Macroeconomics Course Outline

Transcription

1 Macroeconomics Course Outline CHAPTER TOPIC READING MACROECONOMICS Chapter 5 Measuring a Nation s Income Ch 23 Chapter 6 Measuring the Cost of Living Ch 24 Chapter 7 Production and Growth, Saving, Investment and the Financial System Parts of Ch Chapter 8 The Monetary System, Money Growth and Inflation Parts of Ch Chapter 9 Open Economy Macroeconomics: Basic Ch 31 Concepts Chapter 10 The Macroeconomics of Open Economies Ch 32

2 CH 5: MEASURING A NATION S INCOME Exercise List the four components of GDP. Give an example of each. 2. Why do economists use real GDP rather than nominal GDP to gauge economic well- being? 1. Below are some data from the land of milk and honey. Price of Quantity of Price of Quantity of Year Milk Milk Honey Honey 2010 $1 100 quarts $2 50 quarts 2011 $1 200 $ $2 200 $ Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2010 as the base year. 1.2 Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2011 and 2012 from the preceding year. For each year, identify the variable that does not change. Explain in words why your answer makes sense. 1.3 Did economic well- being rise more in 2011 or 2012? Explain. 2. Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1 is the base year. 2.1 What is nominal GDP for each of these three years? 2.2 What is real GDP for each of these years? 2.3 What is the GDP deflator for each of these years? 2.4 What is the percentage growth rate of real GDP from year 2 to year 3? 2.5 What is the inflation rate as measured by the GDP deflator from year 2 to year 3?

3 CH 6: MEASURING THE COST OF LIVING 1. If the price of a Navy submarine rises, is the consumer price index or the GDP deflator affected more? Why? 2. Explain the meaning of nominal interest rate and real interest rate. How are they related? 1. The residents of Vegopia spend all of their income on cauliflower, broccoli, and carrots. In 2010, they buy 100 heads of cauliflower for $200, 50 bunches of broccoli for $75, and 500 carrots for $50. In 2011, they buy 75 heads of cauliflower for $225, 80 bunches of broccoli for $120, and 500 carrots for $ Calculate the price of each vegetable in each year. 1.2 Using 2010 as the base year, calculate the CPI for each year. 1.3 What is the inflation rate in 2011?

4 CH 7: PART I: PRODUCTION AND GROWTH 1. What does the level of a nation s GDP measure? What does the growth rate of GDP measure? Would you rather live in a nation with a high level of GDP and a low growth rate or in a nation with a low level of GDP and a high growth rate? 1. Suppose that society decided to reduce consumption and increase investment. 1.1 How would this change affect economic growth? 1.2 What groups in society would benefit from this change? What groups might be hurt? 2. Suppose that an auto company owned entirely by German citizens opens a new factory in South Carolina. a. 2.1 What sort of foreign investment would this represent? 2.2 What would be the effect of this investment on U.S. GDP? Would the effect on U.S. GNP be larger or smaller? PART II: SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM 1. What is national saving? What is private saving? What is public saving? How are these three variables related? 2. What is a government budget deficit? How does it affect interest rates, investment, and economic growth? 1. Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10,000 C = 6,000 T = 1,500 G = 1,700 The economists also estimate that the investment function is: I = 3, r, where r is the country s real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate.

5 CH 8: THE MONETARY SYSTEM, MONETARY GROWTH, AND INFLATION 1. Explain how an increase in the price level affects the real value of money. 2. According to the quantity theory of money, what is the effect of an increase in the quantity of money? 3. Explain the difference between nominal and real variables and give two examples of each. According to the principle of monetary neutrality, which variables are affected by changes in the quantity of money? 1. Suppose that this year s money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion. 1.1 What is the price level? What is the velocity of money? 1.2 Suppose that velocity is constant and the economy s output of goods and services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant? 1.3 What money supply should the Fed set next year if it wants to keep the price level stable? 1.4 What money supply should the Fed set next year if it wants inflation of 10 percent? 2. If the tax rate is 40 percent, compute the before- tax real interest rate and the after- tax real interest rate in each of the following cases. 2.1 The nominal interest rate is 10 percent, and the inflation rate is 5 percent. 2.2 The nominal interest rate is 6 percent, and the inflation rate is 2 percent. 2.3 The nominal interest rate is 4 percent, and the inflation rate is 1 percent.

6 CH 9: OPEN- ECONOMY MACROECONOMICS: BASIC CONCEPTS 1. Define net exports and net capital outflow. Explain how and why they are related. 2. Explain the relationship among saving, investment, and net capital outflow. 3. If a Japanese car costs 500,000 yen, a similar American car costs $10,000, and a dollar can buy 100 yen, what are the nominal and real exchange rates? 1. How would the following transactions affect U.S. exports, imports, and net exports? 1.1 An American art professor spends the summer touring museums in Europe. 1.2 Students in Paris flock to see the latest movie from Hollywood. 1.3 Your uncle buys a new Volvo. 1.4 The student bookstore at Oxford University in England sells a pair of Levi s 501 jeans. 1.5 A Canadian citizen shops at a store in northern Vermont to avoid Canadian sales taxes. 2. A can of soda costs $0.75 in the United States and 12 pesos in Mexico. What would the peso- dollar exchange rate be if purchasing- power parity holds? If a monetary expansion caused all prices in Mexico to double, so that soda rose to 24 pesos, what would happen to the peso- dollar exchange rate?

7 CH 10: THE MACROECONOMICS OF OPEN ECONOMIES 1. Describe supply and demand in the market for loanable funds and the market for foreign- currency exchange. How are these markets linked? 2. Why are budget deficits and trade deficits sometimes called the twin deficits? 3. What is capital flight? When a country experiences capital flight, what is the effect on its interest rate and exchange rate? 1. Suppose that real interest rates increase across Europe. Explain how this development will affect U.S. net capital outflow. Then explain how it will affect U.S. net exports by using a formula from the chapter and by drawing a diagram. What will happen to the U.S. real interest rate and real exchange rate?