QUESTIONS AND PROBLEMS

QUESTIONS

1. 1. What is the difference between a series of economic data over time measured in nominal terms versus the same data series over time measured in real terms?
   2. How do you convert a series of nominal economic data over time to real terms? Should people typically pay more attention to their real income or their nominal income? If you choose the latter, why would that make sense in today’s world? Would your answer be the same for the 1970s?
   3. What are typical GDP patterns for a high-income economy like the United States in the long run and the short run?
   4. Why do you suppose that U.S. GDP is so much higher today than 50 or 100 years ago?
   5. Why do you think that GDP does not grow at a steady rate, but rather speeds up and slows down?
   6. What are the two main difficulties that arise in comparing different countries’ GDP?
   7. Cross country comparisons of GDP per capita typically use purchasing power parity equivalent exchange rates, which are a measure of the long run equilibrium value of an exchange rate. Why could using market exchange rates, which sometimes change dramatically in a short period of time, be misleading?
   8. Why might per capita GDP be only an imperfect measure of a country’s standard of living?
   9. Ethiopia has a GDP of $8 billion (measured in U.S. dollars) and a population of 55 million. Costa Rica has a GDP of $9 billion (measured in U.S. dollars) and a population of 4 million. Calculate the per capita GDP for each country and identify which one is higher.
   10. In 1980, Denmark had a GDP of $70 billion (measured in U.S. dollars) and a population of 5.1 million. In 2000, Denmark had a GDP of $160 billion (measured in U.S. dollars) and a population of 5.3 million. By what percentage did Denmark’s GDP per capita rise between 1980 and 2000?
   11. List some of the reasons why economists should not consider GDP an effective measure of the standard of living in a country.