Chapter3answer

Topics: Inflation, Unemployment, GDP deflator Pages: 19 (3284 words) Published: January 12, 2015
NSS Exploring Economics 5

Chapter 3Macroeconomics Problems

Questions

P.68
Think it over
1.
What is inflation?

2.
How does inflation affect your daily life?

3.
As a student, you do not have a job. Are you classified as unemployed?

4.
How does unemployment affect Hong Kong’s economy?

P.68
Think it over (Cartoon)
Mom, how do inflation and unemployment affect us?

P.69
Test yourself
3.1
According to the definitions above, are the following situations examples of inflation or deflation? Why? a. Because of technological improvement, the price of MP3 players drops steadily. b. Suppose that during the 2008 Beijing Olympic Games, prices of all goods and services in Beijing increased by 10%. c. A ferry company raises its fare by 20%.

P.71
Test yourself
3.2
Refer to Table 3.1. Calculate the year-on-year percentage changes in the general price level in 2003 and 2007, respectively.

P.72
Test yourself
3.3
The data below show the year-on-year percentage change in the implicit price deflator of GDP from 1997 to 2008. Plot the data on Fig 3.4. Do the two curves coincide? Explain.

Year
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Year-on-year % change
in the implicit price
deflator of GDP (%)
5.7
0.8
-4.5
-3.6
-1.9
-3.5
-6.2
-3.5
-0.1
-0.3
2.9
1.5

P.73
Test yourself
3.4 Based on the hypothetical data provided below, find the real wages in 2009 and 2010, respectively. Have the real wages increased between 2009 and 2010?

Year
Price Index
Nominal wages ($)
2009
105
10,000
2010
110
10,800

P.75
Test yourself
3.5
Suppose the expected inflation rate and the expected real interest rate are 10% and 4%, respectively. a. What is the nominal interest rate?
b. If the actual inflation rate turns out to be 6% only, what would the actual real interest rate be?

P.79
Test yourself
3.6
Identify the providers and recipients of fixed future payments among the following trading partners. Determine who will gain during unanticipated deflation.

Trading partners
Providers
Recipients
Who gain?
Banks and depositors

Employees and their employers

Cake shops and holders of their cake coupons

3.7
Will providers or recipients of fixed future payments gain under the following situations? Explain. a. Anticipated inflation
b. Anticipated deflation

P.83
Fig 3.11
Are they classified as unemployed persons?

P.83
Test yourself
3.8
What are the major similarity and difference between underemployed persons and unemployed persons?

P.85
Test yourself
3.9
‘If a large number of people retire, the change in the unemployment rate is uncertain.’ Do you agree? Explain.

P.95--96
Exercises
Multiple Choice Questions
1*.
Which of the following statements about inflation, disinflation and deflation is correct? A. Inflation occurs when the general price level rises.
B. Disinflation occurs when the general price level drops.
C. Deflation occurs when the percentage change in the general price level is persistently negative. D. Deflation occurs when the percentage change in the general price level drops continuously.

2*.
The following table shows the implicit price deflator of GDP in Hong Kong.

2005
2006
Impicit price deflator of GDP (2007 = 100)
97.4
97. 2
Source: Census and Statistics Department
In 2006,
A. the deflation rate was 0.5%.
B. the nominal GDP decreased.
C. the real GDP increased.
D. the nominal GDP was smaller than the real GDP.

3.
Year
Year-on-year % change
in Composite CPI
1999
-4.0
2000
-3.8
2001
-1.6
2002
-3.0
2003
-2.6
2004
-0.4
2005
+1.0
Which of the following statements concerning the period from 1999 to 2005 is INCORRECT? A. Deflation ceased in 2005.
B. The standard of living improved from 1999 to 2004.
C. The purchasing power of money increased from 1999 to 2004. D. The cost of living decreased from 1999 to 2004.

4.
Which of the following...
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