EC 202 EXAMS 1-3 CRAIG QUESTIONS & ANSWERS
TEST 1: 1. To answer Questions #1 through #4 use the following information: Suppose
that in the nation state of Raleighville there are 2 final goods produced in the economy--
dog food and kitten chow. Suppose the economy produces 15 units of dog food and 5
units of kitten chow in 2000 (the base year), and 20 units of dog food and 10 units of
kitten chow in 2020. Further suppose the price of dog food was $1.00 per unit in 2000,
and $3.00 per unit in 2020; whereas the price of kitten chow was $1.00 in 2000 and
$2.50 in 2020.
What was the nominal GDP for Raleighville in 2000? - Answer -$20.00
(1x15)+ (1x5)= 20
2. What was the real GDP for Raleighville in 2000? - Answer -$20.00
Since 2000 is also the base year, Nom GDP= Real GDP
3. What was the real GDP for Raleighville in 2020? - Answer -$30.00
(1x20)+(1x10)=30
4. The GDP deflator for Raleighville, for 2020, is ______________; and it follows that
Raleighville experience ____________ between 2000 and 2020. - Answer -283.33;
inflation
GDP deflator: (Nom GDP/Real GDP)x 100
(85/30) x 100= 283.33
Inflation since GDP deflator went from 100 to 283
5. Suppose nominal GDP in Annaville in 2019 was $21.4. Some of the components, on
the expenditure side of the equation, were as follows: Consumption= $14.2;
Investment= $3.7; Gov. purchases of goods and services= $3.7; and Exports= $1.9, all
in trillions of (nominal) Annaville dollars. From this information, it follows that the
nominal value of imports in 2019 was: - Answer -$2.1 trillion
GDP= Consumption +Investments+ Govt. Expenditures + Exports-Imports
21.4= 14.2 + 3.7 + 3.7 + (1.9-x)
x= 2.1
6. Suppose that, as a result of an increase in the price of wheat, several large U.S.
grocery chains, increase the prices of all their bread products. It follows that, ceteris
paribus, the increase in the price will increase: - Answer -both the CPI and the GDP
deflator
, 7. In the US., for fiscal 2016, total govt. spending was roughly 38% of GDP; yet, using
the expenditure method for calculating GDP, government expenditures on goods and
services were only 18% of GDP. Which of the following most likely explains the
difference? - Answer -Transfer payments are included in the first figure, but not the
second one.
8. Ceteris paribus, which of the scenarios below will unambiguously lead to an increase
in real GDP? - Answer -The production of final goods and services increases.
9. Currently, in the U.S. economy, the largest component on the expenditures side of
the GDP equation is typically________; whereas on the income side of the equation the
largest component is typically _____. - Answer -consumption; wages and salaries
10. The real GDP of country ABC is $1,000. The population of ABC is 250. The real
GDP of country XYZ is $125. The population of XYZ is 5. Ceteris paribus, it follows that
the _______ in ABC is ________ than it is in XYZ. - Answer -standard of living; is lower
Per capita real GDP= Real GDP/Population
$1000/250= $4 in ABC
$125/5= $25 in XYZ
$4 < $25
11. Suppose the CPI accurately measures inflation, and: In 1983 the CPI in Land of Oz
was 100; at the end of 2002, the CPI was 111.1. If the CPI at the end of 2003 was
113.2, then the rate of inflation (or deflation) in 2003 was _________, and the avg.
annual compounded rate of inflation between 1983 and 2003 was _______? - Answer -
1.89%; 0.62%
Inflation rate: 2.1/111.1= 1.89%
Avg. annual compounded rate:
((113.2/100)^.05 - 1) x 100= 0.62%
12. Suppose the CPI accurately measures inflation, and: Suppose in 1961 your
grandfather earned $12,000 and the CPI in 1961 was 30. IN 2020, the CPI was 260.
Ceteris paribus, it follows that your grandfather's salary in 2020 dollars equals: -
Answer -$104,000
V in 2020= $12,000 x (260/30)= $104,000
13. Suppose the CPI accurately measures inflation, and: At the end of 2020, the U.S.
federal min wage was $7.25 an hour, and the CPI was 260. In 1983, the min wage was
TEST 1: 1. To answer Questions #1 through #4 use the following information: Suppose
that in the nation state of Raleighville there are 2 final goods produced in the economy--
dog food and kitten chow. Suppose the economy produces 15 units of dog food and 5
units of kitten chow in 2000 (the base year), and 20 units of dog food and 10 units of
kitten chow in 2020. Further suppose the price of dog food was $1.00 per unit in 2000,
and $3.00 per unit in 2020; whereas the price of kitten chow was $1.00 in 2000 and
$2.50 in 2020.
What was the nominal GDP for Raleighville in 2000? - Answer -$20.00
(1x15)+ (1x5)= 20
2. What was the real GDP for Raleighville in 2000? - Answer -$20.00
Since 2000 is also the base year, Nom GDP= Real GDP
3. What was the real GDP for Raleighville in 2020? - Answer -$30.00
(1x20)+(1x10)=30
4. The GDP deflator for Raleighville, for 2020, is ______________; and it follows that
Raleighville experience ____________ between 2000 and 2020. - Answer -283.33;
inflation
GDP deflator: (Nom GDP/Real GDP)x 100
(85/30) x 100= 283.33
Inflation since GDP deflator went from 100 to 283
5. Suppose nominal GDP in Annaville in 2019 was $21.4. Some of the components, on
the expenditure side of the equation, were as follows: Consumption= $14.2;
Investment= $3.7; Gov. purchases of goods and services= $3.7; and Exports= $1.9, all
in trillions of (nominal) Annaville dollars. From this information, it follows that the
nominal value of imports in 2019 was: - Answer -$2.1 trillion
GDP= Consumption +Investments+ Govt. Expenditures + Exports-Imports
21.4= 14.2 + 3.7 + 3.7 + (1.9-x)
x= 2.1
6. Suppose that, as a result of an increase in the price of wheat, several large U.S.
grocery chains, increase the prices of all their bread products. It follows that, ceteris
paribus, the increase in the price will increase: - Answer -both the CPI and the GDP
deflator
, 7. In the US., for fiscal 2016, total govt. spending was roughly 38% of GDP; yet, using
the expenditure method for calculating GDP, government expenditures on goods and
services were only 18% of GDP. Which of the following most likely explains the
difference? - Answer -Transfer payments are included in the first figure, but not the
second one.
8. Ceteris paribus, which of the scenarios below will unambiguously lead to an increase
in real GDP? - Answer -The production of final goods and services increases.
9. Currently, in the U.S. economy, the largest component on the expenditures side of
the GDP equation is typically________; whereas on the income side of the equation the
largest component is typically _____. - Answer -consumption; wages and salaries
10. The real GDP of country ABC is $1,000. The population of ABC is 250. The real
GDP of country XYZ is $125. The population of XYZ is 5. Ceteris paribus, it follows that
the _______ in ABC is ________ than it is in XYZ. - Answer -standard of living; is lower
Per capita real GDP= Real GDP/Population
$1000/250= $4 in ABC
$125/5= $25 in XYZ
$4 < $25
11. Suppose the CPI accurately measures inflation, and: In 1983 the CPI in Land of Oz
was 100; at the end of 2002, the CPI was 111.1. If the CPI at the end of 2003 was
113.2, then the rate of inflation (or deflation) in 2003 was _________, and the avg.
annual compounded rate of inflation between 1983 and 2003 was _______? - Answer -
1.89%; 0.62%
Inflation rate: 2.1/111.1= 1.89%
Avg. annual compounded rate:
((113.2/100)^.05 - 1) x 100= 0.62%
12. Suppose the CPI accurately measures inflation, and: Suppose in 1961 your
grandfather earned $12,000 and the CPI in 1961 was 30. IN 2020, the CPI was 260.
Ceteris paribus, it follows that your grandfather's salary in 2020 dollars equals: -
Answer -$104,000
V in 2020= $12,000 x (260/30)= $104,000
13. Suppose the CPI accurately measures inflation, and: At the end of 2020, the U.S.
federal min wage was $7.25 an hour, and the CPI was 260. In 1983, the min wage was
