Discussion

Week 6 Discussion and Problems – Chapters 10 and 11
Chapter 10 – Business Cycles

Questions for Discussion
(Chapter 10)

7. Which of the following people would we expect to be hurt
by an increase in the rate of inflation from 3 percent to 6 percent?
(a) A homeowner with a $50,000 fixed-rate mortgage on his
home.
(b) A retired person who receives a monthly pension of $600
from her former employer.
(c) An automobile worker with a cost-of-living provision in
his employment contract.
(d) A wealthy individual who owns corporate bonds that pay
her an interest rate of 7 percent per year.

8. Would it be advantageous to borrow money if you expected
prices to rise? Why or why not?

Problems
7. According to the following data by what percentage,
(a) Did nominal wages increase between 2000 and 2010?
(b) Did real wages increase?
2000 2010
Average weekly wage $500
$750
CPI 170 220

Chapter 11 – Aggregate Supply and Demand Approach of Economy
Schiller Chapter 11- Aggregate Supply-Demand Mar 16, 2014
19:18

Questions for
Discussion (Chapter 11)
5. If equilibrium is compatible with both
buyers’ and sellers’ intentions how can it be undesirable?

6. From March 2009 to 2013, the U.S. stock
market more than doubled in value. How
might this have affected aggregate demand?
What happens to aggregate demand when the stock market plunges?

8. POLICY PERSPECTIVES Why did President Obama
assert that government intervention was needed to get the economy out of the
2008-2009 recession? Could the economy have recovered on its own?

PROBLEMS
1. Illustrate these
events with AS or AD shifts: See textbook on page 244 for graphs)

2. Based on the News Wire on page 237,
(a) Illustrate the AS shift that occurs.
(b) Identify the old (E0 ) and new (E1 ) macro equilibrium.
(c) What macro ailments result?
(d) How can the economy stay healthy in this case?

8. If a nation’s
maximum GDP (with 0 percent unemployment) is $20 trillion,
(a) How much is full employment GDP (with 5 percent
unemployment)?
(b) If equilibrium GDP is $17 trillion, how far from full
employment is this economy?
(c) Which of the following shifts will move this economy
closer to full employment?

1. AD shifts to the right.
2. AD shifts to the left.
3. AS shifts to the right.
4. AS shifts to the left.