Solutions for Macroeconomics, 17th Canadian Edition by Christopher Ragan
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Course
Macroeconomics
Institution
Macroeconomics
Complete Solutions Manual for Macroeconomics 17ce 17th Canadian Edition by Christopher Ragan. Full Chapters Solutions are included - Chapter 1 - 19
Economic Issues and Concepts
Economic Theories, Data, and Graphs
Demand, Supply, and Price
What Macroeconomics Is All About
The Measurement of N...
Complete Solutions for Macroeconomics, 17th Canadian Edition Ragan
All Chapters included - Chap 1 - 19
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Part One
What Is Economics?
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This opening Part of the book provides an introduction to economics. The central themes of Chapter 1
are scarcity, choice, opportunity cost, and the self-organizing role of markets. The chapter also
examines the gains from specialization and trade, the role of money, the effects of globalization, and
ends with a discussion of the various types of economic systems. Chapter 2 examines how economists
build their models and test their theories. It also addresses central methodological issues, the most
important being the idea that the progress of economics (like all scientific disciplines) depends on
relating our theories to what we observe in the world around us. Finally, the chapter has an extensive
section on graphing. Chapter 3 introduces the basic microeconomic model of demand and supply,
and the determination of (relative) prices.
Our feeling is that this three-chapter introduction to economics, which includes the workhorse
model of demand and supply, is a very useful starting point for students in a macroeconomics course.
Some students will have already completed a micro course, perhaps just a few weeks ago, in which
case a very quick review of these chapters is all that is necessary. But many students take a macro
course without having already taken a micro course, and for them especially, this three-chapter
introduction will be very useful.
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Chapter 1 opens with a brief tour of some key economic issues in Canada and other countries—from
rising protectionism and the dangers of climate change to accelerating technological change and
growing income inequality. The purpose is to whet the reader’s appetite for the kinds of issues
economists are thinking about today. This offers a natural segue to the discussion of scarcity, without
which few of these issues would be very interesting. The chapter addresses the fundamental concepts
of scarcity, choice, and opportunity cost, illustrating these ideas with a production possibilities
boundary. (It is worth noting that these concepts are relevant to all economies, whether they are
organized by central planning or by free markets.) We then examine the complexity of modern
market economies, examining the decision makers, production, trade, money, and globalization.
Finally, we examine different types of economic systems, including traditional, command, and free-
market systems. We emphasize that all actual economies are mixtures, containing elements of all
three pure systems.
Chapter 2 provides a longer introduction to the methodological issues of economics than is
usually included in introductory texts. We do this because most students believe that the scientific
method is limited to the natural sciences. But to appreciate economics, they must understand that its
theories are also open to empirical testing and that these theories continually change as a result of
what the empirical evidence shows. We understand that some instructors feel their time is so limited
that they cannot spend class time on Chapter 2. We believe that even if it is not covered in class,
,2 Instructor’s Solutions Manual for Ragan, Macroeconomics, Seventeenth Canadian Edition
students’ attention should be called to the issues addressed in the chapter. Our experience is that
students benefit from some discussion of the scientific method and from the insight that the social
sciences are not all that different from the “hard” sciences, at least in their basic approaches.
The chapter begins by making the distinction between positive and normative statements. We
then work carefully through the various elements of economic theories, including definitions,
assumptions, and predictions. Testing theories is as important as developing them, so we emphasize
the interaction between theorizing and empirical observation. We then present various types of
economic data, and this gets us into a detailed discussion of index numbers, time-series and cross-
section data, and graphs. The final section of the chapter goes through graphing in detail.
Chapter 3 covers the basic theory of demand, supply, and price. This is the student’s first
really decisive hurdle. When it is cleared, students will have mastered some economic theory and
will be ready to start applying it. A box addresses the kinds of industries where the model of demand
and supply can usefully be applied, and also those where it can’t.
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Chapter 1: Economic Issues and Concepts
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This chapter is in three main sections, after a short introductory mention of some key economic
issues of the day. The first substantive section develops the concepts of scarcity, choice, and
opportunity cost. To ensure the student really understands what opportunity cost is all about, we
have a box that examines the opportunity cost of a university or college degree. This should be a
familiar example to which students can easily relate. The production possibilities boundary is then
introduced, and it is shown to embody the three key concepts of scarcity, choice and opportunity
cost. Its nature as a frontier between attainable and unattainable is worth stressing, as is the fact
that what is attainable is itself subject to change. Four key economic problems are then discussed,
and each one is expressed in terms of the production possibilities boundary. These questions give
the student an inkling of the types of questions addressed both in microeconomics and in
macroeconomics.
The chapter’s second section examines the complexity of modern economies, asking why
the things we want to purchase are almost always available. What produces this remarkable
coordination? We discuss the market as an instrument that brings order to the economy as a whole.
Along the way, the student is introduced to Adam Smith’s “invisible hand”. The section also
discusses who makes the choices in a market economy, and why incentives matter. We show the
circular flow of income and expenditure as a way of showing the interaction between consumers
and producers. We also examine the nature of maximizing decisions (both utility and profit), and
the importance of decisions at the margin. Finally, on the production side, we examine the role of
specialization, the division of labour, globalization, and the importance of money in facilitating
trade.
The chapter’s third and final section deals with comparative economic systems. Students
will read in almost every chapter of this book about a market economy. Contrasting it with planned
and traditional economies is a good way to gain some insight into the concept at the outset. We
emphasize that actual economies are rarely, if ever, well represented by the extremes; instead,
actual economies are mixed economies, with varying degrees of government ownership and
planning. Students are introduced to Karl Marx’s argument for a centrally planned economy. While
Marx had many things right, we argue that central planning has not been successful in proving
itself as an efficient way of organizing an economy, allocating resources, or generating prosperity
for a large fraction of the population.
, 4 Instructor’s Solutions Manual for Ragan, Macroeconomics, Seventeenth Canadian Edition
Answers to Study Exercises
Fill-in-the-Blank Questions
Question 1
a) land, labour, capital; factors
b) opportunity cost
c) production possibilities boundary
d) scarcity (because points outside the boundary are unattainable); downward (or negative); the
opportunity cost associated with any choice
e) constant; increasing
f) increases (meaning that more units of good B must be given up to get an extra unit of good A)
Question 2
a) self; self-interest
b) incentives
c) firms; households; governments
d) increase (maximize); increase (maximize)
e) margin; (marginal) cost
Question 3
a) division; specialization
b) trade
c) money
d) globalization
Review Questions
Question 4
Any realistic production possibilities boundary displays scarcity, the need for choice, and
opportunity cost.
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