Question 1 Evaluate how each of the following individuals would be affected by unanticipated inflation: a) A department store clerk b) A heavily indebted farmer c) A private pensioner
Question 1
Evaluate how each of the following individuals would be affected by unanticipated
inflation:
a) A department store clerk
b) A heavily indebted farmer
c) A private pensioner
Question 2
a) What is the
b) Consider an economy that produces and consumes shoes and houses. In the
table below are data for two different users.
Year
2000
Year
200
1 Price of a house $120,000 $145,000
Price of a pair of shoes $150 $170
Number of houses produced 1,000 1,050
Number of pairs of shoes 650,000 525,000
(i) Calculate the CPI for both years.
(ii) Calculate the rate of inflation for 2001 using the CPI.
(iii) Calculate the
(iv) Calculate the rate of inflation for 2001 using the GDP deflator.
Question 3
a) What are the functions of money?
b) Draw diagrams illustrating the impact on the demand for money, the
supply of money and the equilibrium interest rate, of each of the following.
Explain what is going on in the
(i) The central bank sells securities on the open market
(ii) The economy grows (GDP increases) but the central bank moves to
keep interest rates constant.
2
Question 4
Monthly
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2014 6.6 6.7 6.7 6.2 6.2 6.1 6.2 6.2 6.0 5.7 5.8 5.6
2015 5.7 5.5 5.5 5.4 5.5 5.3 5.3 5.1 5.1 5.0 5.0 5.0
Monthly Inflation Rate 2014 – 2015
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2014 1.6 1.6 1.7 1.8 2.0 1.9 1.9 1.7 1.7 1.8 1.7 1.6
2015 1.6 1.7 1.8 1.8 1.7 1.8 1.8 1.8 1.9 1.9 2.0 2.1
Examine the monthly data on the unemployment rate and the inflation rate for
2014-2015
i) What trends do you observe in the unemployment rate? In the inflation
rate?
ii) Identify the relationship between Inflation and Unemployment, if any.
(positive, negative, no relationship) Use the data to justify your choice.
iii) Does the relationship observed in part 2 satisfy the economists' view of
the relationship between inflation and unemployment? Use references to
support your answer.
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