Question

The Fed. was created in 1913. How stable were prices from 1801 – 1912?

3. My friend’s aunt used to drive a Lincoln/Mercury Capri. It cost $2,999 in 1973. This sounds inexpensive, but how much did it really cost in today’s dollars? How would each of the following change the reported GDP? Explain.

4. An increase in illegal drug sales.

5. More families prepare meals at home instead of eating out.

6. More Americas purchase cars made in Japan. How would each of the following change the GNP? Explain.

7. Bosch (German company) opens a new plant in Columbia, SC.

8. I buy a Ford car built in Germany.

9. I buy a new American car. Give one example where the official unemployment rate:

10. Over estimates the true level of unemployment.

11. Under estimates the true level of unemployment

Answer 1

The prices were instable before the formation of Fed and that was one of the main reasons why lawmakers had to resort to the formation of a central bank to govern the monetary policies. The conflict of interests because of proposed plans were imminent during that time period in particular between farmers and wall street brokers. To contain financial issues of all the sects of the society, the fed was formed eventually in 1913.

3. In today's cost, it would be adjusted to inflation and we should relate to the price only after taking into account the prices after inflation. After adjustment we get the price of the Lincoln is actually $18,148.67.

4. Unchanged. As Illegal drug sales do not come under any component in GDP calculation because these services are illegal in the first place.

5. Increase. The consumption increases anyways no matter whether the families dine outside or dine at home. Therefore GDP increases.

6. Decrease. The net exports decrease as the imports have increased. Hence the GDP decreases as well.

7. Increase. Private investment increases therefore the GNP increases too.

8. Decrease. The net exports have decreased due to the import of the Ford from Germany. Therefore GDP decreases.

9. Increases. When I buy an American car the domestic consumption increases therefore GDP increases.

10. When unemployment rate considers discouraged workers then it will be overestimating the true level of unemployment in the country and doesn't provide a great picture.

11. When unemployment rate doesn't consider frustrated individuals who have stopped looking for work, this could mean that unemployment rate is actually underestimating the level of true unemployment as any average person would be frustrated after few rejections given the unpredictable job market.

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