Data of Macroeconomics
|Here is a summary of where we are so far. Most of the summary is in the form of questions. If, after revising the material, you can answer all these questions without much though, AND you can do the problems in set 1, you should feel confident that you have mastered the material.|
|I recommend you take time to prepare answers to these questions before we move on to the next section -- they would make useful summary notes in your own words for later revision. In a few weeks, pull the questions out again and see if you can still answer them all easily without looking at your notes. Following these suggestions will also make your life more exciting and fulfilling.|
|We looked at 3 pieces of information: gross national product, inflation and unemployment. For each of these, we asked the following questions:|
| a) What would we like it to
b) How is it actually measured?
c) How has the variable behaved over time?
|Overall, we find that the official statistics don't measure exactly what we care about (or exactly what our economic theories may be about), and even what they set out to measure is done with error. Despite these inadequacies, however, the data remain extremely useful.|
|You should be able to answer the following questions (links are given to brief answers to get you started- these are not always complete):|
|Links go to answers or hints. Although it is very tempting to do otherwise, you should make a serious attempt to answer a question before following the link. You will learn a lot about your mastery of the material by comparing your answer with mine.|
|1. Why does the official unemployment rate understate the real unemployment rate? Provide two reasons.|
|2. Suppose that on January 1 1999, the government creates a million new jobs. Only those currently without work may apply. The new jobs attract 3 million applicants, half of whom would not otherwise be looking for work in January. Does official unemployment go up or down? By how much?|
|3. In 1990, GNP in the United States was only 1% greater than GDP. In the United Arab Emirates, the difference was much larger: GNP was about 12% greater than GDP. What might explain the difference? (See this entry).|
|4. Why might a country concerned about inflation like to appoint a wealthy person as the head of its central bank? (See this entry).|
|5. True or False: Because of substitution bias, we tend to overstate the average inflation rate during periods of rising prices. By a symmetrical argument, it follows that we tend to understate the average inflation rate during periods of falling prices. Explain.|
produces only two goods: Coke and oil. In 2001 production reached 200 cans
of Coke and 170 barrels of oil, with prices equal to 1 and 2 dollars respectively.
The forecast for next year is 300 cans of coke and 130 barrels of oil with
an estimated price of 0.5 and 3 dollars respectively. Last, but not least,
in order to produce 10 cans of coke one needs 1 barrel of oil.
a) What is the expected percentage change in nominal GDP?
b) What is the expected percentage change in real GDP?
c) What is the expected inflation rate?