Macro Economics Question

MACROECONOMICS MODULE 6 (CH. 17) HOMEWORK ASSIGNMENT 1. Why did the classical macroeconomic school of thought lose its credibility during the 1930’s? 2. Explain the monetarist school of thought to macroeconomic theory. 3. Explain today’s consensus of the school of thought behind macroeconomic theory. Production function Labor Real GDP hours (millions of (millions) 2009 dollars) 0 0 1 10 2 19 3 27 4 34 5 40 Labor market Real wage rate Quantity of Quantity of (dollars per labor labor supplied hour) demanded (millions of hours per year) 10 1 5 9 2 4 8 3 3 7 4 2 6 5 1 Use the information set out in the tables above about the economy of Athabasca to work Problems 4 and 5. 4. Calculate a. the quantity of labor employed, b. the real wage rate, and c. potential GDP. (Remember the law of supply and demand and equilibrium – where the quantity supplied is = to the quantity demanded – find this equilibrium point to get quantity, and then follow it across the table to calculate real wage rate and potential GDP). 5. If the labor force participation increases, explain how employment, the real wage rate, and potential GDP change. 6. In 2005 and 2006, India’s real GDP grew by 9.2 percent a year and its population grew by 1.6 percent a year. If these growth rates are sustained, in what years would • Real GDP be twice what it was in 2006? (Use the Rule of 70 pg. 457) . • Real GDP per person be twice what it was in 2006? (Again, use the Rule of 70, but be sure to subtract the population growth first before calculating how long it would take real GDP per person to double. Good example on pg. 459 #’s 1 & 2) 7. Even though saving and investment in additional capital is a source of labor productivity growth, without the expansion of human capital and technological change, it would not bring sustained economic growth. Eventually growth would slow and most likely stop. Why? Explain your answer fully. 8. Look at Figure 17.5 pg. 465 (also in lecture) and explain in detail why real GDP per hour of labor increases from: $40 to $80 per hour of labor. 9. What characterized the economy of the “booming Sixties”? 10. What caused the economic stagnation of the1970’s?