Thisbisbyourbpersonalbcopybforbusebinbtextbookbevaluation.bSaleborbresalebisbprohibitedbandbwillbcontributebtobhigherbst
udentbtextbookbcosts.
Instructor’s Manual b
for
Macroeconomics
Fifth Edition
b
Stephen D. Williamson Washingto
b b b
n University in St. Louis
b b b b
Copyrightb2014,b2011,b2008,b2005bPearsonbEducation,bInc.bAllbRightsbReserved
.
,Chapter 1 b
Introduction
b
◼ TeachingGoals b
Macroeconomicsbprimarilybstudiesbeconomicbgrowthbandbbusinessbcycles.bOverbtime,btherebisbabprevailingbu
pwardbtrendbinbthebstandardbofbliving.bHowever,bsuchbgrowthbcanbbebratherberratic.bTherebarebsomebperiodsbof
bverybrapidbgrowth,bsome bperiodsbofbratherbanemicbgrowth,bandbalsobsomebperiodsbofbtemporarybeconomicbd
ecline.bExplanationsbforbtheboverallbupwardbtrendbinbstandardsbofblivingbarebthebsubjectbofbeconomicbgrowthb
analysis.bExplanationsbofbvariationsbinbgrowthboverbshorterbtimebhorizonsbarebthebsubjectbofbbusinessbcycleba
nalysis.bStudentsbshouldbbebablebtobdistinguishbbetweenbmicroeconomicbtopicsbandbmacroeconomicbtopics.b
Studentsbshouldbunderstandbthebdistinctionbbetweenbgrowthbanalysisbandbbusinessbcyclebanalysis.
Althoughbmicroeconomicsbandbmacroeconomicsbarebseparatebbranchesbofbstudy,bbothbbranchesbarebguided
bbybthebsamebsetbofbeconomicbprinciples.bStandardbeconomicbtheorybisbguidedbbybthebassumptionbofbmaximi
zingbbehavior.bAsbabfirstbapproximation,bwebthereforebviewbthebmacroeconomybasbabcollectionbofbmarketsb
withbmaximizingbparticipants.bThesebparticipantsbarebprice-
takingbagentsbandbthebeconomybisbcloselybapproximatedbbybabcompetitivebequilibrium.
Becausebthebeconomybasbabwholebisbextremelybcomplex,bmacroeconomistsbmustbrelybonbsomewhatbabstractb
models.bAlthoughbthebstructurebofbsuchbmodelsbdoesbnotbcorrespondbtoballbofbthebdetailsbofblifebinbabcomplexbs
ociety,bthesebmodelsbofferbthebbestbhopebofbprovidingbsimple,byetbaccuratebdescriptionsbofbhowbthebmacroeco
nomybworks,bandbhowbgovernmentbpoliciesbmaybaffectbmacroeconomicboutcomes.
Economistsbarebinbbroadbconsensusbaboutbthebmechanismsbofbeconomicbgrowth.bTherebisblessbagreementba
boutbthebcausesbandbconsequencesbofbbusinessbcycles.bWhilebtherebarebstrongbregularitiesbinbmacroeconomi
cbdata,bcompetingbtheoriesbhavebbeenbdevelopedbthatbeachbhavebabclaimbtobexplainingbthosebregularities.bTh
erebarebKeynesianbandbnon-
Keynesianbmodelsbofbthebbusinessbcycle.bExamplesbofbthebformerbarebKeynesianbcoordinationbfailurebmode
lsbandbNewbKeynesianbstickybpricebmodels.bExamplesbofbtheblatterbarebthebLucas-
Friedmanbmoneybsurprisebmodel,bthebrealbbusinessbcyclebmodel,bandbnewbmonetaristbmodels.
◼ ClassroomDiscussionTopics
b b
Onebgoodbwaybtobgetbthebballbrollingbisbtoblistbsomebmacroeconomicbconcernsblikebstagnantbeconomicbgrowt
h,bunemployment,binflation,bthebrecentbrecession,bgovernmentbbudgetbdeficits,btaxbburdens,bbalancebofbtrade
bdeficits,bfinancingbofbSocialbSecurity,bandbtheblike.bDrawbonbcurrentbnewsborblookbatbvariousbpolicybproposal
sbdiscussedbinbWashington.bAskborbpollbstudentsbasbtobwhetherbtheybarebpersonallybconcernedbaboutbsuchbpr
oblemsbandbwhatboriginalbprejudicesbtheybmightbhavebaboutbcausesbandbeffects.bSometimesbstudentsbexpress
bconcernsbaboutbtopicsbthatbarebperhapsbmorebmicroeconomicbinbnature,blikebinequalitybinbthebdistributionbof
bincomebandbenvironmentalbconcerns.bEmphasizebthatbeconomicbgrowthbmaybprovidebenoughbextrabresourc
esbtobhelpbdealbwithbthesebissues.
©2014bPearsonbEducation,bInc.
,Chapterb1bbb Introduction 2
Studentsboftenbhavebconflictingbideasbaboutbthebcurrentbstatebofbthebeconomy.bSometimesbtheirbperspectivesb
maybbebgovernedbbybtheirbindividualbcircumstances,bwhatbtheybreadbinbthebpaper,bwhatbtheybseebonbTVbandbt
heblike.bAskbthembwhetherbtheybbelievebthatbtimesbarebcurrentlybgoodborbbad.bAskbthembwhybtheybthinkbthebw
aybthatbtheybdo.bAskbthembhowbtheybcanbmorebobjectivelybbackbupborbcheckboutbtheirbcasualbimpressionsbabo
utbthebcurrentbstatebofbthebeconomy.
◼ Outline
I. . WhatbIsbMacroeconomics?
II. .
GrossbNationalbProduct,bEconomicbGrowth,bandbBusinessbCyclesb
IbIbIb. MacroeconomicbMbodels
IV. MicroeconomicbPrinciples
V. DisagreementbinbMbacroeconomics
VI. WhatbDobWebLearnbfrombMbacroeconomicbAnalysis?
A. Fundamentals:bPreferencesbandbProductivebCapacity
B. ThebEfficiencybofbMarketbOutcomes
C. ThebImplicationsbofbUnemployment
D. ThebSourcebofbLong-runbImprovementsbinbthebStandardbofbLiving
E. AbTaxbCutbisbnotbabFreebLunch
F. CreditbMarkets
G. ExpectationsbaboutbthebFuture
H. ThebRolebofbMoney
I. BusinessbCycles
J. InternationalbTradebinbGoodsbandbAssets
K. MoneybGrowthbandbInflation
L. ThebPhillipsbCurve
VII. UnderstandingbCurrentbandbRecentbMacroeconomicbEvents
A. AggregatebProductivity
B. UnemploymentbandbVacancies
C. Taxes,bGovernmentbSpending,bandbthebGovernmentbDeficit
D. Inflation
E. InterestbRates
F. BusinessbCyclesbinbthebUnitedbStates
G. CreditbMarketsbandbthebFinancialbCrisis
H. ThebCurrentbAccountbSurplus
◼ SolutionstoEnd-of-ChapterProblems
b b b
1. Calculatingbpercentagebgrowthbrates,bandblogbapproximationsbtobpercentagebgrowthbrates,bweb
obtain:
Year PercentagebGrowthbRate LogbApproximation
2003 1.597484 1.584858
2004 2.466649 2.436718
©2014bPearsonbEducation,bInc.
, Chapterb1bbb Introduction 3
2005 2.073992 2.052778
2006 1.667763 1.654008
2007 1.162146 1.155445
2008 -1.13738 -1.14389
2009 -4.41241 -4.51272
2010 2.257293 2.232193
2011 0.997377 0.992436
Inbthisbcase,bcalculatingbthebchangebinbthebnaturalblogarithmbfrombonebyearbtobthebnextbgivesbabgoodbapp
roximationbtobthebpercentagebgrowthbrate,basbthebgrowthbratesbarebsmall.bButbifbwebdobthebsamebthingbforbgro
wthbratesboverbten-
yearbperiods,basbbelow,bthebapproximationbisbpoor,basbthebgrowthbratesbarebrelativelyblarge.
Ten-yearbpercentagebgrowthbrate LogbApproximation
1960 19.09544 17.4755
1970 33.10087 28.59371
1980 22.66362 20.42756
1990 25.33007 22.57806
2000 23.14175 20.81659
2. SomebobviousbpossibilitiesbincludebFederalbReservebopenbmarketbpurchasesbtobkeepbthebmoneybsup
plybfrombshrinking,binstitutingbbankbreformsbbeforebthebDepressionbstarted,bavoidingbhighbtariffbrate
s,betc.
3. Newton’sbmodelbofbfallingbbodies.
Ignoresbairbresistance.
Worksbwellbforbmostbdensebobjects,bdoesn’tbworkbwellbforbfeathers.b
Diagramsbofbplaysbinbfootballbandbbasketball.
Ignoresbthebcharacteristicsbofbindividualbplayers,bandbopponentbreactions.b
Worksbwellbforbevenlybmatchedbteams.
©2014bPearsonbEducation,bInc.
udentbtextbookbcosts.
Instructor’s Manual b
for
Macroeconomics
Fifth Edition
b
Stephen D. Williamson Washingto
b b b
n University in St. Louis
b b b b
Copyrightb2014,b2011,b2008,b2005bPearsonbEducation,bInc.bAllbRightsbReserved
.
,Chapter 1 b
Introduction
b
◼ TeachingGoals b
Macroeconomicsbprimarilybstudiesbeconomicbgrowthbandbbusinessbcycles.bOverbtime,btherebisbabprevailingbu
pwardbtrendbinbthebstandardbofbliving.bHowever,bsuchbgrowthbcanbbebratherberratic.bTherebarebsomebperiodsbof
bverybrapidbgrowth,bsome bperiodsbofbratherbanemicbgrowth,bandbalsobsomebperiodsbofbtemporarybeconomicbd
ecline.bExplanationsbforbtheboverallbupwardbtrendbinbstandardsbofblivingbarebthebsubjectbofbeconomicbgrowthb
analysis.bExplanationsbofbvariationsbinbgrowthboverbshorterbtimebhorizonsbarebthebsubjectbofbbusinessbcycleba
nalysis.bStudentsbshouldbbebablebtobdistinguishbbetweenbmicroeconomicbtopicsbandbmacroeconomicbtopics.b
Studentsbshouldbunderstandbthebdistinctionbbetweenbgrowthbanalysisbandbbusinessbcyclebanalysis.
Althoughbmicroeconomicsbandbmacroeconomicsbarebseparatebbranchesbofbstudy,bbothbbranchesbarebguided
bbybthebsamebsetbofbeconomicbprinciples.bStandardbeconomicbtheorybisbguidedbbybthebassumptionbofbmaximi
zingbbehavior.bAsbabfirstbapproximation,bwebthereforebviewbthebmacroeconomybasbabcollectionbofbmarketsb
withbmaximizingbparticipants.bThesebparticipantsbarebprice-
takingbagentsbandbthebeconomybisbcloselybapproximatedbbybabcompetitivebequilibrium.
Becausebthebeconomybasbabwholebisbextremelybcomplex,bmacroeconomistsbmustbrelybonbsomewhatbabstractb
models.bAlthoughbthebstructurebofbsuchbmodelsbdoesbnotbcorrespondbtoballbofbthebdetailsbofblifebinbabcomplexbs
ociety,bthesebmodelsbofferbthebbestbhopebofbprovidingbsimple,byetbaccuratebdescriptionsbofbhowbthebmacroeco
nomybworks,bandbhowbgovernmentbpoliciesbmaybaffectbmacroeconomicboutcomes.
Economistsbarebinbbroadbconsensusbaboutbthebmechanismsbofbeconomicbgrowth.bTherebisblessbagreementba
boutbthebcausesbandbconsequencesbofbbusinessbcycles.bWhilebtherebarebstrongbregularitiesbinbmacroeconomi
cbdata,bcompetingbtheoriesbhavebbeenbdevelopedbthatbeachbhavebabclaimbtobexplainingbthosebregularities.bTh
erebarebKeynesianbandbnon-
Keynesianbmodelsbofbthebbusinessbcycle.bExamplesbofbthebformerbarebKeynesianbcoordinationbfailurebmode
lsbandbNewbKeynesianbstickybpricebmodels.bExamplesbofbtheblatterbarebthebLucas-
Friedmanbmoneybsurprisebmodel,bthebrealbbusinessbcyclebmodel,bandbnewbmonetaristbmodels.
◼ ClassroomDiscussionTopics
b b
Onebgoodbwaybtobgetbthebballbrollingbisbtoblistbsomebmacroeconomicbconcernsblikebstagnantbeconomicbgrowt
h,bunemployment,binflation,bthebrecentbrecession,bgovernmentbbudgetbdeficits,btaxbburdens,bbalancebofbtrade
bdeficits,bfinancingbofbSocialbSecurity,bandbtheblike.bDrawbonbcurrentbnewsborblookbatbvariousbpolicybproposal
sbdiscussedbinbWashington.bAskborbpollbstudentsbasbtobwhetherbtheybarebpersonallybconcernedbaboutbsuchbpr
oblemsbandbwhatboriginalbprejudicesbtheybmightbhavebaboutbcausesbandbeffects.bSometimesbstudentsbexpress
bconcernsbaboutbtopicsbthatbarebperhapsbmorebmicroeconomicbinbnature,blikebinequalitybinbthebdistributionbof
bincomebandbenvironmentalbconcerns.bEmphasizebthatbeconomicbgrowthbmaybprovidebenoughbextrabresourc
esbtobhelpbdealbwithbthesebissues.
©2014bPearsonbEducation,bInc.
,Chapterb1bbb Introduction 2
Studentsboftenbhavebconflictingbideasbaboutbthebcurrentbstatebofbthebeconomy.bSometimesbtheirbperspectivesb
maybbebgovernedbbybtheirbindividualbcircumstances,bwhatbtheybreadbinbthebpaper,bwhatbtheybseebonbTVbandbt
heblike.bAskbthembwhetherbtheybbelievebthatbtimesbarebcurrentlybgoodborbbad.bAskbthembwhybtheybthinkbthebw
aybthatbtheybdo.bAskbthembhowbtheybcanbmorebobjectivelybbackbupborbcheckboutbtheirbcasualbimpressionsbabo
utbthebcurrentbstatebofbthebeconomy.
◼ Outline
I. . WhatbIsbMacroeconomics?
II. .
GrossbNationalbProduct,bEconomicbGrowth,bandbBusinessbCyclesb
IbIbIb. MacroeconomicbMbodels
IV. MicroeconomicbPrinciples
V. DisagreementbinbMbacroeconomics
VI. WhatbDobWebLearnbfrombMbacroeconomicbAnalysis?
A. Fundamentals:bPreferencesbandbProductivebCapacity
B. ThebEfficiencybofbMarketbOutcomes
C. ThebImplicationsbofbUnemployment
D. ThebSourcebofbLong-runbImprovementsbinbthebStandardbofbLiving
E. AbTaxbCutbisbnotbabFreebLunch
F. CreditbMarkets
G. ExpectationsbaboutbthebFuture
H. ThebRolebofbMoney
I. BusinessbCycles
J. InternationalbTradebinbGoodsbandbAssets
K. MoneybGrowthbandbInflation
L. ThebPhillipsbCurve
VII. UnderstandingbCurrentbandbRecentbMacroeconomicbEvents
A. AggregatebProductivity
B. UnemploymentbandbVacancies
C. Taxes,bGovernmentbSpending,bandbthebGovernmentbDeficit
D. Inflation
E. InterestbRates
F. BusinessbCyclesbinbthebUnitedbStates
G. CreditbMarketsbandbthebFinancialbCrisis
H. ThebCurrentbAccountbSurplus
◼ SolutionstoEnd-of-ChapterProblems
b b b
1. Calculatingbpercentagebgrowthbrates,bandblogbapproximationsbtobpercentagebgrowthbrates,bweb
obtain:
Year PercentagebGrowthbRate LogbApproximation
2003 1.597484 1.584858
2004 2.466649 2.436718
©2014bPearsonbEducation,bInc.
, Chapterb1bbb Introduction 3
2005 2.073992 2.052778
2006 1.667763 1.654008
2007 1.162146 1.155445
2008 -1.13738 -1.14389
2009 -4.41241 -4.51272
2010 2.257293 2.232193
2011 0.997377 0.992436
Inbthisbcase,bcalculatingbthebchangebinbthebnaturalblogarithmbfrombonebyearbtobthebnextbgivesbabgoodbapp
roximationbtobthebpercentagebgrowthbrate,basbthebgrowthbratesbarebsmall.bButbifbwebdobthebsamebthingbforbgro
wthbratesboverbten-
yearbperiods,basbbelow,bthebapproximationbisbpoor,basbthebgrowthbratesbarebrelativelyblarge.
Ten-yearbpercentagebgrowthbrate LogbApproximation
1960 19.09544 17.4755
1970 33.10087 28.59371
1980 22.66362 20.42756
1990 25.33007 22.57806
2000 23.14175 20.81659
2. SomebobviousbpossibilitiesbincludebFederalbReservebopenbmarketbpurchasesbtobkeepbthebmoneybsup
plybfrombshrinking,binstitutingbbankbreformsbbeforebthebDepressionbstarted,bavoidingbhighbtariffbrate
s,betc.
3. Newton’sbmodelbofbfallingbbodies.
Ignoresbairbresistance.
Worksbwellbforbmostbdensebobjects,bdoesn’tbworkbwellbforbfeathers.b
Diagramsbofbplaysbinbfootballbandbbasketball.
Ignoresbthebcharacteristicsbofbindividualbplayers,bandbopponentbreactions.b
Worksbwellbforbevenlybmatchedbteams.
©2014bPearsonbEducation,bInc.
