Question

1- In Beyonceland, real GDP fell continuously from $200 billion in 2015 to $160 billion in 2016. Potential GDP remained constant at $180 billion. Between 2015 and 2016, Beyonceland

A) went from a peak to a trough.

B) had a contraction and a recession.

C) went from a deflationary gap to an inflationary gap.

D) went from a negative output gap to a positive output gap.

E) had a growth rate of -25 percent.

2-

Which factor, if included in the measurement of a country's GDP, would have an unclear effect (up or down) on well-being, or quality of life?

A) unreported legal productive activities

B) unreported tips for restaurant servers

C) non-market production

D) social justice

E) environmental damage

3-  Economists in Olliestan estimate the natural rate of unemployment is 7 percent. If the official unemployment rate is 9 percent, then

A) cyclical unemployment is negative.

B) there is a recessionary gap.

C) healthy unemployment is 2 percent.

D) cyclical unemployment is 9 percent.

E) there is an inflationary gap.

4-

Government investments to improve the quality of public infrastructure like roads, transit and sewers

A) shifts both LAS and SAS leftward.

B) increases aggregate quantity supplied.

C) shifts only LAS rightward.

D) shifts both LAS and SAS rightward.

E) decreases aggregate quantity supplied.

Answer 1

1) The correct option is A. The potential GDP is $180 billion. The economy expands to reach real GDP of $200 billion ie peak of business cycle and then due to unfavourable situation real GDG fall to $160 billion. Thus we can say that economy went from a peak to a trough.

2) The correct option is D. If we include social justice in the measurement of GDP, then it would have vague/implicit result on well being and quality of life.

3) The correct option is B. If the unemployment rate breaches the natural rate of unemployment means the economy had cut down the production activities may be because of increase in the cost of production thus unemployment rises which is called recessionary gap.

4) The correct option is B. Increase in aggregate quantity supplied helps government in building public infrastructure.