Question 1

In a given year, an economy has consumption of $7000, investment of $3000, government purchases of $2500, exports of $2500, imports of $1000, taxes of $1200, transfer payments of $1400, and depreciation of $1300. What is the GDP?

Accepted Answer

The answer of In a given year, an economy has...

Question 2

-Refer to Table 5-1. What can we conclude about real GDP from this information?

Accepted Answer

Without seeing Table 5-1, we can't provide specific details. However, based on the selection, the correct conclusion about real GDP trends over the years mentioned is assumed to be accurately reflected in choice C, suggesting a decrease from 2018 to 2019 followed by a further decrease from 2019 to 2020. This answer is based on interpreting the given choices without access to the actual data in Table 5-1.

Question 3

If real GDP doubles and the GDP deflator doubles, what will happen to nominal GDP?

Accepted Answer

Nominal GDP is calculated by multiplying real GDP by the GDP deflator. If both double, the nominal GDP will quadruple (2 times 2 equals 4).

Question 4

An economy produces only eggs and ham. Last year, it produced 100 units of eggs at $3 each and 50 units of ham at $4 each. If in the base year eggs sold for $1.50 per unit and ham sold for $5 per unit, what can we conclude?

Accepted Answer

Nominal GDP is calculated using current year prices: (100 eggs * $3) + (50 hams * $4) = $300 + $200 = $500. Real GDP is calculated using base year prices: (100 eggs * $1.50) + (50 hams * $5) = $150 + $250 = $400. The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. GDP deflator = (Nominal GDP / Real GDP) * 100 = ($500 / $400) * 100 = 125.

Question 5

If nominal GDP is $1 trillion and real GDP is $0.8 trillion, what is the GDP deflator?

Accepted Answer

GDP deflator = (nominal GDP / real GDP) × 100
= ($1 trillion / $0.8 trillion) × 100
= 125

Question 6

Which statement best describes real GDP?

Accepted Answer

Real GDP is calculated by valuing all the goods and services produced in the current year at the prices that prevailed in a base year, thus adjusting for inflation and providing a more accurate measure of economic growth.

Question 7

Suppose Nova Scotia produces only cheese and fish. Last year, 20 units of cheese are sold at $5 each and 8 units of fish are sold at $50 each. If in the base year the price of cheese was $10 per unit and the price of fish was $75 per unit, what can we conclude?

Accepted Answer

Nominal GDP is calculated using current prices, so it's 20 units of cheese * $5 + 8 units of fish * $50 = $100 + $400 = $500. Real GDP uses base year prices, so it's 20 units of cheese * $10 + 8 units of fish * $75 = $200 + $600 = $800. The GDP deflator is (Nominal GDP / Real GDP) * 100 = ($500 / $800) * 100 = 62.5.

Question 8

What best defines the GDP deflator?

Accepted Answer

The GDP deflator is defined as the ratio of nominal GDP to real GDP multiplied by 100. It is a measure of the level of prices of all new, domestically produced, final goods and services in an economy.

Question 9

Suppose an economy produces only solar panels and wind turbines. Last year, 20 solar panels were sold at $400 per panel and 10 wind turbines were sold at $2000 per turbine. If the price of solar panels was $200 per panel and the price of wind turbines was $1000 per turbine in the base year, what can we conclude?

Accepted Answer

Nominal GDP is calculated using current year prices: (20 solar panels * $400) + (10 wind turbines * $2000) = $8000 + $20000 = $28000. Real GDP is calculated using base year prices: (20 solar panels * $200) + (10 wind turbines * $1000) = $4000 + $10000 = $14000. The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. GDP deflator = (Nominal GDP / Real GDP) * 100 = ($28000 / $14000) * 100 = 200.

Question 10

What prices are used to compute real GDP?

Accepted Answer

Real GDP is calculated using constant prices (also called base year prices) in order to account for changes in inflation and to compare the output of goods and services from one year to another.

Question 11

-Refer to Table 5-2. Using 2017 as the base year, what can we conclude for 2018?

Accepted Answer

Real GDP remains constant if 2017 is the base year because the quantities of goods and services produced are valued at 2017 prices. The GDP deflator for 2018 indicates inflation, as it shows an increase in the price level from the base year.

Question 12

-Refer to Table 5-2. Using the GDP deflator to measure the average level of prices and using 2017 as the base year, what is the economy's inflation rate?

Accepted Answer

The answer of 
-Refer to Table 5-2. Using the GDP...

Question 13

-Refer to Table 5-2. What is the nominal GDP?

Accepted Answer

Nominal GDP is calculated by summing the current year prices of goods and services multiplied by their current year quantities. Without the specific data from Table 5-2, the correct answer cannot be directly identified from the provided options. However, the choice that correctly calculates nominal GDP would involve summing the products of current year quantities and current year prices for each year listed.

Question 14

How are nominal GDP and real GDP related?

Accepted Answer

Nominal GDP is calculated using the current year's prices, which can be affected by inflation or deflation, making it a measure of the current economic output at current prices. Real GDP, on the other hand, is calculated using the prices of a base year, which allows for the measurement of economic output adjusted for price changes, providing a more accurate reflection of an economy's size and how it's growing over time.

Question 15

Suppose an economy produces only strawberries and ice cream. Last year, 50 units of strawberries are sold at $2 per unit, and 100 units of ice cream are sold at $4 per unit. If the price of strawberries was $1 per unit and the price of ice cream was $2 per unit in the base year, what can we conclude?

Accepted Answer

Nominal GDP is calculated using current year prices: (50*$2) + (100*$4) = $500. Real GDP is calculated using base year prices: (50*$1) + (100*$2) = $250. The GDP deflator is (Nominal GDP/Real GDP) * 100 = (500/250) * 100 = 200.

Question 16

-Refer to Table 5-2. Using 2018 as the base year, what can we conclude for 2017?

Accepted Answer

The answer of 
-Refer to Table 5-2. Using 2018 as...

Question 17

What is the difference between nominal and real GDP?

Accepted Answer

Nominal GDP values production at current prices, which means it includes the effects of inflation. Real GDP, on the other hand, values production at constant prices, meaning it removes the effects of inflation and provides a better indication of the actual growth in production.

Question 18

What would be the cause of a 2% increase in nominal GDP?

Accepted Answer

Nominal GDP can be calculated by multiplying the price level by the quantity of output. Therefore, a 1% increase in prices and a 1% increase in output would result in a 2% increase in nominal GDP. Choice A and D both involve a larger change in prices than output, which would result in a larger change in nominal GDP than 2%. Choice B involves a decrease in prices, which would lead to a decrease in nominal GDP unless the increase in output is greater than 1%.

Question 19

When economists talk about growth in the economy, how do they measure that growth?

Accepted Answer

Economists typically measure growth in the economy using the percentage change in real GDP. Real GDP takes into account inflation, whereas nominal GDP does not, so measuring growth based on the percentage change in real GDP gives a more accurate picture of how much the economy is actually growing.

Question 20

-Refer to Table 5-2. What is the nominal GDP for 2018?

Accepted Answer

Nominal GDP for a given year is calculated by multiplying the quantity of goods produced in that year by their prices in the same year. Without the specific data from Table 5-2, the correct answer cannot be determined from the provided information. However, based on the question's structure, if C is the correct choice, it implies that the nominal GDP for 2018 is $1100, assuming this aligns with the data in Table 5-2.

Quiz 5: Measuring a Nations Income