Question

# Growth rate of nominal GDP – Inflation rate   = a.         price level. b.         the growth...

Growth rate of nominal GDP – Inflation rate   =

a.         price level.

b.         the growth rate of nominal GDP.

c.         the growth rate of real GDP.

d.         the growth rate of long-run trend GDP.

e.         how much the economy contracts during a recession.

2.         The consumption category does not include purchases

a.         of new cars made by consumers.

b.         of entertainment services made by consumers.

c.         of new clothing made by consumers.

d.         of new houses made by consumers.

3.         If nominal gross domestic product (GDP) is rising and production is also rising, then it must be the case that

a.         fewer goods and services are being produced.

b.         prices must be lower on average.

c.         real GDP increases.

d.         prices are rising at a greater rate than production is rising.

e.         production is rising at a greater rate than prices are rising.

Q.1 To which component of the US GDP expenditure does each of the following belong to? (C, I, G, NX, or none of the four)

1. gambling services provided to tourists by Las Vegas casinos
2. a new tractor purchased by a farmer
3. the purchase of a used couch on Craigslist
4. a machine made in the US and sold to Japan.
5. the purchase of a lottery ticket.
6. a new car made in the US but not yet sold
8. the salary of the chief of police

Q.2 Refer to the following table, and answer the questions that follow:

 Year Nominal GDP Real GDP GDP deflator 2012 \$210,000 ?? 100.0 2013 ?? \$215,000 110.0 2014 \$260,000 \$220,000 ??

(a) Compute the nominal GDP in 2013.

(b) Compute the price level in 2014.

(c) Calculate the inflation rate between 2012 and 2013.

Q.3 For each of the following, determine if it would count in the calculation of GDP or not.

1. You pay tolls on the Pennsylvania highway
2. Government increases spending on food stamp.
3. Company A buys steel from Company B. Company A plans to use the steel to make cars.
4. Amy purchases a puppy from a farmer with a reputation for not paying taxes
5. Mary buys cheese and dough from Fred Meyer to bake a pizza at home for her own consumption.
6. Andy is unemployed. He received unemployment benefit from the government and used the money to buy food.

Q.4 Consider the following table which shows the prices and quantities of economy G. Use 2012 as the base year.

 Good 2012 price 2012 quantity 2013 price 2013 quantity A \$2 250 \$3 200 B \$3 300 \$4 300 C \$4 400 \$5 350 D \$3 200 \$6 180
1. Calculate nominal GDP in 2013

1. Calculate real GDP in 2013

1. Does real GDP increase or decrease between 2012 and 2013? Explain without calculations.

Sol 1 :

Option (c) is correct [ The growth rate of real GDP]

Because real GDP is the actual measure of welfare as it takes into consideration of inflation which calculation GDP.

Whereas nominal GDP calculate GDP without having any adjustment for the inflation.

Real GDP = Growth rate of Nominal GDP - Inflation rate.

Sol 2 :

Option (d) is correct

(Of new houses purchased by the consumers)

Because purchase of new houses is considered as investment not in the consumption expenditure.

Sol 3:

Option (c) is correct

[Real GDP increases ]

Because nominal GDP increases when price increases whereas Real GDP increases when production increases . So, nominal GDP is increases and production also increases.

So , when production increases , Real GDP must increases.

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