Gordon_Answers11e_ch09 - Chapter 9 The Goals of...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 9 The Goals of Stabilization Policy: Low Inflation and Low Unemployment 97 The IP Box titled “The Treasury Inflation-Protected Securities (TIPS) Has Arrived” in Section 9-4 has been updated with new data. The explanation time period for TIPS has been extended to the year 2007. In Section 9-5, the explanation about the government budget constraint equation (Subsection 9-5a) has been modified significantly with a new explanation, and the numerical examples for basic deficit, interest cost and total deficit have been changed. Equation (9.9) has been reformulated. Section 9-6, Table 9-1 Annual Rates of Inflation in Selected High Inflation Countries has been updated with more recent examples and numerical data. The time period has been extended from 1975–2005 to 1975–2008. In Section 9-7, an historical comparison of the actual rate and natural rate of unemployment for the United States (as shown in Figure 9-2) has been modified by incorporating new data. The division of time periods has been changed to 1981–86, 1991–95 and 2002–2005. Now, Figure 9-2 shows the actual unemployment rate and the natural rate of unemployment over the period 1980–2007 instead of 1980–2004. In Section 9-8, the Subsection 9-8b: “Causes of and Cures for Mismatch Unemployment: Mismatch of Location” has been eliminated. Section 9-9 contains a new explanation about turnover unemployment and job search for the year 2005 as shown in Figure 9-2. Table 9-2 has been updated with new unemployment data by reason, sex, and age, including the time period July 2007. The concluding Section 9-10 is unchanged from the concluding section of the 10th edition. ± Answers to Questions in Textbook 1. The misery index is the sum of the inflation and unemployment rates. A criticism is that it weighs one percentage point of inflation as equal to one percentage point of unemployment, whereas the costs of one percentage point of inflation and unemployment are unsettled issues and are not likely to be equal. 2. A hyperinflation is a very rapid rate of inflation; Gordon defines it as at least 1,000 percent per year. A moderate (or creeping) inflation, on the other hand, implies a “moderate” rate of inflation, presumably an inflation rate less than 1,000 percent per year. 3. Yes, simple percentage changes are misleading as measures of inflation at high rates inflation; in particular, they overstate the rate of inflation. If inflation is a continuous process (i.e., prices rising daily or even hourly, as in a hyperinflation), calculating inflation rates at discrete intervals (such as months, quarters, or years) may be misleading. As Gordon says in Footnote 1, a simple percentage rate of change at 50 percent per month compounds to an annual rate of 12,875 percent, whereas the very same implied absolute price increase when compounded continuously produces an inflation rate of 40.5 percent per month or 487 percent per year. End-of-chapter Problems 1 and 2 also deal with this issue.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/04/2010 for the course ECON 311 taught by Professor Gordon during the Spring '08 term at Northwestern.

Page1 / 7

Gordon_Answers11e_ch09 - Chapter 9 The Goals of...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online