Week 13 – Introduction to Macroeconomics (Chapters 16 and 17)
1. In the years to 2050 the Japanese population is expected to decline, while the fraction of the population that is retired is expected to increase sharply. What are the implications of these population changes for total output and average living standards in Japan, assuming that average labour productivity continues to grow? What if average labour productivity stagnates?
Solution 1:

Slowing population growth and an increased share of retired people both imply slower growth in the number of people employed. If average labour productivity (output per employed worker) continues to grow at earlier rates, total output will still grow more slowly than before, because of …show more content…

Since China’s population is much larger than Japan’s, the average living standard of a Chinese citizen is still lower than that of a Japanese citizen.

5. Eurostat, the European agency that collects a wide variety of statistics about the European economy, reports the following figures for government expenditures and revenue in Ireland and Norway for 2009. | Expenditure (% of GDP) | Revenue (% of GDP) | Ireland | 48.9 | 34.5 | Norway | 45.8 | 37.8 |

Find the government deficit/surplus (as a % of GDP) for each country in 2009.
Solution 5:

Ireland’s budget position is revenue – expenditure = 34.5 – 48.9 = -14.4 as a% of GDP. Norway’s budget position is 37.8 – 45.8 = -8 as a % of GDP. Both countries ran a budget deficit in 2009, though Norway’s was smaller than Ireland’s.

6. Classify the following into either stabilisation or structural economic policies.
a. The central bank reacts to a rise in inflation by increasing interest rates.
b. The finance minister responds to a rise in unemployment by cutting the rate of income tax.
c. In an attempt to increase productivity the government announces new tax incentives to promote research and development.
d. The EU negotiates a new free trade deal with China
e. The government deficit increases as the economy moves into recession. Solution 6: a. stabilisation policy (policy aimed at moderating short-term economic fluctuations)
b.