Exam (elaborations)

Solutions for Macroeconomics, 9th Edition Blanchard (All Chapters included)

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Course
Managerial Economics

Institution
Managerial Economics

Complete Solutions Manual for Macroeconomics, 9th Edition by Olivier Blanchard, David H. Johnson ; ISBN13: 9780138119096..(Full Chapters included Chapter 1 to 24)...1: A Tour of the World 2: A Tour of the Book 3: The Goods Market 4: Financial Markets 5: Goods and Financial Markets: The IS-LM Mo...

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econ
9th
solutions
manual
answer guide
macroeconomics
9th edition
blanchard
9780138119096
9e
solutions manual

Institution Managerial Economics
Course Managerial Economics

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Macroeconomics
9th Edition by Olivier Blanchard

Complete Chapter Solutions Manual
are included (Ch 1 to 24)

** Immediate Download
** Swift Response
** All Chapters included
** EOC Solutions

, TABLE OF CONTENTS
PART 1 – INTRODUCTION
1: A Tour of the World 1-1
2: A Tour of the Book 2-6
PART 2 – THE SHORT RUN
3: The Goods Market 3-11
4: Financial Markets 4-16
5: Goods and Financial Markets: The IS-LM Model 5-22
6: Financial Markets II: The Extended IS-LM Model 6-27
PART 3 – THE MEDIUM RUN
7: The Labor Market 7-33
8: The Phillips Curve, the Natural Rate of Unemployment, and Inflation 8-38
9: From the Short to the Medium Run: The IS-LM-PC Model 9-43
PART 4 – THE LONG RUN
10: The Facts of Growth 10-47
11: Saving, Capital Accumulation, and Output 11-50
12: Technological Progress and Growth 12-56
13: The Challenges of Growth 13-60
PART 5 – EXPECTATIONS
14: Financial Markets and Expectations 14-63
15: Expectations, Consumption, and Investment 15-66
16: Expectations, Output, and Policy 16-71
PART 6 – THE OPEN ECONOMY
17: Openness in Goods and Financial Markets 17-74
18: The Goods Market in an Open Economy 18-79
19: Output, the Interest Rate, and the Exchange Rate 19-84
20: Exchange Rate Regimes 20-89
PART 7 – BACK TO POLICY
21: Should Policymakers Be Restrained? 21-94
22: Fiscal Policy: A Summing Up 22-98
23: Monetary Policy: A Summing Up 23-102
24: Epilogue: The Story of Macroeconomics 24-106

ANSWERS TO END-OF-CHAPTER PROBLEMS 110

, CHAPTER 1. A TOUR OF THE WORLD
The purpose of Chapter 1 is to give a sense of the questions which macroeconomics focuses on, from
post-Covid inflation in advanced economies to growth in China.

I. MOTIVATING QUESTION
What is macroeconomics?
The chapter does not provide an explicit or formal answer. Instead, it takes you on an economic tour of
the world and then describes the 2020 global Covid pandemic. Next the chapter reviews changes in the
ratio of public debt to GDP for the United States, France, Germany and Japan. The chapter also provides
an overview of the growth of China and its increasing importance in the world economy. The chapter
concludes with discussions of growth and inequality, as well as the growing climate crisis. A working
definition of macroeconomics at this point is the study of output, unemployment, and inflation, terms that
will be defined precisely in Chapter 2.

II. WHY THE ANSWER MATTERS
This chapter attempts to provide students an incentive to master the theoretical material that follows in the
remainder of the text. The implicit promise is that the theoretical model developed in the text will allow
students to make sense of the various macroeconomic issues that continue to impact countries around the
world.

III. KEY TOOLS, CONCEPTS, AND ASSUMPTIONS
1. Tools and Concepts
Chapter 1 does not provide any analytical tools. However, it does force students to confront some basic
data and introduces data sources for various regions of the world. In addition, the chapter introduces and
defines the concepts of output, growth, the unemployment rate, and the inflation rate. A more precise
definition of these terms follows in Chapter 2.

Chapter 1 mentions in passing the terms standard of living, productivity, and purchasing power
parity. All of these terms and concepts will be explored in later chapters in the text.

2. Assumptions

Implicit in the Tour of the World is the assumption that the same basic macroeconomic tools can be used
to analyze economies throughout the world. It might be worth making this point explicitly. The
macroeconomic framework developed in the text would be neither terribly useful, nor compelling as a
theory, if it applied only to the United States, and not to the other market economies.

1-1

, IV. SUMMARY OF THE MATERIAL
1. The Covid Crisis, Inflation, and Interest Rates
Included in the 9th edition of the textbook is a discussion of the effects of the Covid epidemic beginning in
2020. Figure 1-1 outlines the gross domestic product for the United States and the Euro Area, showing a
large dip in the second quarter of 2020 due to the lockdowns imposed to stem the spread of the disease.

Figure 1-2 shows the evolution of inflation in the wake of the pandemic, as lockdowns were lifted and
firms reopened. Government efforts to support people affected by the pandemic resulted in strong demand
overheating both the labor and goods markets once restrictions were removed.

Figure 1-3 shows the monetary policy rates in the United States and the euro area, where policy rates
were reduced to zero for a time in order to sustain demand. Central banks did not increase the interest rate
to reduce inflation until 2022.

The economic crisis (as opposed to the health crisis) was triggered by the policy decisions to lock down
countries. While this was justified on health grounds, it did mean that people could not go out to buy
goods, and firms could not produce goods without workers, leading to a collapse in output.

During the pandemic, governments put in place programs to protect people who were no longer working
and firms that were at risk of going bankrupt. The U.S. spent over $5 trillion on such programs.

The result was very strong demand once lockdowns ended. Unemployment decreased rapidly, putting
pressure on wages. High demand for commodities led to large increases in the world prices of energy and
food.

Many supply chains were still recovering as demand increased. Firms rationed demand via large price
increases.

Central banks were slow to react. Policy rates remained at zero to stimulate demand; only in 2022 were
interest rates increased in an effort to reduce inflation. Inflation has decreased since mid-2022, reflecting
the improvement in supply chains and the stabilization of (and sometimes decrease in) commodity prices.

The question facing central banks is whether they have done enough to decrease overheating and return
inflation to target. The risk of doing more is to slow down activity too much and trigger a strong
recession. The risk of doing too little is to allow inflation to remain above target for a long time. The
decline in housing prices and the collapse in stock prices lead to a decline in consumption of goods and
services.

2. The Increase in Public Debt
This section discusses how fiscal deficits lead to increases in public debt.

Figure 1-4 shows the evolution of the debt ratio (the ratio of public debt to GDP) in four countries—the
United States, France, Germany, and Japan—since 2001. Note that the debt ratios have two bumps, the
first during the Global Financial Crisis of the late 2000s and the second during the early part of the Covid
crisis.

1-2

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