Sizing up the economy
Ideally, GDP should include all final goods and services in the economy including non-market goods. Which of the following statement is FALSE? (one or multiple answers possible)
a. Ideal GDP is typically higher than measured GDP.
b. Non-market goods include services in the shadow economy.
c. Non-market goods typically do not have an official market price.
d. Non-market goods are typically used and are not final goods.
b and d
Suppose a country has a GDP of $100 million. Consumption over the year was $70 million, Investment was $20, Government spending was $20, and Exports were $5 million. The economy’s net export is [???] million dollars. The company exports [more/less] than it imports.
-10, less
A country is assumed to have a production function ...
In the past 5 years, GDP has been growing at a rate of 7%. Technological growth has been slower though, 2%. If capital has been growing at 2%, how much has labor grown? (round to 1 decimal place)
%L = 6.3
Which of the following individuals are not part of the labor force? (multiple answers possible)
a) Discouraged workers.
b) Students who are only focusing on studying.
c) Individuals in nursing homes.
d) Individuals with a part-time job.
a, b, c
A few workers are negotiating with their boss about their salary. Unfortunately, they did not consider the inflation rate during these negotiations. Which of the following statement is FALSE?
a) The workers faced money illusion.
b) The workers would not understand that a 0% annual raise is similar to a price cut.
c) The workers are negotiating terms in nominal values.
d) In reality, any increase in annual salary will lead to higher purchasing power.
d
2010 is considered the base year. What happens to nominal GDP and real GDP in the following scenarios: (Inconclusive means not enough information.)
a) In 2011, overall prices experienced a 2% increase while output production also increased in the economy. Nominal (increase/decrease/inconclusive) Real (increase/decrease/inconclusive)
b) In 2012, the economy experienced a rare deflation but still managed to increase production. Nominal (increase/decrease/inconclusive) Real (increase/decrease/inconclusive)
a) increase, increase
b) inconclusive, increase
GDP can be calculated using the spending approach C + I + G + NX. Which of the following are not part of Consumption? (one or multiple answers possible)
a) Financial aid used to pay for college tuition.
b) Coffee imported from Guatemala.
c) US coffee consumed by someone in Canada.
d) An individual buys a newly constructed house.
c and d
An economy is at the steady state. Suddenly, a tornado hit and destroyed 10% of its capital. Everything else stayed the same (savings rate and depreciation rate). What happens in the next period?
Investment is [higher/lower/the same] compared to depreciated capital.
The economy’s output is [below/higher/the same] compared to the steady state output.
higher, below
The official unemployment rate has a number of limitations. Which of the following is FALSE?
a) Measures of unemployment that includes marginally attached workers lead to higher unemployment.
b) Individuals who want a job but are not searching for a job are called underemployed.
c) Individuals whose skill does not match with their current job is not captured by the unemployment rate.
d) Discouraged workers stopped searching because jobs do not seem to be available for them.
b
You agreed to lend money to a trusted friend. Both of you agreed on an interest of 5% since inflation is thought to be 3%. It turns out that inflation was 3% lower than expected. What happens?
The real interest rate on the loan, taking account unexpected inflation, is [???].
Money was redistributed from [you/your friend] to [you/your friend]. Hint: Use 100 dollars in a hypothetical scenario to answer the problem.
5%
your friend, you