Download GDP

Econ 200 Summer 2012
•  Microeconomics
•  Opportunity Cost and the Gains from Trade
•  Supply and Demand
•  Firms and Industries
•  Macroeconomics
•  The Data of Macroeconomics
•  Growth, Saving and Investment
•  Money and Exchange Rates
REFERENCE: Chapters 23, 24 and 28 (pages 593 to
600 only) in your text.
Copyright © 2010 Cengage Learning
Measuring a Nation s Income
•  Microeconomics
•  Microeconomics is the study of how individual
households and firms make decisions and how they
interact with one another in markets.
•  Macroeconomics
•  Macroeconomics is the study of the economy as a
whole.
•  Its goal is to explain the economic changes that
affect many households, firms, and markets at once.
Copyright © 2010 Cengage Learning
Measuring a Nation s Income
•  Macroeconomics answers questions such as the
following:
•  Why is average income high in some countries and
low in others?
•  Why do prices rise rapidly in some time periods
while they are more stable in others?
•  Why do production and employment expand in
some years and contract in others?
Copyright © 2010 Cengage Learning
THE ECONOMY S INCOME AND
EXPENDITURE
•  When judging whether the economy is doing
well or poorly, it is natural to look at the total
income that everyone in the economy is
earning.
Copyright © 2010 Cengage Learning
THE ECONOMY S INCOME AND
EXPENDITURE
•  For an economy as a whole, income must equal
expenditure because:
•  Every transaction has a buyer and a seller.
•  Every dollar of spending by some buyer is a dollar
of income for some seller.
Copyright © 2010 Cengage Learning
THE MEASUREMENT OF GROSS
DOMESTIC PRODUCT
•  Gross domestic product (GDP) is a measure of
the income and expenditures of an economy.
•  It is the total market value of all final goods and
services produced within a country in a given
period of time.
Copyright © 2010 Cengage Learning
THE MEASUREMENT OF GROSS
DOMESTIC PRODUCT
•  The equality of income and expenditure can be
illustrated with the circular-flow diagram.
Copyright © 2010 Cengage Learning
Figure 1 The Circular-Flow Diagram
Copyright©2010 South-Western
THE MEASUREMENT OF GROSS
DOMESTIC PRODUCT
•  GDP is the market value of all final goods and
services produced within a country in a given
period of time.
Copyright © 2010 Cengage Learning
THE MEASUREMENT OF GROSS
DOMESTIC PRODUCT
•  GDP is the Market Value . . .
•  Output is valued at market prices.
•  . . . Of All Final . . .
•  It records only the value of final goods, not
intermediate goods (the value is counted only once).
•  . . . Goods and Services . . .
•  It includes both tangible goods (food, clothing, cars)
and intangible services (haircuts, house cleaning,
doctor visits).
Copyright © 2010 Cengage Learning
THE MEASUREMENT OF GROSS
DOMESTIC PRODUCT
•  . . . Produced . . .
•  It includes goods and services currently produced,
not transactions involving goods produced in the
past.
• 
. . . Within a Country . . .
•  It measures the value of production within the
geographic confines of a country.
Copyright © 2010 Cengage Learning
THE MEASUREMENT OF GROSS
DOMESTIC PRODUCT
•  . . . In a Given Period of Time.
•  It measures the value of production that takes place
within a specific interval of time, usually a year or a
quarter (three months).
Copyright © 2010 Cengage Learning
THE COMPONENTS OF GDP
•  GDP includes all items produced in the
economy and sold legally in markets.
Copyright © 2010 Cengage Learning
THE COMPONENTS OF GDP
•  What Is Not Counted in GDP?
•  GDP excludes most items that are produced and
consumed at home and that never enter the
marketplace.
•  It excludes items produced and sold illicitly, such as
illegal drugs.
Copyright © 2010 Cengage Learning
THE COMPONENTS OF GDP
•  GDP (Y) is the sum of the following:
• 
• 
• 
• 
Consumption (C)
Investment (I)
Government Purchases (G)
Net Exports (NX)
Y = C + I + G + NX
Copyright © 2010 Cengage Learning
THE COMPONENTS OF GDP
•  Consumption (C):
•  The spending by households on goods and services,
with the exception of purchases of new housing.
•  Investment (I):
•  The spending on capital equipment, inventories, and
structures, including new housing.
Copyright © 2010 Cengage Learning
THE COMPONENTS OF GDP
•  Government Purchases (G):
•  The spending on goods and services by local and
central governments.
•  Does not include transfer payments because they
are not made in exchange for currently produced
goods or services.
•  Net Exports (NX):
•  Exports minus imports.
Copyright © 2010 Cengage Learning
Table 1 GDP and Its Components
Copyright©2010 South-Western
REAL VERSUS NOMINAL GDP
•  Nominal GDP values the production of goods
and services at current prices.
•  Real GDP values the production of goods and
services at constant prices.
Copyright © 2010 Cengage Learning
REAL VERSUS NOMINAL GDP
•  An accurate view of the economy requires
adjusting nominal to real GDP by using the
GDP deflator.
Copyright © 2010 Cengage Learning
Table 2 Real and Nominal GDP
Copyright©2010 South-Western
Table 2 Real and Nominal GDP
Copyright©2010 South-Western
Table 2 Real and Nominal GDP
Copyright©2010 South-Western
The GDP Deflator
•  The GDP deflator is a measure of the price
level calculated as the ratio of nominal GDP to
real GDP times 100.
•  It tells us the rise in nominal GDP that is
attributable to a rise in prices rather than a rise
in the quantities produced.
Copyright © 2010 Cengage Learning
The GDP Deflator
•  The GDP deflator is calculated as follows:
Nominal GDP
GDP deflator =
×100
Real GDP
Copyright © 2010 Cengage Learning
The GDP Deflator
•  Converting Nominal GDP to Real GDP
•  Nominal GDP is converted to real GDP as follows:
Nominal GDP20XX
Real GDP20XX =
×100
GDP deflator20XX
Copyright © 2010 Cengage Learning
Table 2 Real and Nominal GDP
Copyright©2010 South-Western
Figure 2 Real GDP in the United Kingdom
Copyright©2010 South-Western
Potential and Actual Real GDP - Turkey
27000
25000
23000
21000
19000
17000
15000
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
GDPsa
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Potential GDP
Copyright © 2010 Cengage Learning
GDP AND ECONOMIC WELLBEING
•  GDP is the best single measure of the economic
well-being of a society.
•  GDP per person tells us the mean income and
expenditure of the people in the economy.
Copyright © 2010 Cengage Learning
GDP AND ECONOMIC WELLBEING
•  Higher GDP per person indicates a higher
standard of living.
•  GDP is not a perfect measure of the happiness
or quality of life, however.
Copyright © 2010 Cengage Learning
GDP AND ECONOMIC
WELL-BEING
•  Some things that contribute to well-being are
not included in GDP.
•  The value of leisure.
•  The value of a clean environment.
•  The value of almost all activity that takes place
outside of markets, such as the value of the time
parents spend with their children and the value of
volunteer work.
Copyright © 2010 Cengage Learning
Table 3 GDP, Life Expectancy, and Literacy
Copyright©2010 South-Western
Turkish Economy
GDP Per capita growth rate,
1926-2005 (5-yr moving average, %)
Annual growth rate of GDP per capital, 1926-2005
(5-year moving averages)
10
Annual growth rate (%)
5
0
1925
1935
1945
1955
1965
1975
1985
1995
2005
-5
Copyright © 2010 Cengage Learning
3
4
Review
•  Because every transaction has a buyer and a
seller, the total expenditure in the economy
must equal the total income in the economy.
•  Gross Domestic Product (GDP) measures an
economy s total expenditure on newly
produced goods and services and the total
income earned from the production of these
goods and services.
Copyright © 2010 Cengage Learning
Review
•  GDP is the market value of all final goods and
services produced within a country in a given
period of time.
•  GDP is divided among four components of
expenditure: consumption, investment,
government purchases, and net exports.
Copyright © 2010 Cengage Learning
Review
•  Nominal GDP uses current prices to value the
economy s production. Real GDP uses constant
base-year prices to value the economy s
production of goods and services.
•  The GDP deflator—calculated from the ratio of
nominal to real GDP—measures the level of
prices in the economy.
Copyright © 2010 Cengage Learning
Review
•  GDP is a good measure of economic well-being
because people prefer higher to lower incomes.
•  It is not a perfect measure of well-being
because some things, such as leisure time and a
clean environment, aren t measured by GDP.
Copyright © 2010 Cengage Learning
Mini Quiz
In the circular flow model, firms use the money they earn from selling their
goods and services to pay for the
a. goods and services they buy on the product market.
b. resources they buy on the product market.
c. goods and services they buy from government.
d. resources they buy in the factor market.
Which of the following would be counted in France s GDP?
a. The purchase of an historic chateau
b. The purchase of a haircut
c. The purchase of a €1,000 government savings bond
d. The value generated when Pierre washes his car in his garden
Copyright © 2010 Cengage Learning
Measuring the Cost of Living
•  Inflation refers to a situation in which the
economy s overall price level is rising.
•  The inflation rate is the percentage change in
the price level from the previous period.
Copyright © 2010 Cengage Learning
THE CONSUMER PRICE INDEX
•  The consumer price index (CPI) is a measure of
the overall cost of the goods and services
bought by a typical consumer.
•  The Office of National Statistics reports the CPI
each month.
•  It is used to monitor changes in the cost of
living over time.
Copyright © 2010 Cengage Learning
THE CONSUMER PRICE INDEX
•  When the CPI rises, the typical family has to
spend more money to maintain the same
standard of living.
Copyright © 2010 Cengage Learning
How the Consumer Price Index Is Calculated
•  Fix the Basket: Determine what prices are most
important to the typical consumer.
•  The Office of National Statistics (ONS) identifies a
market basket of goods and services the typical
consumer buys.
•  The ONS conducts regular consumer surveys to set
the weights for the prices of those goods and
services.
Copyright © 2010 Cengage Learning
How the Consumer Price Index Is Calculated
•  Find the Prices: Find the prices of each of the
goods and services in the basket for each point
in time.
Copyright © 2010 Cengage Learning
How the Consumer Price Index Is Calculated
•  Compute the Basket s Cost: Use the data on
prices to calculate the cost of the basket of
goods and services at different times.
Copyright © 2010 Cengage Learning
How the Consumer Price Index Is Calculated
•  Choose a Base Year and Compute the Index:
•  Designate one year as the base year, making it the
benchmark against which other years are compared.
•  Compute the index by dividing the price of the
basket in one year by the price in the base year and
multiplying by 100.
Copyright © 2010 Cengage Learning
How the Consumer Price Index Is Calculated
•  Compute the inflation rate: The inflation rate
is the percentage change in the price index from
the preceding period.
Copyright © 2010 Cengage Learning
How the Consumer Price Index Is Calculated
•  The Inflation Rate
•  The inflation rate is calculated as follows:
CPI in Year 2 - CPI in Year 1
Inflation Rate in Year 2 =
×100
CPI in Year 1
Copyright © 2010 Cengage Learning
Table 1 Calculating the Consumer Price Index and the
Inflation Rate: An Example
Copyright
Copyright©2010
© 2010 Cengage
South-Western
Learning
Table 1 Calculating the Consumer Price Index and the
Inflation Rate: An Example
Copyright
Copyright©2010
© 2010 Cengage
South-Western
Learning
Table 1 Calculating the Consumer Price Index and the
Inflation Rate: An Example
Copyright
Copyright©2010
© 2010 Cengage
South-Western
Learning
Table 1 Calculating the Consumer Price Index and the
Inflation Rate: An Example
Copyright
Copyright©2010
© 2010 Cengage
South-Western
Learning
Table 1 Calculating the Consumer Price Index and the
Inflation Rate: An Example
Copyright
Copyright©2010
© 2010 Cengage
South-Western
Learning
How the Consumer Price Index Is Calculated
•  Calculating the Consumer Price Index and the
Inflation Rate: Another Example
• 
• 
• 
• 
• 
Base Year is 2002.
Basket of goods in 2002 costs €1,200.
The same basket in 2004 costs €1,236.
CPI = (€1,236/ €1,200) × 100 = 103.
Prices increased 3 percent between 2002 and 2004.
Copyright © 2010 Cengage Learning
FYI: The Typical Basket of Goods and Services
Copyright
Copyright©2010
© 2010 Cengage
South-Western
Learning
Consumer Price Index - Turkey
16000
14000
CPI (1994=100)
12000
10000
8000
6000
4000
2000
0
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Copyright © 2010 Cengage Learning
Turkish Inflation
160
Rate of Inflation in CPI (%)
140
120
100
80
60
40
20
0
1969 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
Copyright © 2010 Cengage Learning
5
7
Problems in Measuring the Cost of Living
•  The CPI is an accurate measure of the selected
goods that make up the typical bundle, but it is
not a perfect measure of the cost of living.
Copyright © 2010 Cengage Learning
Problems in Measuring the Cost of Living
•  Substitution bias
•  Introduction of new goods
•  Unmeasured quality changes
Copyright © 2010 Cengage Learning
Problems in Measuring the Cost of Living
•  Substitution Bias
•  The basket does not change to reflect consumer
reaction to changes in relative prices.
•  Consumers substitute toward goods that have become
relatively less expensive.
•  The index overstates the increase in cost of living by not
considering consumer substitution.
Copyright © 2010 Cengage Learning
Problems in Measuring the Cost of Living
•  Introduction of New Goods
•  The basket does not reflect the change in
purchasing power brought on by the introduction of
new products.
•  New products result in greater variety, which in turn
makes each euro more valuable.
•  Consumers need less money to maintain any given
standard of living.
Copyright © 2010 Cengage Learning
Problems in Measuring the Cost of Living
•  Unmeasured Quality Changes
•  If the quality of a good rises from one year to the
next, the value of a euro rises, even if the price of
the good stays the same.
•  If the quality of a good falls from one year to the
next, the value of a euro falls, even if the price of
the good stays the same.
•  The ONS tries to adjust the price for constant
quality, but such differences are hard to measure.
Copyright © 2010 Cengage Learning
Problems in Measuring the Cost of Living
•  The substitution bias, introduction of new
goods, and unmeasured quality changes cause
the CPI to overstate the true cost of living.
•  The issue is important because many government
programs use the CPI to adjust for changes in the
overall level of prices.
Copyright © 2010 Cengage Learning
The GDP Deflator versus the Consumer
Price Index
•  The GDP deflator is calculated as follows:
Nominal GDP
GDP deflator =
×100
Real GDP
Copyright © 2010 Cengage Learning
The GDP Deflator versus the Consumer
Price Index
•  The ONS calculates other prices indexes:
•  The producer price index, which measures the cost
of a basket of goods and services bought by firms
rather than consumers.
Copyright © 2010 Cengage Learning
The GDP Deflator versus the Consumer
Price Index
•  Economists and policymakers monitor both the
GDP deflator and the consumer price index to
gauge how quickly prices are rising.
•  There are two important differences between
the indexes that can cause them to diverge.
Copyright © 2010 Cengage Learning
The GDP Deflator versus the Consumer
Price Index
•  The GDP deflator reflects the prices of all
goods and services produced domestically,
whereas...
•  …the consumer price index reflects the prices
of all goods and services bought by consumers.
Copyright © 2010 Cengage Learning
The GDP Deflator versus the Consumer
Price Index
•  The consumer price index compares the price of
a fixed basket of goods and services to the price
of the basket in the base year (only occasionally
does the ONS change the basket)...
•  …whereas the GDP deflator compares the price
of currently produced goods and services to the
price of the same goods and services in the base
year.
Copyright © 2010 Cengage Learning
Figure 2 Two Measures of Inflation
Copyright
Copyright©2010
© 2010 Cengage
South-Western
Learning
CORRECTING ECONOMIC VARIABLES
FOR THE EFFECTS OF INFLATION
•  Price indexes are used to correct for the effects
of inflation when comparing money figures
from different times.
Copyright © 2010 Cengage Learning
Money Figures from Different Times
•  Do the following to convert (inflate) MPs
salary in 1911 to a figure in 2004 pounds:
Salary
2004
= Salary
= £400
1911
×
×
Price leve l in 2004
Price leve l in 1911
5,040
100
= £20,160
Copyright © 2010 Cengage Learning
Table 2 The Most Popular Movies of All Times,
Inflation Adjusted
Copyright
Copyright©2010
© 2010 Cengage
South-Western
Learning
Indexation
•  When some money amount is automatically
corrected for inflation by law or contract, the
amount is said to be indexed for inflation.
Copyright © 2010 Cengage Learning
Real and Nominal Interest Rates
•  Interest represents a payment in the future for a
transfer of money in the past.
Copyright © 2010 Cengage Learning
Real and Nominal Interest Rates
•  The nominal interest rate is the interest rate
usually reported and not corrected for inflation.
•  It is the interest rate that a bank pays.
•  The real interest rate is the nominal interest
rate that is corrected for the effects of inflation.
Copyright © 2010 Cengage Learning
Real and Nominal Interest Rates
•  You borrowed €1,000 for one year.
•  Nominal interest rate was 15%.
•  During the year inflation was 10%.
Real interest rate = Nominal interest rate –
Inflation
= 15% - 10% = 5%
Copyright © 2010 Cengage Learning
Figure 3 Real and Nominal Interest Rates
Copyright
Copyright©2010
© 2010 Cengage
South-Western
Learning
The Costs of Inflation
•  May be difficult to determine
•  Wages are often partially or perfectly indexed to
inflation.
•  Example: COLAs (cost of living adjustments) are
included in many labor contracts and Social Security
•  Who suffers from inflation?
•  Lenders, who are paid back in dollars that have lower
purchasing power
•  Taxpayers, since the tax code is only partially indexed
•  Holders of currency, since inflation is a tax on holding
currency
Copyright © 2010 Cengage Learning
Social Costs of Inflation
•  Shoe-leather costs
•  The costs of managing cash balances and otherwise
avoiding the inflation tax
•  Added variability in relative prices:
•  Not all prices rise by the same percentage during
inflation.
•  This may make it difficult to determine whether the
price of a good is increasing due to higher demand for
that good or due to a rise in the general price level.
•  Increased uncertainty
•  Makes planning more difficult
Copyright © 2010 Cengage Learning
The Costs of Deflation
•  Hurts borrowers:
•  Failure to repay loans may lead to widespread
bankruptcies and a banking and financial crisis.
•  Deflation puts a lower bound on the real interest
rate.
•  Nominal interest rate = real interest rate + inflation
•  Nominal interest rate ≥ 0 so
•  Real interest rate + inflation ≥ 0,
•  Which means real interest rate ≥ - inflation.
•  Example: if inflation is -5% (a deflation) then the real
interest rate ≥ 5%
•  This may discourage borrowing by businesses and consumers
which would lead to lower investment and consumer
spending.
Copyright © 2010 Cengage Learning
Review
•  The consumer price index shows the cost of a
basket of goods and services relative to the cost
of the same basket in the base year.
•  The index is used to measure the overall level
of prices in the economy.
•  The percentage change in the CPI measures the
inflation rate.
Copyright © 2010 Cengage Learning
Review
•  The consumer price index is an imperfect
measure of the cost of living for the following
three reasons:
•  substitution bias,
•  the introduction of new goods,
•  and unmeasured changes in quality.
Copyright © 2010 Cengage Learning
Review
•  The GDP deflator differs from the CPI because
it includes goods and services produced rather
than goods and services consumed.
•  In addition, the CPI uses a fixed basket of
goods, while the GDP deflator automatically
changes the group of goods and services over
time as the composition of GDP changes.
Copyright © 2010 Cengage Learning
Review
•  Money figures from different points in time do
not represent a valid comparison of purchasing
power.
•  Various laws and private contracts use price
indexes to correct for the effects of inflation.
•  The real interest rate equals the nominal interest
rate minus the rate of inflation.
Copyright © 2010 Cengage Learning
IDENTIFYING UNEMPLOYMENT
•  Categories of Unemployment
•  The problem of unemployment is usually divided
into two categories.
•  The long-run problem and the short-run problem:
•  The natural rate of unemployment
•  The cyclical rate of unemployment
Copyright © 2010 Cengage Learning
IDENTIFYING UNEMPLOYMENT
•  Natural Rate of Unemployment
•  The natural rate of unemployment is unemployment
that does not go away on its own even in the long
run.
•  It is the amount of unemployment that the economy
normally experiences.
Copyright © 2010 Cengage Learning
IDENTIFYING UNEMPLOYMENT
•  Cyclical Unemployment
•  Cyclical unemployment refers to the year-to-year
fluctuations in unemployment around its natural
rate.
•  It is associated with with short-term ups and downs
of the business cycle.
Copyright © 2010 Cengage Learning
IDENTIFYING UNEMPLOYMENT
•  Describing Unemployment
•  Three Basic Questions:
•  How does government measure the economy s rate of
unemployment?
•  What problems arise in interpreting the unemployment
data?
•  How long are the unemployed typically without work?
Copyright © 2010 Cengage Learning
How Is Unemployment Measured?
•  Unemployment may be measured in two ways.
•  A monthly survey of households – the Labour Force
Survey in the UK.
•  The claimant count.
Copyright © 2010 Cengage Learning
How Is Unemployment Measured?
•  Each adult is placed into one of three
categories:
•  Employed
•  Unemployed
•  Not in the labour force
Copyright © 2010 Cengage Learning
How Is Unemployment Measured?
•  Labour Force
•  The labour force is the total number of workers,
including both the employed and the unemployed.
Copyright © 2010 Cengage Learning
Figure 1 The Breakdown of the UK Adult
Population in 2004
Employed
(28.4 million)
Adult
Population
(47.4 million)
Labour Force
(29.8 million)
Unemployed (1.4 million)
Economically inactive
(17.6 million)
Copyright
Copyright©2010
© 2010 Cengage
South-Western
Learning
How Is Unemployment Measured?
•  The unemployment rate is calculated as the
percentage of the labour force that is
unemployed.
Number unemployed×
Unemployment rate=
100
Labour force
Copyright © 2010 Cengage Learning
How Is Unemployment Measured?
•  The labour force participation rate is the
percentage of the adult population that is in the
labour force.
Labour force participation rate
Labour force
=
× 100
Adult population
Copyright © 2010 Cengage Learning
International Comparisons of
Unemployment
Copyright © 2010 Cengage Learning
International Labour Office
Definitions
•  Employed: spent some of the previous week
working at a paid job
•  Unemployed
•  Without a job
•  Willing to start work within the next two weeks
•  Either looking for a job or waiting for a job to start
in the last four weeks
•  Out of the labour force: everyone else (full-time
student, home-maker, retiree)
Copyright © 2010 Cengage Learning
Does the Unemployment Rate Measure What
We Want It To?
•  It is difficult to distinguish between a person
who is unemployed and a person who is not in
the labour force.
•  Discouraged workers, people who would like to
work but have given up looking for jobs after
an unsuccessful search, don t show up in
unemployment statistics.
•  Other people may claim to be unemployed in
order to receive financial assistance, even
though they aren t looking for work.
Copyright © 2010 Cengage Learning
How Long Are the Unemployed without
Work?
•  Most spells of unemployment are short.
•  Most unemployment observed at any given time
is long-term.
•  Most of the economy s unemployment problem
is attributable to relatively few workers who are
jobless for long periods of time.
Copyright © 2010 Cengage Learning
Why Are There Always Some People
Unemployed?
•  In an ideal labour market, wages would adjust
to balance the supply and demand for labour,
ensuring that all workers would be fully
employed.
Copyright © 2010 Cengage Learning
Why Are There Always Some People
Unemployed?
•  Frictional unemployment refers to the
unemployment that results from the time that it
takes to match workers with jobs. In other
words, it takes time for workers to search for
the jobs that are best suit their tastes and skills.
Copyright © 2010 Cengage Learning
Why Are There Always Some People
Unemployed?
•  Structural unemployment is the unemployment
that results because the number of jobs
available in some labour markets is insufficient
to provide a job for everyone who wants one.
•  For example, a minimum wage (a price floor)
can give rise to a surplus of labour
Copyright © 2010 Cengage Learning
Review
•  The unemployment rate is the percentage of
those who would like to work but don t have
jobs.
•  The National Statistical agency calculates this
statistic monthly in most countries (including
Turkey).
•  The unemployment rate is an imperfect measure
of joblessness.
Copyright © 2010 Cengage Learning
Mini Quiz
If the price of the market basket of goods in the base year of 2004 was €20,000
and the price of the same basket had risen to €22,000 by 2005, the CPI for
2005
a. cannot be calculated.
b. is €12,000.
c. is 200.
d. is 110.
If a lender wants a real return of 6 per cent and she expects inflation to be 4 per
cent, which of the following is the nominal interest rate to charge?
a. 4 per cent
b. 6 per cent
c. 2 per cent
d. 10 per cent
Copyright © 2010 Cengage Learning
Mini Quiz
Suppose that a large number of men who used to work or seek work now no
longer do either. Other things the same, this makes
a. the number of people unemployed rise but does not change the labor force.
b. the number of people unemployed rise but makes the labor force fall.
c. both the number of people unemployed and the labor force fall.
d. the number of people unemployed fall but does not change the labor force.
Copyright © 2010 Cengage Learning