EC140 Lecture Notes - Lecture 2: Factor Cost, Gdp Deflator, Real Interest Rate

16 views4 pages

taupetermite351

14 Mar 2017

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

meghan78 and 39778 others unlocked

EC140 Full Course Notes

Verified Note

21 documents

Document Summary

Nominal rate of interest adjusted for inflation. Investment depends on borrowing on the real interest rate. Amount of domestic currency required to purchase one unit of foreign currency. A fall in exchange rate is an appreciation. A rise in exchange rate is an depreciation. Value of final production of goods and services. All outputs used as input to something else are called intermediate goods and are not counted for gdp to avoid double counting. To avoid double counting, economists use value added. Value added = sales revenue - cost of intermediate goods. Value added = wages paid to workers + profits paid to owners. Consumption expenditure: household expenditure on all goods and services. Expenditure on production of goods for future consumption. Depreiation is amount which capital stock is depleted through production process. All government expenditure on currently produced goods & services i. e. salaries of government workers, national defence, garbage collection, etc.

Related Questions

According to the foreign purchases effect, prices in the United States and prices in other countries remain stable, without a corresponding adjustment in exchange rates

A. U.S. consumers will buy more foreign goods and services, and imports will fall foreigners will buy fewer goods and services produced in the United States, and exports will increase. The number of net exports will fall increasing the quantity of real GDP demanded, resulting in a downward sloping aggregate demand curve.

B. U.S. consumers will buy more foreign goods and services, and imports will rise, foreigners will buy fewer goods and services produced in the United States, and exports will fall. The number of net exports will fall, reducing the quantity of real GDP demanded, resulting in a downward sloping aggregate demand curve..

C. U.S. consumers will buy fewer foreign goods and services, and Imports will rise foreigners will buy more goods and services produced in the United States, and exports will fall. The number of net exports will rise, reducing the quantity of real GDP demanded, resulting in a downward sloping aggregate demand curve.

D. U.S. consumers will buy more foreign goods and services, and Imports will fall foreigners will buy fewer goods and services produced in the United States, and exports will rise. The number of net exports will rise, reducing the quantity of real GOP demanded, resulting in a downward sloping aggregate demand curve.

cyanhippopotamus115

1.Purchasing power parity implies that

a. the real exchange rate is equal to 1.

b. the law of one price does not hold.

c. inflation rates are equal across countries.

d. the real exchange rate is equal to 0.

e. if the domestic country has low prices, then the domestic currency will depreciate until foreign citizens can buy the same amount of goods as domestic citizens.

2.Which of the following is a prediction from the PPP model of exchange rates?

A. An increase in the US money supply leads to an appreciation of the dollar in the long run.

B. An increase in US production leads to a depreciation of the dollar.

C. An increase in US production will lead to a proportional increase in the inflation rate.

D, An increase in the US money supply leads to a depreciation of the dollar in the long run.

E.An increase in the US interest rates leads to a fall in prices.

3.Relative purchasing power parity predicts that

A.the difference between the inflation rates in the two countries should equal the ratio of the interest rates in the two countries.

B. the difference between the inflation rates in two countries should equal the per cent change in the exchange rate.

C.inflation rates should be equal across countries.

D.the real exchange rate should equal one.

E.relative price levels in the two countries should be equal when expressed in the same currency.

4.Which of the following is NOT a valid explanation for the failure of purchasing power parity?

a. Differences in monetary policies across countries

b. Lack of competition

c. Transportation costs

d. Trade barriers

5.If P represents (the level of) domestic prices, P* represents (the level of) foreign prices and E represents the exchange rate as units of domestic currency per units of foreign currency, then the real exchange rate equals

a. EP/P*	b. P*/EP
C. E/PP*	d. EP*/P
e. P/P*

6.The difference between nominal and real interest rates is that

A.Nominal interest rates are measured in terms of a country's output, while real interest rates are measured in monetary terms

B.Nominal interest rates are measured in monetary terms, while real interest rates are measured in terms of a country's output

C.Nominal interest rates can fluctuate, while real interest rates always remain fixed

D.Real interest rates can fluctuate, while nominal interest rates always remain fixed

E.Real interest rates are the same in every country, while nominal interest rates are different for every country

7.Which of the following is predicted to cause the value (or price or cost) of U.S. goods to appreciate relative to the value (or price or cost) of foreign goods in the long run?

a. An increase in the growth rate of U.S. GNP. b. A decrease in the growth rate of U.S. GNP.

c. A decline in the growth rate of the U.S. money supply.

d. An increase in the price of petroleum that reduces world demand for American cars. e. An appreciation of the dollar.

jadewallaby469

In recent years, the BRIC (Brazil, Russia, India and China) countries have received much attention due to their growing importance in the world economy. Now that you are equipped with knowledge about macroeconomic data, you can take a first-hand look at how quickly these countries have been growing, how much inflation they have, and how developed they are when compared to the USA.

	Brazil	Russia	India	China	USA
Nominal GDP in 2013 (local currency, Million)	4,844,815	66,755,300	113,550,735	56,884,521	16,768,100
Nominal GDP in 2000 (local currency, Million)	1,179,482	7,305,600	21,774,127	9,921,455	10,284,800
Price Level in 2013 (index 2010=100)	124.12	121.63	132	111.1	106.8
Price Level in 2000 (index 2010=100)	51.4	30.75	54.2	81	79
Population in 2013 (in Million)	200.4	143.5	1,252	1,357	316.1
Population in 2000 (in Million)	174.5	146.6	1,042	1,263	282.2
Dollar/Local Currency Exchange rate 2013	1/2.4	1/32.6	1/62.18	1/6.07	1
PPP Conversion Factor 2013	1/1.9	1/19.47	1/18.24	1/3.36	1

The PPP conversion factor is the price in US dollars of a basket of goods (chosen by the World Bank) in the USA divided by the price in local currency of a comparable basket in that country.

For each of the BRIC countries and the US, over the period 2000-2013, answer the following:

1.What was the average annual inflation rate?

2.What was the average annual growth rate of population?

3.What was the average annual growth rate of real GDP?

4.What was the average annual growth rate of real GDP per capita?

5.For each of the BRIC countries, in the year 2013, how did real income per capita compare to that in the US? (To make this comparison, report real GDP per capita for each country as a percentage of the US.) Report two answers, one based on market exchange rates and one adjusted for differences in purchasing power.

EC140 Lecture Notes - Lecture 2: Factor Cost, Gdp Deflator, Real Interest Rate

EC140 Full Course Notes

Document Summary

Get access

Related Documents

EC140 Midterm: EC-140 Mid-Term 1 Review

EC140 Chapter Notes -Foreign Exchange Market, Interest Rate Parity, Canadian Dollar

EC140 Lecture Notes - Lecture 39: Xm Satellite Radio, Demand Curve, Capital Account

Related Questions