ISL244E Macroeconomics Problem Session -3. by Research Assistant Serkan Değirmenci ( Ph .D. Candidate ) D202/ 27 .0 2 .201 2. Today. B (2009), Macroeconomics: - Chapter 2: A Tour of the Book (Pages: 41-61) Quick Check ( QC ): (1-f), 5 (Page: 59)
- Chapter 2: A Tour of the Book (Pages: 41-61)
- Chapter 11: Money andMonetaryPolicy
The GDP deflator gives the average price of output-the final goods produced in the economy. But consumers care about the average price of consumption –the goods they consume.B-Chapter 2: QC-(1-f) (Page: 59)
Which index is better depends on what we are trying to measure—inflation faced by consumers or by the economy as a whole.
The two prices need not be the same: The set of goods produced in the economy is not the same as the set of goods purchased by consumers, for two reasons:
***some of the goods in GDP are sold not to consumers but to firms (machine tools, for example), to the government, or to foreigners.
***and some of the goods bought by consumers are not produced domestically but are imported from abroad.
a. Use the prices for 2006 as the set of common prices to compute real GDP in 2006 and in 2007. Compute the GDP deflator for 2006 and for 2007 and compute the rate of inflation from 2006 to 2007.
b. Use the prices for 2007 as the set of common prices to compute real GDP in 2006 and in 2007. Compute the GDP deflator for 2006 and for 2007 and compute the rate of inflation from 2006 to 2007.
c. Why are the two rates of inflation different? Which one is correct? Explain your answer.
a.2006 base year:
b.2007 base year:
c. Neither answer is incorrect, just as measurement in inches is not more or less correct than measurement in centimeters.
People often think that a dollar bill is backed by gold or silver. This is incorrect, since it is "fiat" money, backed only by a declaration of the government and society's consent.
This will depend on the students' experience. On-line payments, for example, will be "money" if they come directly from checking accounts, but "credit" if they are charged to credit cards.
Medium of exchange,
Store of value,
Unit of account.
(3 of the following 4)
Coins made of precious metal.
M1 = currency (in circulation), checkable deposits, and traveler's checks.
M2= M1 + savings deposits, and other accounts such as small certificates of deposit and retail money market funds.