Relationships Between GDP, U And Inflation

Question 1

What two factors affect nGDP?

Answer 1

Changes in quantity of output and changes in price level

Question 2

Difference between nGDP and GDP?

Answer 2

nGDP measures at current prices

GDP measures value using prices to a base year

Question 3

What does the GDP deflator measure?

Answer 3

The price level (NOT EQUAL TO CPI)

Question 4

Explain what okun’s law means?

Answer 4

Typically a 1% rise in unemployment leads to a fall in rGDP of 2%

Question 5

Draw the Philips curve?

Answer 5

Now

Question 6

What does the Philips curve show?

Answer 6

The cost of lower unemployment is higher inflation

The cost of greater price stability is higher unemployment

(Policy needs to find trade off between 2)

Question 7

Show the effect in the short run and long run of expansionary monetary policy on the PC? Explain the SR and LR effects?

Answer 7

Now

Question 8

Show the effect in the short run and long run of contractionary monetary policy on the PC? Explain the SR and LR effects?

Answer 8

Now