THE MACROECONOMIC ANALYSIS

Running head: MACROECONOMIC ANALYSIS
Macroeconomic Analysis
Name of the Student
Name of the University
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1MACROECONOMIC ANALYSIS
Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................3
Answer 3..........................................................................................................................................4
Answer 4..........................................................................................................................................5
Answer 5..........................................................................................................................................7
Reference.........................................................................................................................................8

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Answer 1
(a) Wage and price index in 7/81 are $7.45 per hour and 91.50 respectively. Therefore, real wage
in7/81 is given as
Real wage ( 7 /81 )= W
P
¿ , Real wage ( 7 /81 )= 7.45
0.915
¿ , Real wage ( 7 /81 )=$ 8.14
Wage and price index in 11/82 are $7.98 per hour and 98.00 respectively. Therefore, real wage in
11/82 is given as
Real wage ( 11/82 ) =W
P
¿ , Real wage ( 11/82 ) = 7.98
0.98
¿ , Real wage ( 11/82 ) =$ 8.14
From the above calculation, it can be observed that in both the cases the real wage is same.
Therefore, the percentage change in real wage during this period is given by
Percentage change ∈real wage=8.14−8.14
8.14 ×100
¿ , Percentage change∈real wage=0 %
(b) Wage and price index in 12/82 are $8.01 per hour and 97.70 respectively. Therefore, real
wage in 12/82 is given as

3MACROECONOMIC ANALYSIS
Real wage ( 12/82 ) =W
P
¿ , Real wage ( 12/82 )= 8.01
0.977
¿ , Real wage ( 12/82 )=$ 8.20
Wage and price index in 6/90 are $10.20 per hour and 129.900 respectively. Therefore, real wage
in 6/90 is given as
Real wage ( 12/82 ) =W
P
¿ , Real wage ( 12/82 )= 10.20
1.299
¿ , Real wage ( 12/82 )=$ 7.85
The percentage change in real wage from 12/80 to 6/90 is given by
Percentage change ∈real wage=7.85−8.20
8.20 × 100
¿ , Percentage change∈real wage=4.27 %
(c) The economist use real wage when look at the changes over time because it reflects the true
change in wage rate and it provides the ample information regarding one’s purchasing power
since real wages are adjusted for inflation.
Answer 2
Economists use GDP as the measure of wellbeing because according to the economist
income is the ultimate thing as with rise in income of a country increases the increases the

4MACROECONOMIC ANALYSIS
purchasing power and people can afford more. Thus, this indicates rise in income increases
welfare of the society. However, as per various studies it is argued that GDP is not a good
measure of wellbeing of the society because GDP does not include safety, education, health,
happiness, income inequality, access to food and shelter and other basic needs life. The other
ways of measuring wellbeing of the society are Social Progress Index (SCI) and Gross National
Happiness (GNH). SCI indicates the development in access to education, food and shelter,
safety, health and quality of life (Jitmaneeroj 2017). Similarly, GNH indicates the wellbeing of
the people achieved due to spending more time with family, following passion and doing
whatever people likes to do and thereby becoming happy. Thus, it can said that wellbeing of
society depends more on non-material things.
Answer 3
(a) Considering 11/ 2019 for the calculation of ex-ante and ex-post real interest rate. The CPI in
11/2018 and 11/2019 are 252.760 and 257.936 respectively. Therefore, actual inflation rate
during this period is given by
Actualinflation rate ( π )= 257.936−252.760
252.760 ×100
¿ , Actual inflation rate ( π )=2.05 %
Therefore, calculating ex-ante and ex-port real interest rate (r) below.
Ex ante r =i−π e
¿ , Ex ante r=1.57−2.5
¿ , Ex ante r=−0.93 %

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Similarly,
Ex post r =i−π
¿ , Ex post r =1.57−2.05
¿ , Ex post r =−0.48 %
(b) Deflation is bad because it makes consumer skeptical about their income and thus in fear of
fall in income they start to consume less and save more. As a result, the, aggregate demand of the
economy falls and the economy contracts and income of individuals further falls pushing the
economy towards severe crisis. Deflation causes economic output to fall.
(c) The deflation is a nightmare for central banks because it declines the income of the people
apparently. Due to this skeptic perception, people reduce consumption which further declines the
aggregate demand (Fleckenstein, Longstaff and Lustig 2017). With persistent deflation,
economic slowdown occurs but the central bank cannot lower the interest rate as it would not
lower the bank deposits and the country goes in liquidity crunch. On the other hand, with fall in
industrial activity income decreases whereas with rise in deflation real interest increases. The ex
post real interest r =i−πshow that actual level of the interest rate whereas ex ante provides the
future rate of real interestr =i−πe. Thus, when ex ante is lower than ex post then deflationary
effect occurs.
Answer 4
(a) Hy Marks received $515 on January 1, 2012 by buying a one year government bond on
January 1, 2011 for $500. Therefore, the nominal interest rate is given by
Nominal interest rate=515−500
500 ×100

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¿ , Nominal interest rate=3 %
(b) The actual inflation is given by
Actulainflation rate=206−200
200 × 100
¿ , Actula inflation rate=3 %
(c) The real interest rate is given by
Real interest rate=Nominal interest rate− Actula inflatiionrate
¿ , Real interest rate=3−3
¿ , Real interest rate=0 %
(d) Expected inflation rate is given by
Expected inflation rate= 201−200
200 ×100
¿ , Expected inflation rate=0.5 %
(e) Expected real interest rate is given by
Expected real interest rate=Nominal interest rate−Expected inflation rate
¿ , Expected real interest rate=3−0.5
¿ , Expected real interest rate=2.5 %

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Answer 5
(a) Percentage change in nominal GDP from 2008-01-01 to 2009-07-01 is given by
Percentage change ∈nominal GDP= 14420.312−14651.039
14651.039 × 100
¿ , Percentage change∈nominal GDP=−1.58 %
(b) Percentage change in GDP deflator from 2008-01-01 to 2009-07-01 is given by
Percentage change ∈GDP delflator =94.912−93.569
93.569 × 100
Percentage change ∈GDP delflator =1.44 %
(c) Percentage change in real GDP from 2008-01-01 to 2009-07-01 is given by
Percentage change ∈real GDP= Percentage change∈nominal GDP
Percentage change∈GDP deflator
¿ , Percentage change∈real GDP=−1.58
1.44
¿ , Percentage change∈real GDP=−1.01 %
(d) Stagflation is defined as the persistent high inflation rate with stagnant demand in the
economy and high unemployment. During recession inflation rate was low and thus the economy
was not experiencing stagflation.

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Reference
Fleckenstein, M., Longstaff, F.A. and Lustig, H., 2017. Deflation risk. The Review of Financial
Studies, 30(8), pp.2719-2760.
Jitmaneeroj, B., 2017. Beyond the equal-weight framework of the Social Progress
Index. International Journal of Social Economics.