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ECON 295 (44)
Lecture

# Conference Sheet 2.doc

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School
Department
Economics (Arts)
Course
ECON 295
Professor
Christopher Ragan
Semester
Winter

Description
McGill University Econ295 Professor Paul Dickinson Introductory Discussion Questions Aggregate Output, the Price Level, and International Trade Imagine Econoland, a hypothetical country, in which there are only 3 goods: no other goods are produced or consumed. The table below shows the prices and quantities for Econoland over a series of years. Textiles are fully produced and consumed within the country, Mountie Posters are produced domestically but all are exported, and coffee is consumed domestically but all is imported. Textiles (kg) Mountie Posters Coffee (kg) Year Price Quantity Price Quantity Price Quantity 1988 \$1200 210 \$3.40 140,000 \$4.80 95,000 1989 \$1400 205 \$3.60 130,000 \$5.50 110,000 1990 \$1540 195 \$3.96 125,000 \$6.05 107,500 1991 \$1694 185 \$4.36 112,000 \$6.66 102,500 1992 \$1870 175 \$4.80 105,000 \$7.33 97,500 1993 \$1800 200 \$5.75 125,000 \$7.00 115,000 1994 \$1700 210 \$5.45 135,000 \$6.75 110,000 1995 \$1700 225 \$5.45 140,000 \$6.75 115,000 1996 \$1600 250 \$5.20 137,500 \$6.80 120,000 1997 \$1600 200 \$5.00 110,000 \$7.30 110,000 1998 \$1500 175 \$4.60 105,100 \$7.70 120,000 Measures of Aggregate Output (Note: This exercise takes less time using a spreadsheet rather than a calculator) 1. Compute nominal GDP in Econoland for each year. 2. Compute the real GDP in Econoland using 1988 as the base year, and then using 1998 as the base year. Explain any differences you see. (Hint: See Box on p. 490/491 of the text.) 3. Explain the differences you see between the nominal and real measures. (Do this for the whole period, 1988 to 1998, and for the four sub-periods 1988-1991, 1992-1995, 1995-1996, and 1997-1998). 4. Are there any recessions in Econoland over the period? Identify them. (Hint: See box on page 458 of text) Measures of the Price Level 5. Keeping in mind which of the products are actually consumed by Econoland’s residents, construct a Consumer Price Index using 1988 as the base year (that is, setting the CPI in 1988 = 100). (Hint: see box on page 465 of text) 6. Now construct the GDP deflator. This is the implicit price index generated by compar
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