Solution Manual For Macroeconomics Canadian 15Th Edition Ragan 013391044X 9780133910445 Full Chapter PDF
Solution Manual For Macroeconomics Canadian 15Th Edition Ragan 013391044X 9780133910445 Full Chapter PDF
Solution Manual For Macroeconomics Canadian 15Th Edition Ragan 013391044X 9780133910445 Full Chapter PDF
013391044X 9780133910445
This chapter provides an introduction to the methods economists use in their research. We integrate
a detailed discussion of graphing into our discussion of how economists present economic data and
how they test economic theories.
In our experience, students typically do not learn enough about the connection between
theory and evidence, and how both are central to understanding economic phenomena. We
therefore recommend that considerable emphasis be placed on Figure 2-1, illustrating the process
of going from model building to generating hypotheses to confronting data and testing hypotheses,
and then returning to model building (or rebuilding). There is no real beginning or end to this
process, so it is difficult to call economics an entirely “theory driven” or “data driven” discipline.
Without the theory and models, we don’t know what to look for in the data; but without
experiencing the world around us, we can’t build sensible models of human behaviour and
interaction through markets. The scientific approach in economics, as in the “hard” sciences,
involves a close relationship between theory and evidence.
***
The chapter is divided into four major sections. In the first section, we make the important
distinction between positive and normative statements and advice. Students must understand this
distinction, and that the progress of any scientific discipline relies on researchers’ ability to
separate what evidence suggests is true from what they would like to be true. We conclude this
section by explaining why economists are often seen to disagree even though there is a great deal
of agreement among them on many specific issues. This leads to a box on where economists
typically get jobs and the kind of work they often do.
The second section explains the elements of economic theories and how they are tested.
We emphasise how a theory’s or model’s definitions and assumptions lead, through a process of
logical deduction, to a set of conditional predictions. We then examine the testing of theories. It
is here that we focus on the interaction of theory and empirical observation (Figure 2- 1). We
emphasize the importance of the distinction between correlation and causation, with a simple
example.
The chapter’s third section deals with economic data. We begin by explaining the
construction of index numbers, and we use them to compare the volatility of two sample time
series. Index numbers are so pervasive in discussions of economic magnitudes that students must
know what these are and how they are constructed. We then make the distinction between cross-
sectional and time-series data, and at this point students are introduced to two types of graph.
This brings us to the chapter’s final section, on graphing. We show how a relation can be
expressed in words, in a table, in an equation, or on a graph. We then go into considerable detail
on linear functions, slope, non-linear functions, and functions with minima and maxima. In this
Copyright © 2017 Pearson Canada Inc.
11
Instructor’s Manual for Ragan, Economics, Fifteenth Canadian Edition
Chapter 2: Economic Theories, Data, and Graphs
discussion, the student is introduced to the concept of the margin, described as the change in Y in
response to a one-unit change in X. In all cases, the graphs apply to real -world situations rather
than abstract variables. Pollution abatement, hockey-stick production, firm profits, and fuel
consumption are our main examples.
Question 1
Question 2
a) In the Canadian wheat sector, the amount of rainfall on the Canadian prairies is an exogenous
variable; the amount of wheat produced is an endogenous variable.
b) To the Canadian market for coffee, the world price of coffee is exogenous; the price of a cup
of coffee at Tim Horton’s is endogenous.
c) To any individual student, the widespread unavailability of student loans is exogenous; their
own attendance at university or college is endogenous.
d) To any individual driver, the tax on gasoline is exogenous; his or her own decision regarding
which vehicle to purchase is endogenous.
Question 3
Question 4
The observed correlation cannot lead to a certain inference about causality. It is consistent with
the theory that the increase in demand for homes leads to an increase in the price of lumber
(which is generally a pretty sensible theory!), but it is also consistent with a different theory –
one in which some unobserved factor leads to both the increase in demand for homes and
separately to the increase in the price of lumber. Correlation does not imply causality!
Question 5
a) These data are best illustrated with a time-series graph, with the month shown on the
horizontal axis and the exchange rate shown on the vertical axis.
c) These cross-sectional data are best illustrated in a scatter diagram; the “line of best fit” is clearly
upward sloping, indicating a positive relationship between average investment rates and average
growth rates.
Question 6
a) Using 2000 as the base year means that we choose $85 as the base price. We thus divide the
actual prices in all years by $85 and then multiply by 100. In this way, we will determine, in
percentage terms, how prices in other years differ from prices in 2000. The index values are as
follows:
b) The price index in 2005 is 131.8, meaning that the price of the physics textbook is 31.8
percent higher in 2005 than in the base year, 2000.
c) From 2007 to 2010, the price index increases from 147.1 to 152.9⎯but this is not an increase
of 5.8 percent. The percentage increase in the price index from 2007 to 2010 is equal to [(152.9-
147.1)/147.1]×100 = 3.94 percent.
d) These are time-series data because the data are for the same product at the same place but at
different points in time.
Question 7
a) Using Calgary as the “base university” means that we choose $6.25 as the base price. Thus we
divide all actual prices by $6.25 and then multiply by 100. In this way, we will determine, in
percentage terms, how prices at other universities differ from Calgary prices. The index values
are as follows:
b) The university with the most expensive pizza is Queen’s, at $8.00 per pizza. The index value
for Queen’s is 128, indicating that pizza there is 28 percent more expensive than at Calgary.
c) The university with the least expensive pizza is Manitoba, at $5.50 per pizza. The index value
for Manitoba is 88, indicating that the price of pizza there is only 88 percent of the price at Calgary.
It is therefore 12 percent cheaper than at Calgary.
d) These are cross-sectional data. The variable is the price of pizza, collected at different places
at a given point in time (March 1, 2016). If the data had been the prices of pizza at a single
university at various points in time, they would be time-series data.
Question 8
a) Using 2005 as the base year for an index number requires that we divide the value of exports
(and imports) in each year by the value in 2005, and then multiply the result by 100. This is done
in the table above.
b) It appears that exports were more volatile over this period than imports. Exports increased
over four years by over 7 percent and then fell suddenly by approximately 20 percent. Imports
trended downwards by about 6 percent over the five years with some smaller fluctuations.
c) From 2007 to 2009, the export index falls from 107.7 to 91.2. The percentage change is equal
to (91.2 - 107.7)/107.7 which is -15.3 percent. For imports the percentage change is (93.8 -
99.5)/99.5 which is -5.7 percent.
d) The global financial crisis began in the fall of 2008 and a large recession followed. Most
international trade fell sharply from 2007 to 2009, including Canadian exports. This is likely the
best explanation of the observed decline in Canada’s energy exports.
Question 9
a) Along Line A, Y falls as X rises; thus the slope of Line A is negative. For Line B, the value of
Y rises as X rises; thus the slope of Line B is positive.
b) Along Line A, the change in Y is –4 when the change in X is 6. Thus the slope of Line A is Y/
X = -4/6 = -2/3. The equation for Line A is:
Y = 4 – (2/3)X
c) Along Line B, the change in Y is 7 when the change in X is 6. Thus the slope of Line B is Y/ X
= 7/6. The equation for Line B is:
Y = 0 + (7/6)X
Question 10
Given the tax-revenue function T = 10 + .25Y, the plotted curve will have a vertical intercept of
10 and a slope of 0.25. The interpretation is that when Y is zero, tax revenue will be $10 billion.
And for every increase in Y of $100 billion, tax revenue will rise by $25 billion. The diagram is
as shown below:
Question 11
a) For each relation, plot the values of Y for each value of X. Construct the following table:
Now plot these values on scale diagrams, as shown below. Notice the different vertical scale on
the three different diagrams.
b) For part (i), the slope is positive and constant and equal to 2. For each 10-unit increase in X,
there is an increase in Y of 20 units. For part (ii), the slope is always positive since an increase in
X always leads to an increase in Y. But the slope is not constant. As the value of X increases, the
slope of the line also increases. For part (iii), the slope is positive at low levels of X. But the function
reaches a maximum at X=20, after which the slope becomes negative. Furthermore, when X is
greater than 20, the slope of the line becomes more negative (steeper) as the value of X increases.
c) For part (i), the marginal response of Y to a change in X is constant and equal to 2. This is the
slope of the line. In part (ii), the marginal response of Y to a change in X is always positive, but
the marginal response increases as the value of X increases. This is why the line gets steeper as X
increases. For part (iii), the marginal response of Y to a change in X is positive at low levels of X.
But after X=20, the marginal response becomes negative. Hence the slope of the line switches from
positive to negative. Note that for values of X further away from X=20, the marginal response of Y
to a change in X is larger in absolute value. That is, the curve flattens out as we approach X=20 and
becomes steeper as we move away (in either direction) from X=20.
Question 12
The four scale diagrams are shown on the next page, each with different vertical scales. In each
case, the slope of the line is equal to Y/X, which is often referred to as “the rise over the run” –
the amount by which Y changes when X increases by one unit. (For those students who know
calculus, the slope of each curve is also equal to the derivative of Y with respect to X, which for
these curves is given by the coefficient on X in each equation.)
Question 13
This is a good question to make sure students understand the importance of using weighted
averages rather than simple averages in some situations.
a) The simple average of the three regional unemployment rates is equal to (5.5 + 7.2 + 12.5)/3 =
8.4. Is 8.4% the “right” unemployment rate for the country as a whole? The answer is no because
this simple, unweighted (or, more correctly, equally weighted) average does not account for the
fact that the Centre is much larger in terms of the labour force than either the West or East, and
thus should be given more weight than the other two regions.
These weights should sum exactly to 1.0, but due to rounding they do not quite do so. Using
these weights, we now construct the average unemployment rate as the weighted sum of the
three regional unemployment rates.
Canadian weighted unemployment rate = (.308 5.5) + (.488 7.2) + (.203 12.5) = 7.75
This is a better measure of the Canadian unemployment rate because it correctly weights each
region’s influence in the national total. Keep in mind, however, that for many situations the
relevant unemployment rate for an individual or a firm may be the more local one rather than the
national average.
Question 14
The six required diagrams are shown below. Note that we have not provided specific units on the
axes. For the first three figures, the tax system provides good examples. In each case, think of
earned income as being shown along the horizontal axis and taxes paid shown along the vertical
axis. The first diagram might show a progressive income-tax system where the marginal tax rate
rises as income rises. The second diagram shows a proportional system with a constant marginal
tax rate. The third diagram shows marginal tax rates falling as income rises, even though total tax
paid still rises as income rises.
For the second set of three diagrams, imagine the relationship between the number of rounds
of golf played (along the horizontal axis) and the golf score one achieves (along the vertical axis).
In all three diagrams the golf score falls (improves) as one golfs more times. In the first diagram,
the more one golfs the more one improves on each successive round played. In the second diagram,
the rate of improvement is constant. In the third diagram, the rate of improvement diminishes as
the number of rounds played increases. The actual relationship probably has bits of all three
parts—presumably there is a lower limit to one’s score so eventually the curve must flatten
out.
MAPS
Map of Southern Nigeria 46
” Northern Nigeria 92
And, thinking over this personal side of the matter as one jogs
along up hill and down dale, through plain and valley and mountain
side, through lands of plenty and lands of desolation, past carefully
fenced-in fields of cotton and cassava, past the crumbling ruins of
deserted habitations, along the great white dusty road through the
heart of Hausaland, along the tortuous mountain track to the pagan
stronghold, there keeps on murmuring in one’s brain the refrain:
“How is it done? How is it done?” Ten years ago, nay, but six, neither
property nor life were safe. The peasant fled to the hills, or hurried at
nightfall within the sheltering walls of the town. Now he is
descending from the hills and abandoning the towns.
And the answer forced upon one, by one’s own observations, is
that the incredible has been wrought, primarily and fundamentally,
not by this or that brilliant feat of arms, not by Britain’s might or
Britain’s wealth, but by a handful of quiet men, enthusiastic in their
appreciation of the opportunity, strong in their sense of duty, keen in
their sense of right, firm in their sense of justice, who, working in an
independence, and with a personal responsibility in respect to which,
probably, no country now under the British flag can offer a parallel,
whose deeds are unsung, and whose very names are unknown to
their countrymen, have shown, and are every day showing, that, with
all her faults, Britain does still breed sons worthy of the highest
traditions of the race.
CHAPTER II
ON THE GREAT WHITE ROAD
You may fairly call it the Great White Road to Hausaland, although
it does degenerate in places into a mere track where it pierces some
belt of shea-wood or mixed trees, and you are reduced to Indian file.
But elsewhere it merits its appellation, and it glimmers ghostly in the
moonlight as it cuts the plain, cultivated to its very edge with guinea-
corn and millet, cassava and cotton, beans and pepper. And you
might add the adjective, dusty, to it. For dusty at this season of the
year it certainly is. Dusty beyond imagination. Surely there is no dust
like this dust as it sweeps up at you, impelled by the harmattan
blowing from the north, into your eyes and mouth and nose and hair?
Dust composed of unutterable things. Dust which countless bare
human feet have tramped for months. Dust mingled with the manure
of thousands of oxen, horses, sheep and goats. Dust which converts
the glossy skin of the African into an unattractive drab, but which
cannot impair his cheerfulness withal. Dust which eats its way into
your boxes, and defies the brush applied to your clothes, and finds
its way into your soup and all things edible and non-edible. Dust
which gets between you and the sun, and spoils your view of the
country, wrapping everything in a milky haze which distorts distances
and lies thick upon the foliage. The morning up to nine, say, will be
glorious and clear and crisp, and then, sure enough, as you halt for
breakfast and with sharpened appetite await the looked-for “chop,” a
puff of wind will spring up from nowhere and in its train will come the
dust. The haze descends and for the rest of the day King Dust will
reign supreme. It is responsible for much sickness, this Sahara dust,
of that my African friends and myself are equally convinced. You may
see the turbaned members of the party draw the lower end of that
useful article of apparel right across the face up to the eyes when the
wind begins to blow. The characteristic litham of the Tuareg, the men
of the desert, may have had its origin in the necessity, taught by
experience, of keeping the dust out of nose and mouth. I have been
told by an officer of much Northern Nigerian experience, that that
terrible disease, known as cerebro-spinal meningitis, whose
characteristic feature is inflammation of the membranes of the brain,
and which appears in epidemic form out here, is aggravated, if not
induced, in his opinion—and he assures me in the opinion of many
natives he has consulted—by this disease-carrying dust. In every
town and village in the Northern Hausa States, you will see various
diseases of the eye lamentably rife, and here, I am inclined to think,
King Dust also plays an active and discreditable part.
A GROUP OF TUAREGS.
A BORNU OX.
The Great White Road. It thoroughly deserves that title from the
point where one enters the Kano Province coming from Zaria. It is
there not only a great white road but a very fine one, bordered on
either side by a species of eucalyptus, and easily capable, so far as
breadth is concerned, of allowing the passage of two large
automobiles abreast. I, personally, should not care to own the
automobile which undertook the journey, because the road is not
exactly what we would call up-to-date. Thank Heaven that there is
one part of the world, at least, to be found where neither roads, nor
ladies’ costumes are “up-to-date.” If the Native Administration of the
Kano Emirate had nothing else to be commended for, and under the
tactful guidance of successive Residents it has an increasing
account to its credit, the traveller would bear it in grateful recollection
for its preservation of the trees in the immediate vicinity of, and
sometimes actually on the Great White Road itself. It is difficult to
over-estimate the value to man and beast, to the hot and dusty
European, to the weary-footed carrier, to the patient pack-ox, and
cruelly-bitted native horse, of the occasional shady tree at the edge
of or on the road. And what magnificent specimens of the vegetable
kingdom the fertile soil of Kano Province does carry—our New
Forest giants, though holding their own for beauty and shape and, of
course, clinging about our hearts with all their wealth of historical
memories and inherited familiarity, would look puny in comparison.
With one exception I do not think anything on the adverse side of
trivialities has struck me more forcibly out here than the insane
passion for destroying trees which seems to animate humanity,
White and Black. In many parts of the country I have passed through
the African does appear to appreciate his trees, both as shade for his
ordinary crops and special crops (such as pepper, for instance,
which you generally find planted under a great tree) and cattle. In
Kano Province, for instance, this is very noticeable. But in other parts
he will burn down his trees, or rather let them burn down, with
absolute equanimity, making no effort to protect them (which on
many occasions he could easily do) when he fires the grasses
(which, pace many learned persons, it seems to me, he is compelled
by his agricultural needs to do—I speak now of the regions I have
seen). I have noticed quantities of splendid and valuable timber
ruined in this way. The European—I should say some Europeans—
appears to suffer from the same complaint. It is the fashion—if the
word be not disrespectful, and Heaven forfend that the doctors
should be spoken of disrespectfully in this part of the world, of all
places—among the new school of tropical medicine out here to
condemn all growing things in a wholesale manner. In the eyes of
some, trees or plants of any kind in the vicinity of a European station
are ruthlessly condemned. Others are specially incensed against low
shrubs. Some are even known to pronounce the death-warrant of the
pine-apple, and I met an official at a place, which shall be nameless,
who went near weeping tears of distress over a fine row of this fruit
which he had himself planted, and which were threatened, as he put
it, by the ferocity of the local medical man. In another place
destruction hangs over a magnificent row of mango trees—and for
beauty and luxuriousness of foliage the mango tree is hard to beat—
planted many years ago by the Roman Catholic Fathers near one of
their mission stations; and in still another, an official, recently
returned on leave, found to his disgust that a group of trees he
especially valued had been cut down during his absence by a
zealous reformer of the medical world.
Each twenty-four hours brings its own series of events and its own
train of thoughts following upon them. A new incident, it may be of
the most trivial kind, sets the mind working like an alarum; a petty
act, a passing word, have in them revealing depths of character.
Nature seems such an open book here. She does not hide her
secrets. She displays them; which means that she has none; and, in
consequence, that she is as she was meant to be, moral. The
trappings of hide-bound convention do not trammel her every stride
like the hobble skirts of the foolish women who parade their shapes
along the fashionable thoroughfares of London. What quagmires of
error we sink into when we weigh out our ideas of morality to the
African standard—such a very low one it is said.
Well, I have covered a good deal of ground in this country—
although I have not been in it very long, measured in time—and I
have seen many thousands of human beings. I have seen the Hausa
woman and the bush Fulani woman in their classical robes. I have
seen the Yoruba woman bathing in the Ogun, clad only in the natural
clothing of her own dusky skin. I have seen the scantily-attired
Gwarri and Ibo woman, and the woman of the Bauchi highlands with
her bunch of broad green leaves “behind and before,” and nothing
else, save a bundle of wood or load of sorts on her head, or a hoe in
her hand. I have visited many African homes, sometimes
announced, sometimes not, at all hours of the day, and sometimes of
the night. I have passed the people on the beaten track, and sought
and found them off the beaten track. I have yet to see outside our
cantonments—where the wastrels drift—a single immodest gesture
on the part of man or woman. Humanity which is of Nature is, as
Nature herself, moral. There is no immodesty in nakedness which
“knows not that it is naked.” The Kukuruku girl, whose only garment
is a single string of beads round neck and waist, is more modest
than your Bond Street dame clad in the prevailing fashion,
suggesting nakedness. Break up the family life of Africa, undermine