Use the following to answer question 3 Table: Calculating GDP Rent Consumption s

Question

Use the following to answer question 3 Table: Calculating GDP Rent Consumption spending Social Security benefit Irnvesunent spending Wages and salaries Exports Interest $2,400 7900 6,100 2,100 6,500 800 1900 Government purchases of goods and services 2,600 Profits 1,400 1,200 6,300 3950 Imports Purchase of stocks Unemployment compensation 3. (Table: Calculating GDP) Using the information in the table Calculating GDP, which is the correct calculation for GDP? (Use either the income approach or the expenditures approach). A) $47,475 B) $12,200 C) $21,485 D) $34,085 4. Due to the impact of automatic stabilizers on the government's tax revenue and transfer payments, the historical record of the United States since 1970 shows that: A) the government's budget tends to move towards deficit during expansions. B) the government's budget tends to move towards surplus during recessions. C) the government's budget tends to move towards deficit during recessions. D) the government's budget tends to remain balanced throughout expansions and recessions. 5. A reserve ratio is the: A) proportion of cash and security reserves the bank holds. B) fraction of deposits that the bank is required to hold. C) loan-to-deposit ratio in the bank's balance sheet. D) money belonging to the bank's largest depositors.

Explanation / Answer

3.

The formula for GDP using the expenditure approach is

GDP = C + I + G + NX

Where, C = consumption spending, I = investment spending, G = government purchase and NX = (export - import)

So, GDP = 7900 + 2100 + 2600 + (800 - 1200)

GDP = 12200.

So, the correct answer is

B) $12,200.

4.

The correct option for this question is:

C) the government's budget tends to move towards deficit during recession.

5.

A reserve ratio is the:

B) fraction of deposits that the bank s required to hold.

6.

Increase in monetary supply = increase in treasury bills * money multiplier

Increase in monetary supply = $50 million * (1 / 0.10) = $500 million.

So, the correct option is:

A) increase; $500 million.

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