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7. Explain the concept of chain-weighted real GDP. What problems with the previous measure
of real GDP led to the introduction of this new measure?
The monetarist emphasis the inherent stability of the country in the long-run. They also further acknowledge that monetary and fiscal policy could have an impact on the short-run. In the long run, no large-scale government involvement is necessary since the economy is self-stabilising. Explain this statement which is based on six (6) classical roots and indicate which of them apply to the monetarist approach.
5. Three price indices were considered in this chapter: the GDP deflator, the CPI, and the PPL Explain the differences among these different measures of the price level.
4. Define the terms personal income and personal disposable income. Conceptually, how do these income measures differ from national income? Of what use are these measures?
3. Explain some of the major limitations of the GDP concept.
If the price is set at R10, the market will
a. experience a surplus (excess supply) of 50
b. experience a surplus (excess supply) of 40
c. experience a shortage (excess demand) of 40
d. experience a shortage (excess demand) of 10
e. still be in equilibrium
2. What are the two types of intermediary goods that are counted in the GDP calculation? Explain why these two goods are integrated in the GDP calculation.
1. Define the term gross domestic product. Explain which transactions in the economy are included in GDP.
1. How would the classical views on the creation of wealth differ from those of the mercantilists?
8. Within the classical form of the quantity theory, the demand for money is given by
Mu = kPY
(4.7)
Suppose income (Y) is given at 400 units, and the money supply (M) is fixed at 200 units.
Suppose k drops from its initial value of 0.5 to 0.25.
What is the initial price level? What is the new price level after the change in k? Explain the
process that leads to the change in the aggregate price level.
