What is the distribution of income

Assignment Help Macroeconomics
Reference no: EM13534808

Part -1:

Question 1

a Discuss two reasons why the GDP deflator gives a different rate of inflation than the CPI does. In calculating the real GDP of an economy, explain whether you will use the GDP deflator or the CPL.

b The Gini coefficient in Hong Kong was 0.525 in 2001 and 0.533 in 2006. Explain whether income inequality in Hong Kong has decreased or increased between these years. If an economy has a Gild coefficient of 1.000, what is the distribution of income?

Question 2

a Suppose your salary for this year remains the same as last year. Does that mean your real income remains the same? Explain.

b Suppose the people of an economy consume only two goods, namely food and clothing. The production of goods and services in this economy consists of 50 units of food, 100 units of clothing and 40 units of machinery for production for both years.




Machinery for production

Year 1 price




Year 2 price




i Find the nominal GDP for the current year and the base year. Show all your workings.

ii What is the percentage increase in the CPI?

iii What is the percentage increase in the GDP deflator?

Part -2:

Question 1

'The cost of inflation is zero if it is anticipated.' Explain whether the statement is true, false or uncertain. (12 marks)

Question 2

Suppose the velocity of money grows at 1% and nominal GDP grows at 5% per annum. Answer the following questions based on the quantity theory of money (QTM).

a What is the annual money growth rate?

b What is the annual inflation rate if real GDP increases by 2% per annum?

c Explain (with the aid of an AD-AS diagram) the relationship between the QTM and the aggregate demand and aggregate supply (AD-AS) model with reference to the results in part (b).

Question 3

Suppose the government issues bonds that are indexed to the general price level. Discuss whether unexpected inflation or deflation will help to alleviate the government's real financial burden.

Question 4

Suppose an economy that is initially at full employment faces a substantial increase in the factor cost of production.

a Discuss (with the aid of aggregate output market and money market diagrams) the short-run effect on output, unemployment, general price level and interest rate with a substantial increase In the factor cost of production.

b Discuss (with the aid of an aggregate output market diagram) what kind of monetary policy can be adopted to restore the economy back to full employment equilibrium.

c Suppose the problem you discussed in part (a) relies on the self-adjustment mechanism instead of the discretionary policy proposed in part (b). Examine the possible impact of minimum wage on the self-adjustment mechanism.

Reference no: EM13534808

What market structure is more beneficial for wonks

In 2007, the potato chip industry in the Northwest was competitively structured and in long-run competitive equilibrium; firms were earning a normal rate of return and were

Employees of resolving disputes through adr

What are the advantages and disadvantages for both employers and employees of resolving disputes through ADR? Why would a company have an employee sign a commitment to resol

Determinants of aggregate supply

It has been asserted that the main determinants of aggregate supply can be grouped into four: resource quantity (e.g., labor, capital, land, and entrepreneurship), resource

Determine long-run profit maximizing level of output

If a representative firm with long-run total cost given by TC = 50+2q+2q^2 operates in a competitive industry where the short-run market demand and supply curves are given b

Competitive process in markets

As a result, collusion among private companies often seeks to divide market areas to maximize monopoly profits. To illustrate the competitive process in markets dominated by

Numbers show the unemployment rate

Assume no change between 2005 and 2006 in the population, percentage of part time workers and working age population. Second, discuss in detail how the numbers show the unem

Determining the concept of innovation

Are global consumers spoiled and unrealistic in their expectations, or are they finally demanding their rights in the marketplace? How has the worldwide demand for quality d

Marginal cost for one additional bottle of wine now

In your own words, describe the meaning of marginal cost. You normally buy a crate of wine for $75. One crate has 8 bottles of wine. After a month, the store clerk informs y


Write a Review

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd