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    ECON 2123 Tutorial 2

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    Ngs
    This document provides an overview of key macroeconomic concepts including the unemployment rate, inflation rate, GDP deflator, CPI, and biases that can impact inflation measurements. It also includes sample practice questions to help explain these concepts. The unemployment rate is the ratio of unemployed to the labor force. Inflation is a sustained rise in prices, which can be measured by the GDP deflator or CPI. The GDP deflator and CPI generally move together but have some differences in what they measure. Practice questions are provided to help apply these concepts.

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    ECON 2123 Tutorial 2

    Uploaded by

    Ngs
    27 views3 pages
    This document provides an overview of key macroeconomic concepts including the unemployment rate, inflation rate, GDP deflator, CPI, and biases that can impact inflation measurements. It also includes sample practice questions to help explain these concepts. The unemployment rate is the ratio of unemployed to the labor force. Inflation is a sustained rise in prices, which can be measured by the GDP deflator or CPI. The GDP deflator and CPI generally move together but have some differences in what they measure. Practice questions are provided to help apply these concepts.

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    This document provides an overview of key macroeconomic concepts including the unemployment rate, inflation rate, GDP deflator, CPI, and biases that can impact inflation measurements. It also includes sample practice questions to help explain these concepts. The unemployment rate is the ratio of unemployed to the labor force. Inflation is a sustained rise in prices, which can be measured by the GDP deflator or CPI. The GDP deflator and CPI generally move together but have some differences in what they measure. Practice questions are provided to help apply these concepts.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    27 views3 pages

    ECON 2123 Tutorial 2

    Uploaded by

    Ngs
    This document provides an overview of key macroeconomic concepts including the unemployment rate, inflation rate, GDP deflator, CPI, and biases that can impact inflation measurements. It also includes sample practice questions to help explain these concepts. The unemployment rate is the ratio of unemployed to the labor force. Inflation is a sustained rise in prices, which can be measured by the GDP deflator or CPI. The GDP deflator and CPI generally move together but have some differences in what they measure. Practice questions are provided to help apply these concepts.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Econ 2123 Macroeconomics (2020 Fall)

    ECON 2123 Macroeconomics (T1/ T6/ T7/ T8)

    Tutorial 2

    Sunny WONG

    Basic Concepts

    1. The Unemployment Rate

    (1) The unemployment rate is the ratio of the number of people who are
    unemployed to the number of people in the labour force.

    (2) Employment (N) is the number of people who have a job. Unemployment (U)
    is the number of people who do not have a job but are looking for one. The
    labour force (L) is the sum of employment and unemployment.

    (3) Therefore, L = N + U, and the unemployment (u) = U/L

    (4) Those who do not have a job and are not looking for one are counted as not in
    the labour force. When unemployment is high, some of the unemployed give
    up looking for a job are called discouraged workers. The people above are
    NOT counted as unemployed.

    2. The Inflation Rate

    ➢ Inflation is a sustained rise in the general price level. There are two measures
    of the price level: the GDP deflator and the Consumer Price Index (CPI).

    (1) GDP deflator in year t (Pt) =

    ➢ The GDP deflator is what is called an index number: set base year as 100

    1
    Econ 2123 Macroeconomics (2020 Fall)

    (2) CPI in any month =

    ➢ Consumer price index (CPI) measures the average price of consumption or


    the cost of living.

    ➢ The CPI gives the cost in dollars of a specific list of goods and services over
    time. (Same basket of goods in base year)

    ➢ Factors for inflation


    ▪ Demand Pull
    ▪ Cost Push
    ▪ Booming Economy

    3. Bias

    ➢ New product bias (Period 6)


    ▪ Overestimate inflation rate (As it always insists to use old basket)

    ➢ Substitution bias (Period 5)


    ▪ Consider we can switch Kit Kat with Twix (From expensive to cheaper
    stuff)

    ➢ Quality bias (Period 4)


    ▪ Focus on Kit Kat price remains unchanged
    ▪ Consider iPhone, get more advance, price remains
    - Even increase CPI, enjoy better good or services (overestimate
    again)

    4. GDP Deflator v.s. CPI

    ➢ They move together most of the time.

    ➢ GDP deflator measures the prices of all goods and services produced, whereas
    the CPI measures the prices of the goods and services bought by consumers.

    ➢ GDP deflator includes only those goods produced domestically, whereas the
    CPI is affected by the imported prices.

    2
    Econ 2123 Macroeconomics (2020 Fall)

    Practise Question

    Question 1

    Given the following:

    P2005 = 100 Nominal GDP2005 = 475 Real GDP2005 = X

    P2006 = 105 (Base year) Nominal GDP2006 = Y Real GDP2006 = 500

    P2007 = 108 Nominal GDP2007 = 540 Real GDP2007 = 500

    (a) What is the inflation rate of year 2005, 2006 and 2007

    (b) Find X and Y

    Question 2 (Same set of number as tutorial 1)

    2005 2006
    Quantity Price ($) Quantity Price ($)
    Cars 10 2000 12 3000
    Computers 4 1000 6 500
    Oranges 1000 1 1000 1

    (a) What is the real GDP in 2005 and 2006? Use average price of each goods across 2
    years.

    (b) What is the percentage change of real GDP from 2005 to 2006?

    (c) What is the GDP deflator in 2005 and 2006? What is the inflation?

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