Question

Questions for 5 points each: CHOOSE 4 TO ANSWER 1. Inflation incese the price level and dec s purchasing power of the dollar. Deflation wer of the dollar. Deflation des as the price level and blanks with increases" or "decreases.") The formula for the inflation rate is the purchasing power of the dollar. (Fill in the Why do we say that the level of prices does not matter? 2. Describe the Consumer Price Index. Describe a market basket. Write a general formula for the calculation of the CPl. Why is a price index necessary? 3. Who are the winners and losers when prices increase too fast? What is the difference between Nominal and Real interest rates? What is the macroeconomic trade-off of disinflation?". 4. What is the formula for GDP per capita? How is it used? What does it tell us about standards of living? How has the U.S. GDP per capita changed over time? How does it compare to other GDPs per capita in the developed nations and in the developing nations? 5. Describe at least 3 government policies which can promote economic growth. V 6. in each situation, what type of unemployment is the person facing? a. After completing a complex programming project, Mickey is laid off. His prospects for a new job requiring similar skills are good, and he has signed up with a programmer placement service. He has passed up offers for lower paying jobs. b. When Samantha and her co-workers refused to accept pay cuts, her employer outsourced their programming tasks to workers in another country. This phenomenon is occurring throughout the programming industry. C. Due to the current contraction, Ted has been laid off from his programming job. His employer promises to rehire him when business picks up. 7. Why is labor productivity so important to long-run growth rates? What is its formula? Questions for 10 points each: CHOOSE 5 TO ANSWER. 1. Describe the components of the national income and product accounts: GDP =C+I+G+X-IM. Identify the economic actors and what they purchase. 2. Define Gross Domestic Product. How are national expenditures, national income and national output related to each other? Does GDP explain national well-being? Why or why not? How is Nominal GDP different from Real GDP? List at least 3 economic transactions which are NOT included in the GDP.

Answer 1

1.

Correct Answer:

Increases

Decreases

Decreases

Increases

Inflation rate = (Price at time 1 - price at time 0)/Price at time 0

Level of prices, does not matter, because price is the aggregate measure, whereas each product has its own prices and these prices govern the buy and sell of goods and services. Further, price level is nominal variable, where as real GDP is adjusted for the base year prices. Hence, current price level is only treated as an indicator, but not used to buy goods as price is aggregate for the current basket of goods. Besides, price is not reflective of the quality, that is highly appreciated by the consumers.

2.

Consumer price index, is the index that shows the price level of the basket of goods and services being purchased by the consumers, in comparison to the base year prices. For example, if consumer price index is 120. Then, it means that price level is 20% higher than the price in base year as CPI in a base year is treated as 100.

Market basket is the basket of those goods and services that represents the market of goods and services. It is the basket that is treated to calculate different types of indexes.

CPI in current years= ((value of the market basket in the current year)/(value of the market basket in the base year))*100

Price index is necessary, because it tells the price level prevailing in the economy. It shows the rise or fall in price and corresponding change in purchasing power of currency in the economy.

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