Economic Logic by Unknown

Author:Unknown
Language: eng
Format: epub
Published: 2020-02-22T16:00:00+00:00

Based on this survey, calculate:

A.The cost of these goods and services in 2017.

B.A fixed-weighted GPPI for 2016-17.

C.A chain-weighted GPPI for 2016-17.

D.Which price index is more accurate, fixed or chain? Why?

3.In the late 19th century, many railroad companies issued long-term bonds guaranteed to be repaid at maturity in a fixed amount of gold bullion. Do some research on these bonds and see what interest rate they were able to pay because of these gold-backed bonds. Was the interest paid on these gold railroad bonds higher or lower than the then-current interest rates on regular corporate bonds? Was it higher or lower than government bonds? What accounts for this difference? When the bonds came due in the 20th century, after the U. S. went off the gold standard, did the railroad companies honor these bonds in gold? Why or why not?

4.Which would be a better way for the government to protect its investors from inflation: offer a bond linked to changes in the CPI, or a bond guaranteed to pay its principal in a fixed amount of gold bullion?

5.The Consumer Price Index is not considered a complete “cost of living” index. The CPI does NOT include which of the following items (there may be more than one correct answer):

A.Sales taxes

B.Imported goods

C.Cost of housing

D.Stock market prices

E.Cost of business machinery

F.Personal income taxes

6.Government officials often consider the “core inflation rate,” defined as the CPI excluding food and energy. Food and energy are the most volatile of the CPI goods, and therefore, according to officials, often distort the long-term inflation levels. Do you agree with this official view? Should basic necessities such as food and energy be excluded from the “core inflation rate,” or is this a political device to disguise higher inflation rates?

7.In 2003-04, Fed chairman Alan Greenspan pushed short-term interest rates down to 1% because he feared a “Japanese-style deflation” of falling prices. Is fear of deflation a legitimate concern? What was the unintended consequence of this easy-money policy?

8.In 2008-09, the Consumer Price Index (CPI) actually fell for a few months in a row. Berkeley professor Brad DeLong argues that the public should fear price deflation (when average prices fall): “The root reason to fear deflation is that the nominal interest rate is bounded below at zero. Significant deflation—even completely anticipated deflation—thus generates high real interest rates and large transfers of wealth from debtors to creditors. Deflation’s high real interest rates depress investment, lower demand, and raise unemployment. Deflation’s transfers of wealth from debtors to creditors diminish the economy’s ability to keep the web of credit and financial intermediation functioning. Such disruption of the financial system puts additional downward pressure on investment, demand, and unemployment.” Do you agree? Is price deflation always bad? Should the federal government fight deflation? Can you think of times when falling prices helped the economy? What about the 1920s?

FOR ADDITIONAL READING

•Hans Sennholz, The Age of Inflation, 2nd ed. (Libertarian Press, 2006). An excellent analysis of the causes of inflation.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.