Question

Question 1

A car manufacturing company produces a$20,000 car using$16,000 worth of

components and$4,000 worth of labour.The contribution to GDP is:

A $ 16,000

B＄36,000

C＄4,000

D $ 40,000

Question 2

An increase in real GDP at the same time that nominal GDP remains unchanged

would be consistent with:

A. An increase in the real interest rate

B. A period of deflation

C None of the other options

D. An increase in the price level

Question 3

Bias in measuring inflation may occur because of:

A.Changes in product quality that are not captured by the statistician

B. Changes in the saving rate in an economy

C. Changes in the real interest rate

D. Changes in the way that workers and firms determine wages

Question 4

If the population of a country is 300 million,of whom 250 million are available

to work,the unemployment rate is 5%and the participation rate is 65%,the

number of employed and unemployed workers are,respectively:

A.154.4 million and 8.125 million

B.155.5 million and 8.750 million

C.195.0 million and 15.5 million

D.175.5 million and 12.55 million

Answer 1

1. The value added is 20000-16000 = 4000. Also by income method, labor income= 4000. hence option C is correct.

2. As real GDP has increased, meaning more is produced. Had prices remain same as that of base year, the nominal GDP would still increase. In fact prices fell, which is why nominal gdp is same. The increase in output is offset by decrease in price. option B is correct.

3. Option A is correct. This is called the quality adjustment bias. A improved quality good is valued more. Inflation does not takes this into account and accounts the increase in price to overall price level change.

4. Participation rate = 0.65 = unemployed+employed/employable population

0.65 = labor force/250million

labor force = 162.5million

unemployment rate = unemployed/labor force

0.05 = unemployed/162.5million

unemployed= 8.125million

employed= 162.5-8.125 = 154.375million = 154.4million. Correct option is A.