Download with Google Download with Facebook or download with email. The latest edition of this text continues to focus on important concepts and analyses necessary for students in an introductory economics course. In keeping with the authors philosophy of showing students the power of economic tools and the importance of economics. Trove: Find and get Australian resources. Books, images, historic newspapers, maps, archives and more.
Principles of Economics, 7th Edition, provides a deeper understanding of economics by eliminating overwhelming detail and focusing on seven core principles that are reinforced and illustrated throughout the text. Samuelson encompass over three publishing decades, pages of printed text, and a combined weight of 35 pounds for a complete set.
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Gregory Mankiw. Case and Ray C. You dismissed this ad. With a tax on apartment buildings, landowners can pass the tax on more easily, though the extent to which they do this depends on the elasticities of supply and demand. Gregory Mankiw, 9th Edition? Please visit my Blog to find the book you are looking for and download it for free. The tax revenue from the tax on widgets equals the tax per unit times the quantity produced.
Since the tax on gadgets was eliminated, all tax revenue must come from the tax on widgets. Yet the tax has a large deadweight loss, since it reduces the quantity sold to zero. Figure 3 illustrates the market for pizza. Hope you guys have fun. Filestack — The document conversion API for developers. This is the price received by sellers. The price paid by consumers rises, unless demand is perfectly elastic.
In this case, the tax is a direct addition to the cost of rental units, so the supply curve will shift up by the amount of the tax. Where can I find the solutions for Microeconomics, 7th edition, by Makiw? Learn More at wikibuy. If demand is elastic, the percentage decline in quantity exceeds the percentage increase in price, so total spending declines.
With a tax on land, landowners can not pass the tax on. As a result, the tax was quite unpopular. You dismissed this ad. This tool looks for lower prices at other stores while you shop on Amazon and tells you where to buy.
The tax revenue is likely to be higher in the first year after it is imposed than in the fifth year. Microeconomis convert one document format to another through the use of dynamic API-based file parameters. This illustrates the inefficiency of taxation.
I am using same text book, so this is a recommendation for Solutions Manual for Principles of Economics 7th Edition by Gregory Mankiw Instant download link: The demand for cars in New Jersey is probably fairly elastic, since people could travel to nearby states to buy cars.
But over time they may switch to other energy sources and people buying new heaters for their homes will more likely choose gas or electric, so the tax will have a greater impact on quantity.
Whether total consumer spending falls or rises, consumer surplus declines because of the increase in price and reduction in quantity. If link above is not working, You can use this direct link: The equilibrium quantity would be Q1, as in the case without the tax, and the equilibrium price would be P1. Renters will not be affected at all. How can I microeconomiics the solution manual for Economics 11th Edition by Arnold?
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We assume a depreciation rate of 10 percent i. The last column shows the marginal product of capital, derived in part d below. Consumption per work- er is maximized at a rate of saving of 0. This is the Golden Rule level of s. This gives: K 0.
K K k The table in part c shows the marginal product of capital for each value of the saving rate. Suppose the economy begins with an initial steady-state capital stock below the Golden Rule level. The higher investment rate means that the capital stock increases more quickly, so the growth rates of output and output per worker rise. The productivity of workers is the average amount produced by each work- er—that is, output per worker.
So productivity growth rises. Hence, the immediate effect is that living standards fall but productivity growth rises. This means that in the steady state, productivity growth is independent of the rate of investment. Since we begin with an initial steady-state capital stock below the Golden Rule level, the higher investment rate means that the new steady state has a higher level of consumption, so living standards are higher.
Thus, an increase in the investment rate increases the productivity growth rate in the short run but has no effect in the long run. Living standards, on the other hand, fall immediately and only rise over time. That is, the quotation emphasizes growth, but not the sacrifice required to achieve it. But this condition describes the Golden Rule steady state.
Hence, we conclude that this economy reaches the Golden Rule level of capital accumu- lation. First, consider steady states. In Figure 7—3, the slower population growth rate shifts the line representing population growth and depreciation downward. Hence, slower population growth will lower total output growth, but per-person output growth will be the same. Now consider the transition. We know that the steady-state level of output per person is higher with low population growth.
Hence, during the transition to the new steady state, output per person must grow at a rate faster than g for a while. In the decades after the fall in population growth, growth in total output will fall while growth in output per person will rise. Chapter 7 Economic Growth I 61 7.
If there are decreasing returns to labor and capital, then increasing both capital and labor by the same proportion increases output by less than this proportion. For exam- ple, if we double the amounts of capital and labor, then output less than doubles. This may happen if there is a fixed factor such as land in the production function, and it becomes scarce as the economy grows larger.
Then population growth will increase total output but decrease output per worker, since each worker has less of the fixed fac- tor to work with. If there are increasing returns to scale, then doubling inputs of capital and labor more than doubles output. Then population growth increases total output and also increases output per worker, since the economy is able to take advantage of the scale economy more quickly. Notice that unemployment reduces L the amount of per capita output for any given capital—person ratio because some of the people are not producing anything.
The steady state is the level of capital per person at which the increase in capital per capita from investment equals its decrease from depreciation and pop- ulation growth see Chapter 4 for more details. Figure 7—4 shows this graphically: an increase in unem- ployment lowers the sf k line and the steady-state level of capital per person.
Figure 7—5 below shows the pattern of output over time. The economy has the same amount of capital since it takes time to adjust the capital stock , but this capital is combined with more workers. At that moment the economy is out of steady state: it has less capital than it wants to match the increased number of workers in the economy.
The economy begins its transition by accumulating more capital, raising output even further than the original jump. Eventually the capital stock and output converge to their new, higher steady-state levels. There is no unique way to find the data to answer this question. Note that there are some subtle issues in converting currency values across countries that are beyond the scope of this book. How can we decide what factors are most important?
The Solow growth model gives us a framework for thinking about the importance of these factors. One clear difference across countries is in educational attainment.
But we can be more formal about this using the Solow model. This will allow us to decide whether differences in saving and population growth can explain the differences in income per capita; if not, then differences in tech- nology will remain as the likely explanation. Clearly, given that the U. Even population growth can only explain a factor of 1.
The remaining culprit is technology, and the high level of illiteracy in Pakistan is consistent with this conclusion. In the Solow model, we find that only technological progress can affect the steady-state rate of growth in income per worker. Growth in the capital stock through high saving has no effect on the steady-state growth rate of income per worker; neither does popula- tion growth.
But technological progress can lead to sustained growth. The growth rate of GDP is readily available. Economic policy can influence the saving rate by either increasing public saving or pro- viding incentives to stimulate private saving.
Public saving is the difference between government revenue and government spending. If spending exceeds revenue, the gov- ernment runs a budget deficit, which is negative saving. Policies that decrease the deficit such as reductions in government purchases or increases in taxes increase pub- lic saving, whereas policies that increase the deficit decrease saving. A variety of gov- ernment policies affect private saving.
The decision by a household to save may depend on the rate of return; the greater the return to saving, the more attractive saving becomes. Tax incentives such as tax-exempt retirement accounts for individuals and investment tax credits for corporations increase the rate of return and encourage pri- vate saving.
The rate of growth of output per person slowed worldwide after This slowdown appears to reflect a slowdown in productivity growth—the rate at which the production function is improving over time.
Various explanations have been proposed, but the slowdown remains a mystery. In the second half of the s, productivity grew more quickly again in the United States and, it appears, a few other countries.
Many com- mentators attribute the productivity revival to the effects of information technology. Endogenous growth theories attempt to explain the rate of technological progress by explaining the decisions that determine the creation of knowledge through research and development. By contrast, the Solow model simply took this rate as exogenous. In the Solow model, the saving rate affects growth temporarily, but diminishing returns to capital eventually force the economy to approach a steady state in which growth depends only on exogenous technological progress.
By contrast, many endogenous growth models in essence assume that there are constant rather than diminishing returns to capital, interpreted to include knowledge. Hence, changes in the saving rate can lead to persistent growth. Policies that reduce population growth include intro- ducing methods of birth control and implementing disincentives for having chil- dren. Policies that increase the saving rate include increasing public saving by reducing the budget deficit and introducing private saving incentives such as I.
To solve this problem, it is useful to establish what we know about the U. That is, the capital—output ratio is the same in terms of effec- tive workers as it is in levels. The initial saving rate is At the Golden Rule steady state, the marginal product of capital is 7 percent, whereas it is 12 percent in the initial steady state. Hence, from the initial steady state we need to increase k to achieve the Golden Rule steady state.
We can solve for the Golden Rule capital—output ratio using this equation. If we plug in the value 0. In the Golden Rule steady state, the capital—output ratio equals 4. To reach the Golden Rule steady state, the saving rate must rise from We also know from the hint that the MPK is a function of k, which is constant in the steady state; therefore the MPK itself must be constant.
We know that in the steady state, the MPK is constant because capital per effec- tive worker k is constant. Therefore, we can conclude that the real rental price of capital is constant in the steady state. This equation says that the growth rate of the real wage plus the growth rate of the labor force equals the growth rate of total labor income.
We therefore conclude that the real wage grows at rate g. How do differences in education across countries affect the Solow model? Education is one factor affecting the efficiency of labor, which we denoted by E. Other factors affect- ing the efficiency of labor include levels of health, skill, and knowledge.
Since country 1 has a more highly educated labor force than country 2, each worker in country 1 is more efficient. We will assume that both countries are in steady state. The two countries will, thus, have the same rate of growth of total income because they have the same rate of population growth and the same rate of technological progress.
This is shown in Figure 8—1. Thus, the level of income per worker will be higher in the country with the more educated labor force. We know that the real rental price of capital R equals the marginal product of cap- ital MPK. But the MPK depends on the capital stock per efficiency unit of labor. Thus, the real rental price of capital is identical in both countries. Output is divided between capital income and labor income.
As discussed in parts b and c , both countries have the same steady-state capital stock k and the same MPK. Therefore, the wage per efficiency unit in the two countries is equal.
Workers, however, care about the wage per unit of labor, not the wage per efficiency unit. Also, we can observe the wage per unit of labor but not the wage per efficiency unit. Thus, the wage per unit of labor is higher in the country with the more educated labor force. We assumed in this model that this function has constant returns to scale.
We can now follow the logic of Section , substituting the function g u for the constant growth rate g. Again following the logic of Section , the growth of capital per effective worker is the difference between saving per effective worker and break-even investment per effective worker. The steady state has constant capital per effective worker k as given by Figure 8—2 above. We also assume that in the steady state, there is a constant share of time spent in research universities, so u is constant.
Hence, output per effective worker y is also constant. Output per worker equals yE, and E grows at rate g u. Therefore, out- put per worker grows at rate g u. The saving rate does not affect this growth rate. However, the amount of time spent in research universities does affect this rate: as more time is spent in research universities, the steady-state growth rate rises.
An increase in u shifts both lines in our figure. This is the immediate effect of the change, since at the time u rises, the capital stock K and the efficiency of each worker E are constant. Since output per effective worker falls, the curve showing saving per effective worker shifts down. Chapter 8 Economic Growth II 71 At the same time, the increase in time spent in research universities increas- es the growth rate of labor efficiency g u. Hence, break-even investment [which we found above in part b ] rises at any given level of k, so the line showing break- even investment also shifts up.
Output per effective worker also falls. In the short run, the increase in u unambiguously decreases consumption. After all, we argued in part e that the immediate effect is to decrease output, since workers spend less time producing manufacturing goods and more time in research universities expanding the stock of knowledge.
For a given saving rate, the decrease in output implies a decrease in consumption. The long-run steady-state effect is more subtle. We found in part e that out- put per effective worker falls in the steady state. But welfare depends on output and consumption per worker, not per effective worker. The increase in time spent in research universities implies that E grows faster. That is, output per worker equals yE.
Although steady-state y falls, in the long run the faster growth rate of E necessarily dominates. That is, in the long run, consumption unambiguously rises.
Nevertheless, because of the initial decline in consumption, the increase in u is not unambiguously a good thing. That is, a policymaker who cares more about current generations than about future generations may decide not to pursue a pol- icy of increasing u. This is analogous to the question considered in Chapter 7 of whether a policymaker should try to reach the Golden Rule level of capital per effective worker if k is currently below the Golden Rule level.
A 5-percent increase in labor input increases output by 1. Labor productivity falls by 3. Total factor productivity is the amount of output growth that remains after we have accounted for the determinants of growth that we can measure. In this case, there is no change in technology, so all of the output growth is attributable to measured input growth.
That is, total factor productivity growth is zero, as expect- ed. We conclude that the contribution of capital is 0. These numbers are qualitatively similar to the ones in Table 8—3 in the text for the United States although in Table 8—3, capital and labor contribute more and TFP contributed less from — The price of a magazine is an example of a price that is sticky in the short run and flex- ible in the long run.
Economists do not have a definitive answer as to why magazine prices are sticky in the short run. Perhaps customers would find it inconvenient if the price of a magazine they purchase changed every month. Aggregate demand is the relation between the quantity of output demanded and the aggregate price level.
To understand why the aggregate demand curve slopes down- ward, we need to develop a theory of aggregate demand. One simple theory of aggregate demand is based on the quantity theory of money.
This equation tells us that for any fixed money supply M, a negative relationship exists between the price level P and output Y, assuming that velocity V is fixed: the higher the price level, the lower the level of real balances and, therefore, the lower the quantity of goods and services demanded Y.
In other words, the aggregate demand curve slopes downward, as in Figure 9—1. P Figure 9—1 Price level AD Y Income, output One way to understand this negative relationship between the price level and out- put is to note the link between money and transactions. An increase in the price level implies that each transaction requires more dollars.
For the above identity to hold with constant velocity, the quantity of transactions and thus the quantity of goods and services purchased Y must fall. If the Fed increases the money supply, then the aggregate demand curve shifts out- ward, as in Figure 9—2.
Output rises above its natural rate level Y: the economy is in a boom. The high demand, however, eventually causes wages and prices to increase. This gradual increase in prices moves the economy along the new aggregate demand curve AD2 to point C.
At the new long-run equilibri- um, output is at its natural-rate level, but prices are higher than they were in the ini- tial equilibrium at point A. It is easier for the Fed to deal with demand shocks than with supply shocks because the Fed can reduce or even eliminate the impact of demand shocks on output by controlling the money supply.
In the case of a supply shock, however, there is no way for the Fed to adjust aggregate demand to maintain both full employment and a stable price level. To understand why this is true, consider the policy options available to the Fed in each case. Suppose that a demand shock such as the introduction of automatic teller machines, which reduce money demand shifts the aggregate demand curve outward, as in Figure 9—3. Output increases in the short run to Y2.
In the long run output returns to the natural-rate level, but at a higher price level P2. To the extent that the Fed can control the money supply, it can reduce or even eliminate the impact of demand shocks on output.
Now consider how an adverse supply shock such as a crop failure or an increase in union aggressiveness affects the economy. As shown in Figure 9—4, the short-run aggregate supply curve shifts up, and the economy moves from point A to point B.
The Fed has two options. Its first option is to hold aggregate demand constant, in which case output falls below its natur- al rate. Its second option is to increase aggregate demand by increasing the money supply, bringing the economy back toward the natural rate of output, as in Figure 9—5.
This policy leads to a permanently higher price level at the new equilibrium, point C. Thus, in the case of a supply shock, there is no way to adjust aggregate demand to maintain both full employment and a stable price level. Interest-bearing checking accounts make holding money more attractive.
This increases the demand for money. The increase in money demand is equivalent to a decrease in the velocity of money. For this equation to hold, an increase in real money balances for a given amount of output means that k must increase; that is, velocity falls. Because interest on checking accounts encourages people to hold money, dollars circulate less frequently. If the Fed keeps the money supply the same, the decrease in velocity shifts the aggregate demand curve downward, as in Figure 9—6.
In the short run when prices are sticky, the economy moves from the initial equilibrium, point A, to the short-run equilibrium, point B. The drop in aggregate demand reduces the output of the economy below the natural rate.
As prices fall, output gradually rises until it reaches the natural-rate level of out- put at point C. The decrease in velocity causes the aggregate demand curve to shift downward.
The Fed could increase the money supply to offset this decrease and thereby return the economy to its original equilibrium at point A, as in Figure 9—7. In particular, when a regulatory change causes money demand to change in a pre- dictable way, the Fed should make the money supply respond to that change in order to prevent it from disrupting the economy. If the Fed reduces the money supply, then the aggregate demand curve shifts down, as in Figure 9—8. For any given price level P, the level of output Y is lower, and for any given Y, P is lower.
We know that in the short run, the price level is fixed. Based on this equation, we conclude that in the short run a 5-percent reduction in the money supply leads to a 5-percent reduction in output. This is shown in Figure 9—9. Based on this equation, we conclude that in the long run a 5-percent reduction in the money supply leads to a 5-percent reduction in the price level, as shown in Figure 9—9.
That is, output moves in the opposite direction from unemployment, with a ratio of 2 to 1. In the long run, both output and unemployment return to their natural rate levels. Thus, there is no long-run change in unemployment. Thus, when Y falls, S falls. Figure 9—10 shows that this causes the real interest rate to rise. When Y returns to its original equilibrium level, so does the real interest rate.
An exogenous decrease in the velocity of money causes the aggregate demand curve to shift downward, as in Figure 9— In the short run, prices are fixed, so output falls.
By increasing the money supply, the Fed can shift the aggregate demand curve upward, restor- ing the economy to its original equilibrium at point A. Both the price level and output remain constant. Chapter 9 Introduction to Economic Fluctuations 81 If the Fed wants to keep prices stable, then it wants to avoid the long-run adjustment to a lower price level at point C in Figure 9— Therefore, it should increase the money supply and shift the aggregate demand curve upward, again restoring the original equilibrium at point A.
Thus, both Feds make the same choice of policy in response to this demand shock. An exogenous increase in the price of oil is an adverse supply shock that causes the short-run aggregate supply curve to shift upward, as in Figure 9— This policy response shifts the aggregate demand curve upwards, as shown in the shift from AD1 to AD2 in Figure 9— In this case, the economy immediately reaches a new equilibrium at point C.
The price level at point C is permanently higher, but there is no loss in output associated with the adverse supply shock. If the Fed cares about keeping prices stable, then there is no policy response it can implement. In the short run, the price level stays at the higher level P2.
If the Fed increases aggregate demand, then the economy ends up with a permanently higher price level. Hence, the Fed must simply wait, holding aggregate demand constant. Eventually, prices fall to restore full employment at the old price level P1. But the cost of this process is a prolonged recession. Thus, the two Feds make a different policy choice in response to a supply shock.
From the main NBER web page www. As of this writing, the latest turning point was in March , when the economy switched from expansion to contraction. Previous recessions contractions over the past three decades were July to March ; July to November ; January to July ; and November to March The Keynesian cross tells us that fiscal policy has a multiplied effect on income.
The reason is that according to the consumption function, higher income causes higher con- sumption. This increase in con- sumption raises expenditure and income even further. This feedback from consumption to income continues indefinitely. The theory of liquidity preference explains how the supply and demand for real money balances determine the interest rate.
A simple version of this theory assumes that there is a fixed supply of money, which the Fed chooses. The price level P is also fixed in this model, so that the supply of real balances is fixed. The demand for real money balances depends on the interest rate, which is the opportunity cost of holding money. At a high interest rate, people hold less money because the opportunity cost is high.
By holding money, they forgo the interest on interest-bearing deposits. In contrast, at a low interest rate, people hold more money because the opportunity cost is low. Figure 10—1 graphs the supply and demand for real money balances. Based on this theory of liquidity preference, the interest rate adjusts to equilibrate the supply and demand for real money balances. Consider what happens when the Fed increases the money supply from M1 to M2.
At the old interest rate r1, supply exceeds demand. People holding the excess supply of money try to con- vert some of it into interest-bearing bank deposits or bonds. Banks and bond issuers, who prefer to pay lower interest rates, respond to this excess supply of money by lower- ing the interest rate. The interest rate falls until a new equilibrium is reached at r2. The IS curve summarizes the relationship between the interest rate and the level of income that arises from equilibrium in the market for goods and services.
Investment is negatively related to the interest rate. As illustrated in Figure 10—3, if the interest rate rises from r1 to r2, the level of planned investment falls from I1 to I2. Chapter 10 Aggregate Demand I 85 4. The LM curve summarizes the relationship between the level of income and the inter- est rate that arises from equilibrium in the market for real money balances.
It tells us the interest rate that equilibrates the money market for any given level of income. The theory of liquidity preference explains why the LM curve slopes upward. This theory assumes that the demand for real money balances L r, Y depends negatively on the interest rate because the interest rate is the opportunity cost of holding money and positively on the level of income. As illustrated in Figure 10—5 A , the interest rate equilibrates the supply and demand for real money balances for a given level of income.
The increase in income shifts the money demand curve upward. At the old interest rate r1, the demand for real money balances now exceeds the supply. The interest rate must rise to equilibrate supply and demand. Therefore, as shown in Figure 10—5 B , a higher level of income leads to a higher interest rate: The LM curve slopes upward.
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