Question

1) Which of the following would increase GDP?

a. More people walk to work rather than drive cars.

b. Consumers in rural areas switch from buying home heating oil to burning wood they collect on their own land.

c. Farm families grow more for themselves than for the market.

d. Neither the price nor the quantity of television sets changes, but the quality of sets improves.

e. The amount spent on vacuum cleaners does not change, but quality decreases so much that more is spent on their repair.

2) An increase in the demand for peanut butter could be caused by a(n)

a. decrease in consumer income
b.		increase in the supply of peanut butter
c.		decrease in the price of bread
d.		drought in Georgia that destroyed 30 percent of the peanut crop
e		decrease in the price of bologna

3) A surplus of shoes will cause

a. decrease in the supply of shoes
b.		a decrease in the demand for shoes
c.		both a decrease in the supply of shoes and an increase in the demand for shoes
d.		a decrease in the price of shoes, through a shift of either the supply curve or the demand curve
e.		a decrease in the price of shoes

4) One explanation for the negative slope of the aggregate demand curve is that

a. as prices rise, nominal income falls and so does the demand for real goods and services

b .falling prices make people feel poorer and reduce spending

c. as prices rise, government spends less to drive the price level back down

d. businesses increase spending when inflation is high and rising

e. as prices rise, domestic goods become more expensive relative to foreign goods, which reduces exports

Answer 1

1) the amount of vacuum cleaners does not change but quality decreases so that more is spent on there repair. Increase in repairs would lead to a payment to the repairer for his services. Hence, the GDP Increases.

Therefore, the amount spent on vacuum cleaners does not change but the quality decreases so much that more is spent on their repair will increase the GDP.

Hence, Option e is correct.

2) Generally, peanut butter and bread are Complements.

Hence, an increase in the demand for Peanut butter could be caused by a decrease in the price of bread.

Therefore, Option c is correct.

3) A surplus of shoes will lead to competition among sellers and would cause the price of shoes to decrease.

Therefore surplus of shoes will cause a decrease in the price of shoes.

Hence, option e is correct

4) one explanation for the negative slope of aggregate demand curve is that as price rise, domestic goods become more expensive related to foreign goods which reduces Exports because they are now more expensive for foreigners.

Hence, option e is correct.