December 2020

What is the difference between a nominal variable and areal variable? During a period of deflation, which is likely to increase faster: nominal average hourly earnings or real average hourly earnings? Briefly explain.

Suppose that you need to calculate the percentage increase in real GDP in a certain country between year t-10 and year t-6. Use the data contained in the following table and comment on the magnitude of the resulting growth rate:

In an article in the Wall Street Journal, a professor of financial planning noted the effect of rising prices on purchasing power: “Today, $2,000 a month seems reasonable [as an income for a retired person in addition to the person’s Social Security payments], but 40 years from now that’s going to be three cups of coffee

Briefly explain why the total value of saving in the economy must equal the total value of investment. What are loanable funds? Why do businesses demand loanable funds? Why do households supply loanable funds?

On a saving supply and investment demand diagram, show what happens to equilibrium real interest rate and equilibrium quantity. a. Households increase their expenditures on goods that are domestically produced. b. Firms become more pessimistic about the economy in the near future and so decrease their investment c. Government increases its spending on public investment

Suppose the current financial crisis in Greece causes many banks to fail as depositors no longer save, but withdraw their money from these institutions. Explain what is likely to happen to real and to nominal interest rates.

An article in the Wall Street Journal about Australian economy noted that “Rising government debt is holding back public spending at a time when business also aren’t investing” Does this information indicate that the Australian economy was approaching an economic recession? Briefly explain.

Briefly explain whether you agree with this statement: “Real GDP in 2014 was $16.1 trillion. This value is a large number. Therefore, economic growth must have been high during 2014.”

It is a wellknown fact that modern economies are characterized by business cycles. Does this mean that it is very easy for firms to decide whether to expand or not, since entrepreneurs can easily forecast future economic growth? Briefly explain the reasons for your answer. Q73: Go to the Web site of the Federal Reserve

The economic growth model makes a prediction about aneconomy’s initial level of real GDP per capita relative to other economies and how fast the economy will grow in the future. Consider the statistics in the following table: Are these statistics consistent with the economic growth model? Briefly explain. Now consider the statistics in the following