A consumer buys a car from a dealer. During the late 1970s and early 1980s, many Latin American countries became highly indebted. Consider a simple economy with only three goods. Construct a consumer price index using as weights the share of each good in total consumption. Calculate the value of nominal GDP and real GDP, using 1990 as the base year.
Static expectations is a special case of adaptive expectations.
Assume that because of better training, workers become more productive. An earthquake destroys half the capital stock of the country. Workers' preferences change, and they want to work more at any wage rate. New, more productive machines are invented, but only a third of the labor force knows how to operate them. During the early 1980s, the United States experienced both increases in the price level and reductions in the levels of production and employment.