Chapter 10: Q. 1FCT (page 226)
How could a return of the U.S. population growth rate to its previous level reduce the disinflationary effect of secular stagnation?
This has improved the nation's overall potential (GDP).
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As more of the nation's systems of river locks become deficient, what is happening to the pace at which the U.S. production possibilities curve shifts outward over time?
In Ciudad Barrios, El Salvador, the latest payments from relatives working in the United States have finally arrived. When the credit unions open for business, up to 150 people are already waiting in line. After receiving the funds their relatives have transmitted to these institutions, customers go off to outdoor markets to stock up on food or clothing or to appliance stores to purchase new refrigerators or televisions. Similar scenes occur throughout the developing world, as each year migrants working in higher-income, developed nations send around $200 billion of their earnings back to their relatives in less developed nations. Evidence indicates that the relatives, such as those in Ciudad Barrios, typically spend nearly all of the funds on current consumption.
a. Based on the information supplied, are developing countries' income inflows transmitted by migrant workers primarily affecting their economies' long-run aggregate supply curves or aggregate demand curves?
b. How are equilibrium price levels in nations that are recipients of large inflows of funds from migrants likely to be affected? Explain your reasoning.
Explain whether each of the following events would cause a movement along or a shift in the position of the L.RAS curve, other things being equal. In each case, explain the direction of the movement along the curve or shift in its position.
a. Last year, businesses invested in new capital equipment, so this year the nation's capital stock is higher than it was last year.
b. There has been an 8 percent increase in the quantity of money in circulation that has shifted the curve.
c. A hurricane of unprecedented strength has damaged oil rigs, factories, and ports all along the nation's coast.
d. Inflation has occurred during the roast year as a result of rightward shifts of the curve.
Take a look at the panel (b) of Figure 10-8. What change in the position of the aggregate demand curve could generate inflation-that is, an increase in the equilibrium price level? What type of variation in the quantity of money placed into circulation by the Federal Reserve could generate such a change in the position of the aggregate demand curve?
Suppose that the long-run aggregate supply curve is positioned at a real GDP level of trillion in base-year dollars, and the long-run equilibrium price level (in index number form) is 115 . What is the full-employment level of nominal GDP?
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