Macroeconomics Answers

If the Fed wants to increase the money supply with

open-market operations, what does it do?

The consumer price index is in part based upon the share of income devoted to which of the following major categories?

 Robert Kennedy’s remarks about the shortcomings of measures of national output also contained the following: “The Gross National Product includes air pollution and advertising for cigarettes, and ambulances to clear our highways of carnage. It counts special locks for our doors, and jails for the people who break them. GNP includes the destruction of the redwoods and the death of Lake Superior.” List ways that the accounts can be redesigned to incorporate these effects.

Examine the price-change numbers shown in the example on page 403. a. Use the formula to calculate the increase in the CPI from March 2007 to March 2008 to two decimal places. Verify that the number shown in the table is correct to a single decimal place. b. The level of the CPI in March 2007 was 205.10. Calculate the CPI for March 2008

8. In recent decades, women have worked more hours in paid jobs and fewer hours in unpaid housework. a. How would this increase in work hours affect GDP? b. Explain why this increase in measured GDP will overstate the true increase in output. Also, explain how a set of augmented national accounts which includes home production would treat this change from nonmarket work to market work. c. Explain the paradox, “When a person marries his or her gardener, GDP goes down.” 

Review the discussion of bias in the CPI. Explain why failure to consider the quality improvement of new good leads to an upward bias in the trend of the CPI. Pick a good you are familiar with. Explain how its quality has changed and why it might be difficult for a price index to capture the increase in quality.

Consider the country of Agrovia, whose GDP is discussed in “A Numerical Example” on page 396. Construct a set of national accounts like that in Table 20-6 assuming that wheat costs $5 per bushel, there is no depreciation, wages are three-fourths of national output, indirect business taxes are used to finance 100 percent of government spending, and the balance of income goes as rent income to farmers

Here are some brain teasers. Can you see why the following are not counted in U.S. GDP? a. The gourmet meals produced by a fine home chef b. The purchase of a plot of land c. The purchase of an original Rembrandt painting d. The value I get in 2009 from playing a 2005 compact disc e. Damage to houses and crops from pollution emitted by electric utilities f. Profits earned by IBM on production in a British factory