1 Suppose that the nominal value of GDP increased by approximately 2 percent during a given year but real GDP decreased by 3 percent Which of the following best explains these events a The money supply decreased by approximately 5 percent b Prices fell by approximately 5 percent c Prices increased by approximately 5 percent d The real productive capacity of the economy increased by approximately 5 percent 2 If a local shop buys a used motorcycle for 1 000 refurbishes it and resells it for 2 500 the a shop contributes value added equal to 1 500 but nothing is added to GDP b shop contributes value added equal to 1 500 and consequently 1 500 is added to GDP c shop contributes nothing to production because only existing goods are involved d shop contributes value added equal to 2 500 but only 1 500 is added to GDP 3 If a small municipal government buys 5 000 worth of business supplies spends 55 000 to hire an administrator and spends 26 000 for a new automobile used by the administrator this municipal government s contribution to GDP is a 0 b 55 000 c 60 000 d 86 000 Use the table below to choose the correct answer Table 7 3 Personal consumption expenditures 600 Government consumption and gross investment 230 Rent income 150 Net investment expenditures 200 Gross imports 30 Personal savings 250 Gross exports 20 Depreciation private sector 100 4 Refer to Table 7 3 Gross domestic product equals a 1 100 b 1 120 c 1 190 d 1 220 5 Suppose the consumer price index CPI stands at 250 this year If the inflation rate is 10 percent then next year s CPI will equal a 250 b 260 c 275 d 500 6 A price index is designed to measure a changes in the general level of employment across time periods b changes in the quantity of output produced across time periods c the market value of output produced during the current period with the value of output produced during an earlier time period d the cost of buying a market basket of goods at a point in time relative to the cost of buying the same market basket during an earlier time period 7 The consumer price index CPI and the GDP deflator are designed to measure the degree to which a there have been changes in the proportions of national income generated by and thus earned by the rich relative to the poor b the cost of purchasing a bundle of goods has changed over time c consumption patterns have changed with time d consumer prices have risen over and above increases in worker wages 8 If a used car dealer purchases a used car for 1 000 restores it and resells it for 1 500 the dealer contributes a value added equal to 500 but nothing is added to GDP b value added equal to 500 and consequently 500 is added to GDP c nothing to production because only existing goods are involved d value added equal to 1 500 but only 500 is added to GDP Answers 1 C 2 B 3 D 4 B 5 C 6 D 7 B 8 B
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