Explain the different components of it and the determinants of those components.

Explain the different components of it and the determinants of those components.

How do we forecast GDP? Explain the different components of it and the determinants of those components.

A. Your grade is based on your conviction, correctness, elaboration and elucidation of your answers.
B. Show your work. Un-shown work will receive no points.
C. Each of the questions is worth 7 points. The exception is the long problem, which is worth 30 points.

II. TEST
A.ESSAYS( 8 pages)
1. Because there is inflation of 4%, the central bank intervenes and decreases the money stock by 7%. Interest rates rise by 1%, or 100 basis points. Eventually, the intervention lowers the GDP and the interest rates as well as inflation. The GDP, in fact, decreases by 1.5%, the inflation rate becomes 1%, and the interest rates drop by 1.7%, or they fall from the initial level by70 basis points (.7 %.) Divide the analysis into two areas. First, address the initial effect on the bond and the stock market. Second, discuss both, after the effects have worked themselves out as I have indicated above.


 

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