ISL244E Macroeconomics
Problem Session-3
by
Research Assistant
Serkan Değirmenci
(Ph.D. Candidate)
D202/27.02.2012
Today
• B (2009), Macroeconomics:
- Chapter 2: A Tour of the Book (Pages: 41-61)
Quick Check (QC): (1-f), 5 (Page: 59)
• GNH (2009), Macroeconomics in Context:
- Chapter 11: Money and Monetary Policy
Discussion Questions (DQ): (1-2: Page: 264)
Review Questions (RQ): 2-3-4 (Page: 284)
Review Up to Date
• macroeconomics vs. microeconomics
• positive statement vs. normative statements
• schools of economic thought (classical, Keynesians,
monetarists…etc.)
• definition and measurement of GDP
• GDP vs. GNP
• nominal GDP vs. real GDP
• GPI and HDI
• CPI vs. GDP deflator
• three functions of money (medium of exc., unit of account, store of
value)
• types of money (commodity money, fiat money)
• measures of money supply (M1, M2, M3… etc.)
The GDP deflator gives the average
price of output-the final goods
produced in the economy. But
consumers care about the average
pricerate
of consumption
–thecomputed
goods
The
of inflation
they consume.
B-Chapter 2: QC-(1-f) (Page: 59)
•
using the CPI is a better index
of inflation than the rate of inflation computed using the GDP
deflator.
• ANSWER:
The two prices need not be the same: The set
Uncertain.
of goods produced in the economy is not the
the set ofongoods
Which index is same
betteras depends
whatpurchased
we arebytrying to
consumers,
for two
reasons: or by the economy as
measure—inflation
faced by
consumers
***some of the goods in GDP are sold not to
a whole.
consumers but to firms (machine tools, for
example), to the government, or to foreigners.
***and some of the goods bought by
consumers are not produced domestically but
are imported from abroad.
B-Chapter 2: QC-5 (Page: 59)
• Consider the economy described in problem 4.
a. Use the prices for 2006 as the set of common prices to
compute real GDP in 2006 and in 2007. Compute the GDP
deflator for 2006 and for 2007 and compute the rate of
inflation from 2006 to 2007.
b. Use the prices for 2007 as the set of common prices to
compute real GDP in 2006 and in 2007. Compute the GDP
deflator for 2006 and for 2007 and compute the rate of
inflation from 2006 to 2007.
c. Why are the two rates of inflation different? Which one is
correct? Explain your answer.
B-Chapter 2: QC-5 (Page: 59)
Cars
Computers
Oranges
2006
Quantity
Price
10
$2000
4
1000
$1000
$1
2007
Quantity
Price
12
$3000
6
1000
$500
$1
• Nominal GDP (2006): 10($2,000)+4($1,000)+1000($1)=$25,000
• Nominal GDP (2007): 12($3,000)+6($500)+1000($1)=$40,000
2006 base year:
• Real GDP (2006): $25,000
• Real GDP (2007): 12($2,000)+6($1,000)+1000($1)=$31,000
2007 base year:
• Real GDP (2006): 10($3,000)+4($500)+1,000($1)=$33,000
• Real GDP (2007): $40,000
B-Chapter 2: QC-5 (Page: 59)-answer
• ANSWER:
a. 2006 base year:
Deflator(2006)=1;
Deflator(2007)=$40,000/$31,000=1.29
Inflation=29%
b. 2007 base year:
Deflator(2006)=$25,000/$33,000=0.76;
Deflator(2007)=1
Inflation=(1-0.76)/0.76=.32=32%
c. Neither answer is incorrect, just as measurement in
inches is not more or less correct than measurement in
centimeters.
Chapter 11: DQ-1 (Page: 264)
• Suppose you asked someone who has not taken an economics
class what makes a dollar bill have value. What do you think
he or she would say? Would he or she be correct?
• ANSWER:
People often think that a dollar bill is backed by gold or silver.
This is incorrect, since it is "fiat" money, backed only by a
declaration of the government and society's consent.
Chapter 11: DQ-2 (Page: 264)
• What do you commonly use to make payments? Cash? Credit
cards? On-line payments? In which of these cases are you
using "money"?
• ANSWER:
This will depend on the students' experience. On-line
payments, for example, will be "money" if they come directly
from checking accounts, but "credit" if they are charged to
credit cards.
Chapter 11: RQ-2 (Page: 284)
• Describe the three roles of money.
• ANSWER:
Medium of exchange,
Store of value,
Unit of account.
Chapter 11: RQ-3 (Page: 284)
• Describe at least three very different types of
money.
• ANSWER:
(3 of the following 4)
Commodity money.
Coins made of precious metal.
Silver certificates.
Fiat money.
Chapter 11: RQ-4 (Page: 284)
• Describe at least two measures of money.
• ANSWER:
M1 = currency (in circulation), checkable
deposits, and traveler's checks.
M2= M1 + savings deposits, and other
accounts such as small certificates of deposit
and retail money market funds.
TCMB Para Arzı Tanımları
• TCMB’nin 2005 yılından itibaren kullandığı
para arzı tanımları şöyledir:
- M1= Dolaşımdaki Para (nakit) + Vadesiz
Mevduat (TL) + Vadesiz Mevduat (YP-yabancı
para)
- M2= M1 + Vadeli mevduat (TL ve yabancı
para)
- M3= M2 + Repo işlemlerinden sağlanan fonlar
+ Para Piyasası Fonları
to be continued…