Chapter 1, Problem 1QAP

a.

To determine

To state: whether the statement is true, false or uncertain:in advanced as well as emerging and developing countries in 2009 output growth is negative.

Answer to Problem 1QAP

The statement is false that both the emerging and the advanced economies of the world grew at the negative rate during the year of 2009.

Explanation of Solution

The world economic crisis in the year of 2009 was one of the major economic crises which emanated from the financial crises in the United States which lead to the bankruptcy of the major banks of the United States.The effect of this crises which began from United States, was visible in the Euro market and the other emerging economies of the world.

There was the decline in the consumption levels of the individuals in the United States with the suspicion of the crises taking the major form much like The Great Depression.This was followed by the decline in the housing prices in USA which lead to the eventual decline in the prices of the stock market.

The crises further lead to the decline in the levels of the investment and eventually in the third quarter of the year of 2008, the growth rate turned negative.The economic crises in the year of 2009 lead to the decline of the growth rates of the major as well as the emerging economies of the world.The crises lead to the average economies of the advanced economies to grow at -3.4%, however the growth in the emerging economies in spite of being 3.5 percent lower than the average of the growth rate between the years 2000-2007, persisted to be positive.

b.

To determine

To state: whether the statement is true, false or uncertain: after 2009 the output growth of world recovered to its prerecession level.

Answer to Problem 1QAP

The statement is False.

Explanation of Solution

Post the period of the economic crises there were signs of the slow improvement and the repaired of the economies globally. There were sign of improvement of the economies post recession period but it would not be justified state that the situation returned to the levels of the prerecession period. The growth post crises period has been uneven and unimpressive. This can be suggested by the fact that the United States was able to grow positively but the problem of unemployment remained high.

c.

To determine

To state: whether the statement is true, false or uncertain: between 2007 and 2010 the stock prices around the world fell and later recovered to prerecession level.

Answer to Problem 1QAP

The above statement is False.

Explanation of Solution

It will be not right enough to state that the prices of the stock reached to its prerecession level with the recovery process post the crises. This fact can be said to be true for the developing and the emerging economies of the world but this fact was untrue in the case of United States.

d.

To determine

To state: whether the statement is true, false or uncertain: theunemployment rate in the United Kingdom is much lower than compared to the rest of the Europe.

Answer to Problem 1QAP

The above statement is True.

Explanation of Solution

Unemployment is one of the problems that the Euro countries faces while the other being the presence of the common currency. There is high level of unemployment in the European countries and this problem is more severe in the countries of Greece and Spain where the rate of unemployment is 25% and 23% in the respective manner. The problem of unemployment is however less severe in United Kingdom which has been successful in its attempt to remove the rigidities of the labor market like United States which the other European countries have not yet been able to achieve.

e.

To determine

To state: whether the statement is true, false or uncertain: the high growth rate in China is a myth in fact it is a product solely of misleading official statistics.

Answer to Problem 1QAP

The above statement is False.

Explanation of Solution

China is one of the leading economies of the world which has witnessed tremendous economic growth with its growth rate at around 10% a year. However there can be no denying of the fact that its economic performance is overestimated with the Communist government making the attempts in the country to cast their picture of economic success globally. However, it is not justified to state that China experiences the high growth rate essentially and solely because of the misleading statistics.

f.

To determine

To state: whether the statement is true, false or uncertain: the unemployment rate increased in European countries when majority of them adopted common currency.

Answer to Problem 1QAP

The above statement is False.

Explanation of Solution

The problem of unemployment in the European countries is not linked with the fact that they have a common currency but instead the problem lies behind their ineffective labor policies, most of the European counties have stringent labour laws which make it difficult for the employers to lay of the employees in order to protect them. The employers are thus hesitant to provide job opportunities in their countries.

g.

To determine

To state: whether the statement is true, false or uncertain: in order to avoid recessions and increasing interest rates the Federal reserve lowers rate of interest when wanting to lower the growth rate in an economy.

Answer to Problem 1QAP

The above statement is True.

Explanation of Solution

The above statement is true with the respect to the set of actions taken by the Fed in the year of crises where it lowered the interest rates so that there the spending can be decreased. This made the firms and the individuals to invest which lead to the rise in the demand which were slowed down in the market during the time of the crises. In the similar manner when the Fed has to stop the growth of the economy it increases the rate of the interest which slows down the demand and the eventual growth of the economy in USA.

h.

To determine

To state: whether the statement is true, false or uncertain: there is difference in per person output in Euro area, the United States and China.

Answer to Problem 1QAP

The above statement is True.

Explanation of Solution

It is true that the output per person in the United States, Euro area and China are different from each other. While considering the success of the economy the economists considers the two aspects in which the output person is one of them.

i.

To determine

To state: whether the statement is true, false or uncertain: in United States rate of interest were near zero or at zero.

Answer to Problem 1QAP

The above statement is True.

Explanation of Solution

The Federal Reserve in its attempt to restore the economy of the United States of America reduced the interest rates to zero so that individuals and the industries can afford to make purchases and raise the demand from the market which was suffering decline during the period of the crises.