Macroeconomics Canadian 6th Edition Abel Solutions Manual

Macroeconomics Canadian 6th Edition

Abel Solutions Manual
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Macroeconomics Canadian 6th Edition Abel Solutions Manual

CHAPTER 1: INTRODUCTION TO MACROECONOMICS

LEARNING OBJECTIVES
I. Goals of Part I: Introduction
A. Introduce students to the main concepts in macroeconomics (Ch. 1)
B. Introduce national income accounting and major economic magnitudes (Ch.
2)
II. Goals of Chapter 1
A. Major economic issues—growth, business cycles, unemployment, inflation,
the international economy, macroeconomic policy, aggregation (Sec. 1.1)
B. What macroeconomists do—forecasting, analysis, research, data
development (Sec. 1.2)
C. Why macroeconomists disagree—Classicals vs. Keynesians, the text's
approach (Sec. 1.3)
III. Notes to Sixth Edition Users
A. All Figures have been updated to reflect the newly available data

TEACHING NOTES
I. What Macroeconomics Is About (Sec. 1.1)
A. Long-run economic growth
1. Growth of real output in Canada over time
2. Sources of growth—rising population, increase in the average labour
productivity
This may be a good place to introduce students to the calculation of a growth-rate,
which is used throughout the textbook. You can write it first in general terms, as
%∆X = [(Xt+1 – Xt)/Xt] × 100% = [(Xt+1/Xt) – 1] x 100%.
Then you might use an example with something you're talking about, such as real GDP
growth over the past year, or the inflation rate. We also recommend explaining how the
growth rate of a ratio is approximately the growth rate of the numerator minus that of the
denominator. Throughout the text, students may come across mathematical calculations
that are unfamiliar to them. The Appendix at the end of the textbook contains some
helpful basic guidance to mathematical topics, including discussions of functions and
graphs, slopes of functions, elasticities, functions of several variables, shifts of a curve,
exponents, and growth rate formulas.
B. Business cycles
C. Unemployment; Canadian experience
Analytical Problem 1 asks students to think about average labour productivity and
unemployment and their relationship to output.
D. Inflation
1. Canadian experience
Analytical Problem 2 asks students to think about the welfare consequences of having a
higher price level.

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2 Chapter 1

2. Deflation (falling prices)

3. Inflation rate
You may wish to note here that the inflation rate is just the growth rate of the price level,
so that π = [(Pt + 1/Pt) - 1 × 100%. Numerical Problem 1 gives students practice
calculating growth rates, including the growth rate of average labour productivity,
unemployment rate, and the inflation rate.
E. The international economy
1. Open vs. closed economies
2. Trade imbalances; the trade deficit and the trade surplus
3. The exchange rate
F. Macroeconomic policy
1. Fiscal policy
a. Effects of large federal deficits
b. Canadian experience
c. Relation to decline in productivity growth
Numerical Problem 2 serves two purposes: (1) to get students to look at some real data
on the economy; and (2) to give them some idea how large are the trade deficit and
government budget deficit or surplus.
2. Monetary policy; the Bank of Canada
G. Aggregation; from microeconomics to macroeconomics
II. What Macroeconomists Do (Sec. 1.2)
A. Macroeconomic forecasting
1. Relatively few economists make forecasts
Data Application
There are many firms that provide forecasts for macroeconomic variables in Canada,
such as the Conference Board of Canada, DRI Canada, and most private banks. In
addition the Federal Department of Finance and the Bank of Canada make projections
for the economy based on large scale macroeconometric models. Finally international
agencies such as the Organization for Economic Cooperation and Development
(OECD) provide annual surveys of the Canadian economy which make forecasts for the
economy.
2. Forecasting is very difficult
Data Application
Francis X. Diebold presents a comprehensive survey of the development of structural
and non-structural forecasting in his article, "The Past, Present, and Future of
Macroeconomic Forecasting," Journal of Economic Perspectives, Spring 1998, vol. 12,
pp. 175-92. Despite the difficulties in macroeconomic forecasting, he is optimistic about
its future with the rapid advances in numerical and simulation techniques.
B. Macroeconomic analysis
1. Private and public sector economists—analyze current conditions

Copyright © 2012, Pearson Canada Inc., Toronto, Ontario

 Introduction to Macroeconomics 3

Data Application
The Canadian financial sector hires a large number of economists, most of whom are
engaged in data analysis on a daily basis. Their job is to tell traders what the current
data means in terms of their effect on the financial markets in general, as well as on the
prices of individual assets. Many of them also make their own detailed forecasts of the
economy.
2. Does having lots of economists ensure good macroeconomic policies?
No, since politicians, not economists, make major decisions
C. Macroeconomic research
1. Goal: to make general statements about how the economy works
2. Theoretical and empirical research are necessary for forecasting and
economic analysis
3. Economic theory: a set of ideas about the economy, organized in a
logical framework
4. Economic model: a simplified description of some aspect of the
economy
This is a good point for you to talk about your own research interests. It has been found
that students are very interested in learning about the kind of research their instructors
do. You may want to talk about your research later, if and when you come to a section
of the textbook that discusses the topic on which you do your research.
5. Usefulness of economic theory or models depend on reasonableness
of assumptions, possibility of being applied to real problems,
empirically testable implications, and theoretical results consistent with
real-world data
Theoretical Application
The classic discussion of research issues by Milton Friedman is, "The Methodology of
Positive Economics," Essays in Positive Economics, Chicago: University of Chicago
Press, 1953.
Analytical Problem 3 is an exercise in how to formulate and test a theory.
D. Data development—very important for making data more useful
Ill. Why Macroeconomists Disagree (Sec. 1.3)
A. Positive vs. normative analysis
Analytical Problem 4 gives students practice in distinguishing positive from normative
analysis.
B. Classicals vs. Keynesians
1. The classical approach
a. The economy works well on its own; the "invisible hand" leads
people, acting in their own best interests, to maximize the
general welfare
b. Wages and prices adjust rapidly to get to equilibrium
c. Result: Government should have only a limited role in the
economy

Copyright © 2012, Pearson Canada, Inc., Toronto, Ontario

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