1. Whenyour mother buys a pound of Swiss chocolate, it is accounted for inwhich
ID: 1250310 • Letter: 1
Question
1. Whenyour mother buys a pound of Swiss chocolate, it is accounted for inwhich expenditure category of
GDP?
a.consumption
b.investment
c.government purchases
d. netexports
e. none of the above
2. Whichis the most accurate statement about the consumer price index?
a. Whenthe consumer price index increases, the average family has to spendmore to
maintaintheir standard of living.
b. Whenthe consumer price index increases, the average family has to spendless to maintain
theirstandard of living.
c. Whenthe consumer price index increases, the standard of living of theaverage family
does notchange.
d. The consumer price index is a broader measure of inflationthan is the GDP deflator.
3. If theCPI decreases from one year to the next, it can be concluded thatthe economy has experienced:
a.growth.
b.stagnation.
c.stagflation.
d.inflation.
e. deflation.
4. Whichone of the following will not cause the production possibilitiescurve to shift outward?
a.improvements in the stock of land
b.increased educational opportunities
c. a verylow birth rate
d. increased entrepreneurial activity
5. Whichof the following best describes the relationship between economicgrowth and literacy?
a. As theeconomy grows, literacy declines because it becomes less and lessuseful in a
developedeconomy.
b.Increased literacy initially stimulates economic growth by raisinglabor productivity, but
as theeconomy grows and the opportunity cost of education rises, literacydeclines.
c.Increased literacy stimulates economic growth by raising laborproductivity, and as the
economygrows, people consume more education.
d. There is no correlation between economic growth andliteracy.
6.Increased investment alone will guarantee economic growth.
a. This isa true statement, because growth only occurs with savings.
b. This isa true statement, because money is the only resource needed forgrowth.
c. This isa false statement, because an economy must rely on capitalinjections from abroad.
d. This isa false statement, because economic growth hinges on the qualityand type of
investment as well as the human capital and improvements intechnology.
7. Anincrease in growth rates will cause:
a. aninward shift of an economy's production possibilities curve.
b. anoutward shift of an economy's production possibilities curve.
c. amovement from a point on an economy's production possibilitiescurve to a point inside
thecurve.
d. aneconomy's production possibilities curve to slope upward.
e. none of the above.
Explanation / Answer
1. D- net exports. This is an import, which is part of netexports. 2. A. When the CPI increases, the basket of goods cost more than inthe base year, so they have to spend more. The CPI is more specificthan GDP deflator because it focuses on consumer goods instead ofall goods. 3. E- deflation. If the CPI declined, that means prices fell, whichis deflation. 4. C- a low birth rate. A low birth rate keeps labor supply fromdeveloping and increasing the country's capacity. 5. I think you could make an argument for B, but I'm going to gowith C. Literacy does improve productivity, which rules out A andD, and I believe C is most realistic and we find that to be trueempirically, but you could conceivably have a scenario where Bholds. C is the best answer in my opinion. 6. D- Well, the statement can't be true, because not investmentalone guarantees economic growth, and it isn't C, because economiescan grow without injections from abroad. 7. B- The wording was kind of vague, it doesn't say what type ofgrowth rates, so I can only assume B, but for all I know growthrates of cancer could be increasing, which obviously changes themeaning of the problem. Anyways, assuming it means growth of laborand/or capital, increasing the supply of either of these increasesour capacity to produce, resulting in an outward shift of thePPF.
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