Economics and Society Homework #11
Due 12/1/15
1. Define:
A. Producer Price Index (PPI)
B. Commodity money
C. Fiat money
D. Federal Reserve System (The Fed)
2. List the 2 biases of the CPI.
3. List the 3 main problems with our measurement of GDP.
4. List the (3) functions established by a monetary system.
5. Describe M1 and M2.
6. Define the 4 main policy tools of the Fed.
7. What is the purpose of the Federal Open Market Committee (FOMC)?
8. What country currently has the highest GDP? (Total GDP, not per capita)
9. Complete the table charting the production process of leather shoes.
Firm
Cost of
intermediate goods,
Farm
Slaughter
house
Leather Company
Shoe maker
Retailer
Revenue
$10
Value
Added
$16
$28
$42
$60
What is the total value added (by all the firms)?
10. Using the following information, calculate total household income and GDP. Record your answers in the
boxes provided. Also state the factor of production associated with each type of factor payment.
Factor Payment:
Total Rent
Factor Payment:
Total Wages
Factor Payment:
Total Interest
Factor Payment:
Total Profits
$20 mil
$135 mil
$14 mil
$81 mil
↓
↓
↓
↓
Factor of
production
Factor of
production
Factor of production
Factor of production
Total HH Income
GDP
11. Assume the base year is 2000
 Calculate the GDP Deflator for 2002.
 Calculate the GDP Deflator for 2003.
 Based on the GDP Deflator, calculate the inflation rate from 2000 to 2003.
Year
Nominal GDP
Real GDP
2000
$100 million
$100 million
2001
$120 million
$115 million
2002
$150 million
$130 million
2003
$200 million
$180 million
*Recall that for any price index, the value will be equal to 100 in the base year