16.6 Monetary Policy under Fixed Exchange Rates

Appendix C
Suggested Answers to Even-Numbered Exercises
Chapter 2:
Measuring GDP and Inflation
2. The work of homemakers is not included in the GDP measure unless it is explicitly paid for, such as the salary of a butler, maid, or housecleaner.
4a. Consumer Price Index.
4b. . . . the prices of all domestically produced goods and services, not just those paid by consumers.
6. GDP should increase, but unless the national accounts statistician makes an adjustment for quality (through lowering the quality-adjusted price of the computers), measured real GDP will not increase.
8. Subtract from GDP pollution costs of production unless they are cleaned up, and do not add into GDP cleanup costs.
10. If the Turkish national accounts measure GDP, then income earned by Turks abroad is properly neglected because it is trying to measure what is produced inside Turkey's geographic boundaries. But if one wishes to measure the income Turks have at their disposal to spend, then all sources of income, including internal as well as external sources of transfer payments, should be included.
12. GDP would increase by $200 billion because things that previously were not counted as final expenditure are now counted as such. The $980 billion is just a switch from one category of final expenditure to another.
14. Ecological damage is not deducted from GDP, and expenditures to clean up damage are added to GDP.
16a. The cost of living reflects the cost of buying what one buys. The CPI reflects the cost of buying a fixed bundle of goods and services, ignoring the fact that individuals change this bundle as relative prices change, buying more of the relatively cheaper items and less of the relatively expensive items.


Macroeconomic Essentials. Understanding Economics in the News 2000
Macroeconomic Essentials - 2nd Edition: Understanding Economics in the News
ISBN: 0262611503
EAN: 2147483647
Year: 2004
Pages: 152

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