ECONOMIC PRINCIPLES Question 1: Price Level Changes

ECONOMIC PRINCIPLES
STUDENT ID:
[Pick the date]

ECONOMIC PRINCIPLES
Question 1 (Nominal & Real GDP)
The price level changes may be measured using the GDP deflator which may be computed
mathematically using the following formula (Krugman, 118).
GDP Deflator = (Nominal GDP/Real GDP)*100
Alternatively price level changes can also be represented using inflation indicators such as
CPI (Consumer Price Index) and WPI (Wholesale Price Index). These indices tend to define a
basket of goods and tend to compute the weighted index every year. The change in the value
of the weighted index highlights the inflation (Krugman, 145).
Price increase has been quite modest in the recent times owing to the economic recovery path
that the country has been since the global financial crisis. Nominal GDP is the total value of
goods and services produced in the country within a given time computed at current prices. In
contrast, real GDP is GDP computation carried at the prices of base year. Considering that
effect of inflation is not captured in the real GDP, hence it is considered to be a superior
indicator (Krugman, 112-113).
Question 2 (Macroeconomics v Microeconomics)
Based on the given article, it is apparent that a significant difference tends to exist between
macroeconomics and microeconomics which leads to different perspectives in terms of
interpreting a given phenomena. For instance, in the recent times, there has been strict control
of border in southern parts of US leading to decreasing supply of cheap migrant labour. As a
result from the microeconomic perspective, the underlying costs for producers of various
food crops would increases which would lead to shift in the supply curve and increase
equilibrium price (Arnold 93). From the macroeconomic perspective, this is expected to lead
2

ECONOMIC PRINCIPLES
to food inflation and also would adversely impact the competitiveness of the US producers in
the international market (Krugman 76).
3

ECONOMIC PRINCIPLES
References
Arnold, Roger. Microeconomics, New York: Cengage Learning, 2015
Krugman, Paul Macroeconomics, London: Worth Publishers, 2015
4