Assignment One
Course Macroeconomics
Total mark 10%
Instructions:

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This is a group assignment. A group should consist of 3 to 5 people. Assignments submitted
individually will not be accepted.
Submit your assignment on or before August 6, 2017
Questions
1. Consider an economy that produces and consumes bread and automobiles. In the
following table the data for two different years for the two goods in their market prices
are listed.
Good
Automobiles
Bread
2000
Quantity
Price
100
$50,000
500,000
$10
Year
2010
Quantity
120
400,000
Price
$60,000
$20
Taking the information in the table find
a. Using the year 2000 as the base year, compute the following statistics for each year:
nominal GDP, real GDP, the implicit price deflator for GDP, and a fixed-weight price
index such as the CPI.
b. How much have prices risen between 2000 and 2010?
2. The great depression of 1930s was the greatest economic crisis the western world had
experienced. There was decline in their GDP, increases in unemployment at alarming rate
and decline in the general price level. The following table shows USA data on output,
employment and price level as an example.
3. Discuss the need for government intervention according to classical , Keynesian,
monetarist and new classical macroeconomist
4. What are the causes of the inflation in Ethiopia? What type of policy the government was
taken to overcome the inflation?
USA GDP, prices and unemployment: 1929–33
Year
Real GDP
$ Billions
Price level
Unemployment
GDP deflator
%
1929
103.1
100.0
3.2
1930
94.0
96.8
8.9
1931
86.7
88.0
16.3
1932
75.2
77.6
24.1
1933
73.7
76.0
25.2
According to the following schools explain the possible causes of the 1930s economic
performance of the western economy.
i)
Keynesians macroeconomics
ii)
Monetarist macroeconomics
iii)
Classical macroeconomics
5. Discuss the need for government intervention according to classical , Keynesian, monetarist
and new classical macroeconomist6. a) Explain why inflation in most developing countries considers to be a fiscal Phenomenon
(the result of budgetary deficit)
b) Currently, Ethiopia experiences high rate of inflation .What do you think about the
Possible factors that contributes for such inflationary condition? Describe how the
factors you identify leads to inflationary conditions. What type of demand management
policy you recommend to overcome the problem.