23.1 Draw
a graph with “Level of real output” on the vertical axis and “Time” on
the horizontal axis. If the long-run trend line of economic growth for
the United States were to appear on your graph as a straight upsloping
line, how would you pencil in economic fluctuations in relation to that
straight line? Referring to your graph, briefly explain why economic
fluctuations and economic growth are compatible concepts. Check your
drawing against Figure 26.1, page 527.
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23.2 Why
do you think macroeconomists focus on just a few key statistics when
trying to understand the health and trajectory of an economy? Would it
be better to try to examine all possible data?
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23.3 Consider
a nation in which the volume of goods and services is growing by 5
percent per year. What is the likely impact of this high rate of growth
on the power and influence of its government relative to other countries
experiencing slower rates of growth? What about the effect of this 5
percent growth on the nation's living standards? Will these also
necessarily grow by 5 percent per year, given population growth? Why or
why not?
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23.4 Did
economic output start growing faster than population from the beginning
of the human inhabitation of the earth? When did modern economic growth
begin? Have all of the world’s nations experienced the same extent of
modern economic growth?
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23.5 Why
is there a trade-off between the amount of consumption that people can
enjoy today and the amount of consumption that they can enjoy in the
future? Why can’t people enjoy more of both? How does saving relate to
investment and thus to economic growth? What role do banks and other
financial institutions play in aiding the growth process?
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23.6 How
does investment as defined by economists differ from investment as
defined by the general public? What would happen to the amount of
economic investment made today if firms expected the future returns to
such investment to be very low? What if firms expected future returns to
be very high?
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23.7 Why, in general, do shocks force people to make changes? Give at least two examples from your own experience.
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23.8 Catalog
companies are committed to selling at the prices printed in their
catalogs. If a catalog company finds its inventory of sweaters rising,
what does that tell you about the demand for sweaters? Was it
unexpectedly high, unexpectedly low, or as expected? If the company
could change the price of sweaters, would it raise the price, lower the
price, or keep the price the same? Given that the company cannot change
the price of sweaters, consider the number of sweaters it orders each
month from the company that makes its sweaters. If inventories become
very high, will the catalog company increase, decrease, or keep orders
the same? Given what the catalog company does with its orders, what is
likely to happen to employment and output at the sweater manufacturer?
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23.9 LAST WORD
Why do some economists believe that better inventory control software
and systems may help to reduce the frequency and severity of recessions
caused by mild demand shocks? How could those same inventory systems
quickly transmit large demand shocks directly to sudden, deep
recessions?
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