in the long run is labor productivity, which is the quantity of goods and services that can be produced by one worker or by one hour of work.

1.3The two key factors that cause labor productivity to increase over time are the quantity of capital per hour worked and the level of technology.

1.4Potential real GDP is the level of real GDP attained when all firms are producing at capacity. Historically, potential real GDP has substantially increased over time.

2 CHAPTER 9| Economic Growth, the Financial System, and Business Cycles Problems and Applications

1.5 There is no one correct answer to this question, but there are some relevant considerations: An income of $1,000,000 represents 20 times more basic purchasing power than $50,000 in 2010 so one could have many more goods and services in 1900 than 2010. Even though there were no automatic dishwashers, microwaves, or airplanes in 1900, with $1,000,000 one could afford to have servants wash the dishes, cook, do the laundry, and provide other desired personal services. One could travel in private train cars and in luxurious suites on ocean liners. With an income of $1,000,000 in 1900, you could live what in many ways would be a more luxurious life than with an income of $50,000 today. However, you would not have available television, personal computers, the Internet, movies, iPods, DVD players, cell phones or many other goods that today we often think of as necessities. So, a person living with an income of $50,000 in 2010 might in fact enjoy a higher living standard than a person living with an income of $1 million in 1900.

1.6 Increases in real GDP per capita not only increase the amount of goods and services available to a country’s citizens, but also increase life expectancy at birth and allow people to have a higher portion of leisure time over the course of their lives.

1.7 A positive relationship between economic prosperity and life expectancy may be due to increased spending on health care in an economy with a higher income level. Therefore, greater economic prosperity would imply a health care sector that is larger relative to the economy. In addition, because the use of the health care system increases with age, as life expectancy increases and the average age of the population increases, we should expect that more people will use the health care system for more years. This should cause the health care sector in the United States to expand relative to the size of the economy.

1.8Growth rate for 1991 = 8,0158,034

8,034

-

x 100 = –0.24%

Growth rate for 1992 = 8,2878.015

8,015

-

x 100 = 3.39%

Growth rate for 1993 = 8,5238,287

8,287

-

x 100 = 2.85%

Growth rate for 1994 = 8,8718,523

8,523

-

x 100 = 4.08%

Average annual growth =

0.24% 3.39% 2.85% 4.08%

4

-+++

= 2.52%

1.9 Using the rule of 70, it will take approximately 37 (=70/1.9) years for real GDP per capita to double if it grows at 1.9 percent a year.

1.10Using the rule of 70, it will take approximately 8 (=70/9) years for real GDP per capita to double if it grows at 9 percent a year.

1.11More capital equipment and better technology are the primary reasons why labor productivity is higher in the United States than it is in Russia.