1. Country X has an $8000 billion GDP and a population of 200 million. Country Y

Question

1. Country X has an $8000 billion GDP and a population of 200 million. Country Y has a $6000 billion GDP and a population of 150 million. Which of the following is true?

A. Per capita GDP of country X is $40,000.

B. Both countries appear to deliver the same average material standard of living.

C. Per capita GDP of country Y is $40,000.

D. All the above

2. Which of the following would increase GDP?

A. More imports

B. Additional leisure time

C. Government hiring people to remove more litter from highway right of ways

D. People cleaning their own homes and mowing their own yards.

3. Full employment is:

A. where everyone has a job.

B. is the maximum level of GDP that can be sustained without setting off major inflation.

C. is generally at a capacity utilization of about 95%.

D. all of the above.

4. If the GDP deflator is now 125, we may conclude that since the base year prices have

A. risen by 25 percent.

B. risen by 125 percent.

C. fallen by 25 percent.

D. fallen by 125 percent.

Explanation / Answer

(1)

Per capital GDP of X = $8,000 B / 200 M = $40,000

Per capital GDP of Y = $6,000 B / 150 M = $40,000

Both have same standards of living.

So, all options are correct.

Correct option (D)

(2)

Out of the choices given, only option (C) is correct because it will increase government expenditure, which is a component of GDP. An incraesed government expenditure will increase GDP.

(3)

Correct option (B). Full employment is the maximum sustainable GDP.

(4)

Base year GDP Deflator = 100. So, if GDP deflator is 125 in current year, that means an increase in price of 25% compared to base year (Change in GDP deflator indicates change in price level).

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