Macroeconomics
Macroeconomics
5th Edition
ISBN: 9781319098759
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Chapter 11, Problem 1P
To determine

Concept introduction:

Gross Domestic Product: It is defined as the money value of all finished goods and services that are produced by the normal resident and nonresident of the country inside the boundary of a country usually for one year.

Marginal Propensity to Consume ( MPC ): It is defined as the change which occurs in total consumption level due to change in income.

The formula to calculate MPC is,

    Macroeconomics, Chapter 11, Problem 1P , additional homework tip  1

Here,

  • Macroeconomics, Chapter 11, Problem 1P , additional homework tip  2is change in income.
  • Macroeconomics, Chapter 11, Problem 1P , additional homework tip  3is change in consumption level.
  • MPC is marginal propensity to consume.

Multiplier: It is defined as the ratio of total change in gross domestic product due to change in the autonomous spending.

The formula to calculate multiplier is,

    Macroeconomics, Chapter 11, Problem 1P , additional homework tip  4

Here,

  • MPC is marginal propensity to consume.

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M” method  Given the following model, solve by the method of “M”. (see image)
As indicated in the attached image, U.S. earnings for high- and low-skill workers as measured by educational attainment began diverging in the 1980s. The remaining questions in this problem set use the model for the labor market developed in class to walk through potential explanations for this trend.  1. Assume that there are just two types of workers, low- and high-skill. As a result, there are two labor markets: supply and demand for low-skill workers and supply and demand for high-skill workers. Using two carefully drawn labor-market figures, show that an increase in the demand for high skill workers can explain an increase in the relative wage of high-skill workers.  2. Using the same assumptions as in the previous question, use two carefully drawn labor-market figures to show that an increase in the supply of low-skill workers can explain an increase in the relative wage of high-skill workers.
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