Question

Suppose Country A and Country B each have a GDP equal to $440 billion and $560 billion respectively. Country A has 100 million people and Country B has 175 million people. In this situation, per capita GDP is:

A) higher in Country A. B) higher in Country B. C) the same in both countries. D) Country B has a higher inflation rate. A system of well enforced private property rights: retards economic growth by limiting the options of people who own nothing. enhances economic growth by creating incentives for the Fed to maintain stable prices. retards economic growth by serving the interests of the wealthy only. enhances economic growth by increasing the probability that a person can gain from making investments today.

The velocity of money is:

	A) the rate at which the Fed puts money into the economy.
	B) the same thing as the long-term growth rate of the money supply.
	C) the money supply divided by nominal GDP. D) the average number of times per year a dollar is spent. Based on the equation of exchange, if M = 150, V = 4, and Q = 200, then P = A) 1/3 B) 1/2 C) 2 D) 3 President Nixon famously imposed Wage and Price Controls on the U.S. in the early 1970's. These controls: A) solved the problems of shortages which plagued the U.S. at that time. B) were imposed to control deflation which had led to falling prices since the 1960's. The controls were a great success at controlling prices throughout the 1970's. C) were imposed to control inflation which had been rising since the 1960's. The controls were a great success at controlling prices throughout the 1970's. D) were imposed to control inflation which had been rising since the 1960's. The controls failed since they triggered shortages and further price increases later in the 1970's.

Answer 1

1) Suppose Country A and Country B each have a GDP equal to $440 billion and $560 billion respectively. Country A has 100 million people and Country B has 175 million people. In this situation, per capita GDP is:

Solution: higher in Country A.

Working:

GDP per capita in Country A: $440 billion/ 100 million = 4400

GDP per capita in Country B: $560 billion/ 175 million = 3200

Country A has a much higher GDP per capita.

　

2) A system of well enforced private property rights:

Solution: enhances economic growth by increasing the probability that a person can gain from making investments today

Explanation: A system of well enforced private property rights improves the economic growth because without it no meaningful political freedoms are possible

　

3) The velocity of money is:

Solution: the average number of times per year a dollar is spent

Working: The velocity of money is computed as 1/MPS.

　

4) Based on the equation of exchange, if M = 150, V = 4, and Q = 200, then P =

Solution: 3

Working: V= (P*Y) / M

4 = 200P/150

600 = 200 P

P=3