Question

"In 1980 your income was $30,000 and the Consumer Price Index (CPI) was 100. In 1990 you income was $45,000 and the CPI stood at 150. Which of the following is correct?"

		Your 1980 nominal income was higher than your 1990 nominal income.
		Your real income was roughly the same in 1980 as in 1990.
		Your real income was higher in 1990 than in 1980.
		Your real income was lower in 1990 than in 1980.

Question 9

1. In the Circular Flow Model firms are defined as those economic units that

   		buy products in the product markets and sell resources in the resource markets.
   		sell products in the product markets and buy resources in the resource markets.
   		fit the model of a typical corporation.
   		borrow money in the credit markets for purposes of consumption.

Personal Income (PI) is equal to

		"National Income (NI) minus income earned but not received, plus income received but not earned. "
		The total market value of final goods and services produced in the economy during a given year.
		Gross National Product (GNP) minus depreciation (capital consumption allowance)
		National Income (NI).

The GDP may be an inaccurate measure of the economy's true performance. Which of the following may be responsible for this inaccuracy?

		Government purchases of goods and services are counted at cost rather than at market price.
		Illegal goods and services are not counted.
		Household production is not measured.
		Barter transactions are not measured.
		All of the above.

The unemployment caused by an economic recession is called

		frictional unemployment.
		structural unemployment.
		cyclical unemployment.
		seasonal unemployment.
		involuntary unemployment.

The unemployment rate statistic published by the Bureau of Labor Statistics may underestimate the magnitude of the unemployment problem in the economy because

		"all part-time workers are counted as ""employed"" even though some would prefer to work full-time (i.e. are underemployed)."
		some workers are working in jobs for which they are overqualified (also underemployed).
		"""discouraged workers,"" who are no longer looking for work, are not counted in the labor force."
		all of the above.

Underemployment includes the following:

		People employed part time who would prefer full-time work (part time for economic reasons)
		Those working in jobs below their qualifications and preferred level (e.g. a PhD pumping gas)
		Discouraged workers
		All the above
		"All, but the discouraged workers "

Which of the following is NOT a problem in using economic statistics?

		Using GDP statistics to compare income in the U.S. and Bangladesh may be inaccurate because household production (non-market) is a much higher percentage of the economy of Bangladesh.
		"Using the published CPI statistics to calculate changes in the purchasing power of your income is inaccurate because the CPI is calculated for the ""average consumer's"" spending pattern."
		"The same statistics are often interpreted differently by different politicians and reporters, which makes it difficult to understand what is really happening without understanding how the statistics were calculated."
		Government statisticians in the U.S. frequently distort the numbers. Which of the following transactions is directly measured as part of GDP ? childcare and housework services performed without pay by a homemaker. purchase of a used car. sale of an IBM bond. services of a prostitute. none of the above.

Answer 1

Q1.

Given,

Nominal income in 1980 = $30,000

CPI in 1980 = 100

Real income in 1980 = [Nominal Income/CPI] * 100 = [$30,000/100] * 100 = $30,000

Nominal income in 1990 = $45,000

CPI in 1990 = 150

Real income in 1990 = [Nominal Income/CPI] * 100 = [$45,000/150] * 100 = $30,000

Real income in 1980 = Real income in 1990

Ans: Your real income was roughly the same in 1980 as in 1990

Q2. In the circular flow model, firms are those entities which buy resources from households in the factor(resource) market and sell goods/services to households in the product market.

Ans: sell products in the product markets and buy resources in the resource markets

Q3. Personal income = National Income - Income currently earned but not received(such as corporate profits) + Income received but not earned (such as interest income & transfer payments)

The market value of the final goods and services produced in an economy during a given year is called the Gross Domestic

NNP at factor cost = National Income = GNP - Depreciation - Product taxes

Ans: National Income (NI) minus income earned but not received, plus income received but not earned

Q4. GDP is often criticized to be an inaccurate measure of the economy's performance. This is because the GDP does not account those goods & services which do not enter the market(which are not transacted in the market) as well as the goods traded in the underground market(illegal goods). It does not account those transactions which do not occur in monetary terms such as the barter transactions.

In the expenditure approach of calculating GDP, government expenditure is added in the GDP which takes into account the cost price of the government purchased goods instead of the market price.

Ans: All of the above