Marcoeconomics

Kristian Riley

Macroeconomics

12/26/2013

6. What are price indexes designed to measure? Outlined how they are constructed. When GDP and other income figures are compared across time periods, explain why it is important to adjust for changes in the general level of prices.

The price index is designed to measure the impact of price changes on the cost of the typical bundle of goods purchased by household. Price index is constructed to attempt to compare the cost of purchasing the market basket bought by a typical consumer during a specific period with the cost of purchasing the same market basket during an earlier period. When comparing figures across time periods, it is important to adjust for changes in the general level of prices because the price index is one measure of the general level of prices. Price and income data from an earlier year can be measured in terms of the price level of the later year by “inflating” the figure for the earlier year by the ratio of the price index in the later year divided by the price index of the earlier year.

15. a) Indicate the various components of GDP when it is derived by the expenditure approach. Calculate GDP using the expenditure approach.

personal consumption: | 10245.5 |

gross investment: | 1795.1 |

government consumption: | 3002.8 |

export: | 1839.8 |

import: | 2356.7 |

GDP: | 14526.5 |

b.) Indicate the various components of GDP when it is derived by the resource cost-income approach. Calculate GDP using the resource cost-income approach.

item | value |

employee compensation: | 7971.4 |

proprietors' income: | 1036.4 |

rents: | 350.2 |

corporate profits: | 1800.1 |

interest income: | 564.3 |

indirect business taxes: | 1117.7 |

depreciation: | 1876.6 |

net income of foreigners: | -189.4 |

GDP: | 14527.3 |

5. Is the natural rate of unemployment fixed? Why or why not? How are full employment and the natural rate of unemployment related? Is the actual rate of unemployment...