Question

1.

In 2015, the Argentine government purchased 5 million flat screen televisions (worth 100 pesos each) from a television manufacturer and then sold them to poor people for 1 peso each. The poor people would not otherwise have purchased the televisions. What was the impact on Argentine GDP of the government selling the televisions to the poor people?

a.

Unable to determine, since it would depend on whether or not the televisions were produced by domestic or foreign manufacturers.

b.

GDP went down by 495,000,000 pesos since the government lost money.

c.

There was no impact.

d.

GDP went up by 5 million pesos.

2.   

The U.S. economy experienced an inflationary expenditure gap in the period leading up the 2008 financial crisis. What would have been the most effective way for the U.S. to eliminate the gap?

a.

Decrease personal taxes.

b.

Increase business taxes.

c.

Increase personal taxes.

d.

Decrease government spending.

3....

Despite a higher price for widgets, buyers are purchasing more units. How is this possible if the law of demand has not been violated? Give and explain two distinct reasons.

OR

Given the products below and the events that affect them, indicate what happens to demand, supply, equilibrium quantity, and equilibrium price. Identify the determinant of demand and supply that causes the shifts.
(a) Calculators. More schools require students to buy and use calculators; improved productivity shortens the time it takes to make calculators.
(b) Gasoline. Oil production declines due to a crisis in the Middle East; people take more car vacations and drive more.
(c) New homes. The average incomes fall as the economy moves into recession; the productivity of home construction workers and builders increases.
(d) Tobacco. The government cut its subsidy to tobacco farmers; more people quit smoking.

Answer 1

(1) (d) GDP went up by 5 million pesos.

It is so because GDP have component of government spending which will increase by 5 million pesos and this will increase overall GDP by 5 million pesos.

(2) (d) Decrease government spending

this will be effective measures in order to reduce inflationary gap. Another way is by increasing tax. ( Not specifically personal or business tax ) hence other options are not considered.

(3) Despite higher price of widgets buyers are purchasing more units. Reasons are mentioned below :

(a) When expectations of rise in prices in future then it is possible that buyers purchase more units even when widgets have high prices.

(b) Under Demonstration effect, people in order to copy other people purchase more widgets at higher prices. Eg : Purchase of Apple iPhone due to brand value. It's demand increases at high prices by people.