Macroeconomics
Seminars
24 Feb – 28 Feb 2024/2025
Key macroeconomic indicators: GDP, inflation, unemployment
1. (Textbook p 57, pr. 3) During a given year, suppose the following activities occur in an economy.
i. An automobile manufacturing company pays its workers €10 million to assemble 5,000 cars. The cars
are then sold to an automobile store for €12 million.
ii. That year, the store pays €1 million in wages to its salespeople, who sell the cars directly to consumers
for €15 million.
a. Using the production-of-final-goods approach, what is GDP in this economy?
b. What is the value added at each stage of production? Using the value-added approach, what is GDP?
c. What are the costs incurred in terms of wage payment and the profits earned? Using the income
approach, what is GDP?
2. (Textbook p 57, pr. 4) An economy produces three goods: cars, computers, and oranges.Quantities and
prices per unit for years 2012 and 2013 are as follows:
Quantity
2012
Price
Quantity
2013
Price
Cars
10
$2000
12
$3000
Computers
4
$1000
6
$500
Oranges
1,000
$1
1000
$1
a. What is nominal GDP in 2012 and in 2013? By what percentage does nominal GDP change from 2012
to 2013?
b. Using the prices for 2012 as the set of common prices, what is real GDP in 2012 and in 2013? By what
percentage does real GDP change from 2012 to 2013?
c. Using the prices for 2013 as the set of common prices, what is real GDP in 2012 and in 2013? By what
percentage does real GDP change from 2012 to 2013?
d. Why are the two output growth rates constructed in parts b and c different? Which one is correct?
Explain your answer.
3. (Textbook p 57, pr. 5) Consider the economy described in Problem 2.
a. Use the prices for 2012 as the set of common prices to compute real GDP in 2012 and in 2013.
Compute the GDP deflator for 2012 and for 2013, and compute the rate of inflation from 2012 to 2013.
b. Use the prices for 2013 as the set of common prices to compute real GDP in 2012 and in 2013.
Compute the GDP deflator for 2012 and for 2013 and compute the rate of inflation from 2012 to 2013.
c. Why are the two rates of inflation different? Which one is correct? Explain your answer.
4 . (Textbook p 57, pr. 5) Consider the economy described in Problem 2.
a. Construct real GDP for years 2012 and 2013 by using the average price of each good over the two
years.
b. By what percentage does real GDP change from 2012 to 2013?
c. What is the GDP deflator in 2012 and 2013? Using the GDP deflator, what is the rate of inflation from
2012 to 2013?
d. Is this an attractive solution to the problems pointed out in Problems 4 and 5 (i.e., two different growth
rates and two different inflation rates, depending on which set of prices is used)?
5. Japan is notorious for having very low inflation and even deflation for several years after 2000. Here
consumers in Japan are represented as buying only two goods: fresh food and rents. The weight of fresh
food in the consumption basket is 70% and of rents 30%. The weights are fixed at their level as of 2010.
Each year, the NSI of Japan collects the price of those two goods in Japanese yen as shown below.
Year
Price of Fresh Food
2010
2011
2012
2013
2014
2015
2016
2017
JP¥ 62,000
JP¥ 61,800
JP¥ 61,700
JP¥ 62,000
JP¥ 63,500
JP¥ 64,000
JP¥63,800
JP¥ 63,860
a)
b)
c)
d)
e)
Housing Rent
JP¥ 308,800
JP¥ 307,900
JP¥ 307,900
JP¥ 309,130
JP¥ 317,480
JP¥ 320,000
JP¥ 319,700
JP¥ 320,000
Calculate an annual chain index of the two prices for the period 2011 – 2017.
Calculate the annual inflation rate for the period 2011 – 2017.
Was inflation negative during any of the years?
What does deflation imply?
The international price of oil has declined since 2014. How do you expect consumers to respond
to such a decline in oil prices?
6. First, download data of nominal and real GDPof Bulgaria on an annual basis for the period 2019 –
2023 from the NSI internet site. Calculate the GDP deflator for each year of the period 2019 – 2023. Then
download from the Eurostat internet site data for HICP - annual data (average index and rate of change)
for Bulgaria for the period 2019 – 2023. Compare the annual inflation rate calculated from the annual
HICP with the GDP deflator for the same period. Explain the differences between the two indicators.
Comment and compare the methodology of NSI for calculation of Consumer Price Index and the
Harmonized Consumer Price Index.