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principles of macroeconomics

Questions and Answers of Principles Of Macroeconomics

=+What does the growth rate of GDP measure?
=+1. What does the level of a nation’s GDP measure?
=+ Are there any drawbacks to these policies?
=+ Describe three ways a government policymaker can try to raise the growth in living standards in a society.
=+ Name a country that has had faster growth and a country that has had slower growth.
=+What is the approximate growth rate of real GDP per person in the United States?
=+How did it affect the banks that lent the money?
=+decade began. How did this affect homeowners who obtained fixed-rate mortgages during the 1960s?
=+c. Inflation during the 1970s was much higher than most people had expected when the
=+b. Does the lender gain or lose from this unexpectedly high inflation? Does the borrower gain or lose?
=+a. Is the real interest rate on this loan higher or lower than expected?
=+the nominal interest rate to be paid on a loan.Then inflation turns out to be higher than they both expected.
=+10. Suppose that a borrower and a lender agree on
=+ 9. When deciding how much of their income to save for retirement, should workers consider the real or the nominal interest rate that their savings will earn? Explain.
=+would you do to determine whether the elderly are actually better off from year to year?
=+b. In fact, the elderly consume more healthcare than younger people, and healthcare costs have risen faster than overall inflation. What
=+a. If the elderly consume the same market basket as other people, does Social Security provide the elderly with an improvement in their standard of living each year? Explain.
=+ 8. The chapter explains that Social Security benefits are increased each year in proportion to the increase in the CPI, even though most economists believe that the CPI overstates actual
=+d. Did workers’ purchasing power in terms of newspapers rise or fall?
=+c. In each year, how many minutes does a worker have to work to earn enough to buy a newspaper?
=+b. By what percentage did the wage rise?
=+a. By what percentage did the price of a newspaper rise?
=+ 7. The New York Times cost $0.15 in 1970 and $0.75 in 2000. The average wage in manufacturing was $3.23 per hour in 1970 and $14.32 in 2000.
=+e. greater use of fuel-efficient cars after gasoline prices increase
=+d. more scoops of raisins in each package of Raisin Bran
=+c. increased personal computer purchases in response to a decline in their price
=+b. the introduction of air bags in cars
=+a. the invention of the iPod
=+ 6. Which of the problems in the construction of the CPI might be illustrated by each of the following situations? Explain.
=+What is the argument for a different decision?
=+b. What is the argument in favor of the BLS’s decision?
=+a. Given this decision, did the increased cost of gasoline raise the CPI?
=+raised the cost of gasoline. The Bureau of Labor Statistics decided that this increase in cost represented an improvement in quality.
=+5. Beginning in 1994, environmental regulations have required that gasoline contain a new additive to reduce air pollution. This requirement
=+c. Is the inflation rate in 2010 the same using the two methods? Explain why or why not.
=+b. Using a method similar to the GDP deflator, compute the percentage change of the overall price level. Also use 2009 as the base year.
=+a. Using a method similar to the consumer price index, compute the percentage change in the overall price level. Use 2009 as the base year, and fix the basket at 1 karaoke machine and 3 CDs.
=+ 4. A small nation of ten people idolizes the TV show American Idol. All they produce and consume are karaoke machines and CDs, in the following amounts:Karaoke Machines CDs Quantity Price Quantity
=+new flavors in 2010, should that information affect your calculation of the inflation rate? If so, how?
=+d. If you were to learn that Gatorade introduced
=+increased in size from 2009 to 2010, should that information affect your calculation of the inflation rate? If so, how?
=+c. If you were to learn that a bottle of Gatorade
=+b. Using a method similar to the consumer price index, compute the percentage change in the overall price level.
=+a. What is the percentage change in the price of each of the three goods?
=+ 3. Suppose that people consume only three goods, as shown in this table:Bottle of Tennis Balls Golf Balls Gatorade 2009 price $2 $4 $1 2009 quantity 100 100 200 2010 price $2 $6 $2 2010 quantity
=+categories experienced price declines? Can you explain any of these facts?
=+For which categories of spending have prices risen the most? The least? Have any
=+ 2. Go to the website of the Bureau of Labor Statistics (http://www.bls.gov) and find data on the consumer price index. By how much has the index including all items risen over the past year?
=+c. What is the inflation rate in 2009?
=+b. Using 2008 as the base year, calculate the CPI for each year.
=+a. Calculate the price of each vegetable in each year.
=+1. Suppose that the residents of Vegopia spend all of their income on cauliflower, broccoli, and carrots. In 2008, they buy 100 heads of cauliflower for $200, 50 bunches of broccoli for $75, and
=+ 5. Explain the meaning of nominal interest rate and real interest rate. How are they related?
=+period, the consumer price index rose from 150 to 300. Adjusted for overall inflation, how much did the price of the candy bar change?
=+4. Over a long period of time, the price of a candy bar rose from $0.10 to $0.60. Over the same
=+ 3. If the price of a Navy submarine rises, is the consumer price index or the GDP deflator affected more? Why?
=+ 2. Describe the three problems that make the consumer price index an imperfect measure of the cost of living.
=+in the price of chicken or a 10 percent increase in the price of caviar? Why?
=+1. Which do you think has a greater effect on the consumer price index: a 10 percent increase
=+Henry Ford paid his workers $5 a day in 1914. If the consumer price index was 10 in 1914 and 207 in 2007, how much is the Ford paycheck worth in 2007 dollars?
=+Explain briefly what the consumer price index measures and how it is constructed.
=+ $100 in his business to add new equipment in the future. From the $220 that Barry takes home, he pays $70 in income taxes. Based on this information, compute Barry’s contribution to the
=+11. One day, Barry the Barber, Inc., collects $400 for haircuts. Over this day, his equipment depreciates in value by $50. Of the remaining $350, Barry sends $30 to the government in sales taxes,
=+ Would it be practical to construct a measure of well-being that includes these aspects?
=+c. Can you think of other aspects of well-being that are associated with the rise in women’s labor-force participation?
=+ How would the change in this measure of well-being compare to the change in GDP?
=+b. Now imagine a measure of well-being that includes time spent working in the home and taking leisure.
=+a. How do you think this rise affected GDP?
=+in a comparison of the economic well-being of the United States and India? Explain.10. The participation of women in the U.S. labor force has risen dramatically since 1970.
=+ 9. Goods and services that are not sold in markets, such as food produced and consumed at home, are generally not included in GDP. Can you think of how this might cause the numbers in the second
=+ Does this example suggest another way of calculating GDP?
=+ How does it compare to the economy’s GDP?
=+c. What is total value added of the three producers in this economy?
=+intermediate goods beyond those described above, calculate the value added of each of the three producers.
=+b. Value added is defined as the value of a producer’s output minus the value of the intermediate goods that the producer buys to make the output. Assuming there are no
=+a. What is GDP in this economy? Explain.
=+turns the wheat into bread, which he sells to consumers for $180. Consumers eat the bread.
=+ 8. A farmer grows wheat, which he sells to a miller for $100. The miller turns the wheat into flour, which he sells to a baker for $150. The baker
=+the U.S. Bureau of Economic Analysis. Discuss the recent changes in real and nominal GDP and in the components of GDP.
=+the most recent release, or read the news release yourself at http://www.bea.gov, the website of
=+ 7. Revised estimates of U.S. GDP are usually released by the government near the end of each month. Find a newspaper article that reports on
=+f. Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP?Explain.
=+e. What was the growth rate of real GDP between 1999 and 2000?
=+d. What was real GDP in 2000 measured in 1996 prices?
=+c. What was real GDP in 1999 measured in 1996 prices?
=+b. What was the growth rate of the GDP deflator between 1999 and 2000?
=+a. What was the growth rate of nominal GDP between 1999 and 2000? (Note: The growth rate is the percentage change from one period to the next.)
=+ 6. Consider the following data on U.S. GDP:Nominal GDP GDP Deflator Year (in billions of dollars) (base year 1996)2000 9,873 118 1999 9,269 113
=+c. Did economic well-being rise more in 2009 or 2010? Explain.
=+2009 and 2010 from the preceding year. For each year, identify the variable that does not change. Explain in words why your answer makes sense.
=+b. Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in
=+a. Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2008 as the base year.
=+ Price of Quantity of Price of Quantity of Year Milk Milk Honey Honey 2008 $1 100 quarts $2 50 quarts 2009 $1 200 $2 100 2010 $2 200 $4 100
=+ 5. Below are some data from the land of milk and honey.
=+e. What is the inflation rate as measured by the GDP deflator from year 2 to year 3?
=+d. What is the percentage growth rate of real GDP from year 2 to year 3?
=+c. What is the GDP deflator for each of these years?
=+b. What is real GDP for each of these years?
=+a. What is nominal GDP for each of these three years?
=+is Q2 and the price is P2. In year 3, the quantity produced is Q3 and the price is P3. Year 1 is the base year. Answer the following questions in terms of these variables, and be sure to simplify

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