Question

Numbers from this table are used in the next 3 questions.

year	Population (millions)	Workers (millions)	GDP Deflator	Nominal GDP ($trillions)	CPI
2020	300	150	115	23	260
2060	400	200	210	210	520
2080	350	225	240	280	640

1. What is the average annual inflation rate for consumers from 2020 to 2060?

Group of answer choices

a) less than 1%

b) between 1% and 1.5%

c) between 1.5% and 2.0%

d) between 2.0% and 2.5%

e) between 2.5% and 3.0%

f) between 3.0% and 3.5%

g) more than 3.5%

2. What is the average rate of economic growth from 2020 to 2060?

Group of answer choices

a) less than 1%

b) from 1.0% to 1.5%

c) from 1.5% to 2.0%

d) from 2.0% to 2.5%

e) from 2.5% to 3.0%

f) from 3.0% to 3.5%

g) more than 3.5%

3. What is the average rate of inflation for the economy from 2020 to 2080?

Group of answer choices

a) less than 1%

b) from 1.0% to 1.5%

c) from 1.5% to 2.0%

d) from 2.0% to 2.5%

e) from 2.5% to 3.0%

f) from 3.0% to 3.5%

g) more than 3.5%

4. The President and Congress control fiscal policy. They do not have a dual mandate like the Fed, but in the face of a recession, they are likely to change federal expenditures (government purchases of newly produced goods and transfers) and taxes. As a result of their actions during a recession, what is likely to happen to the federal deficit as a result?

Group of answer choices

a) decline

b) stay the same

c) increase

Answer 1

1. The correct answer is C- between 1.5% and 2.0%

Lets say the average inflation rate was x%, and since there are 40 years between 2020 and 2060,

260*(1+x)⁴⁰=520.

Solving this, we get

x=1.75%. Hence, C is the correct answer.

2. The correct answer is g-more than 3.5%

We can apply the same logic as part A. Assuming that the average growth rate of GDP between 2020 and 2040 was x%, then

23*(1+x)⁴⁰=210

Solving for x, we get

x=5.69%.

Hence, option g is the right one.

C. The correct option is C- from 1.5% to 2.0%

This is similar to part A, except the years are now from 2020 to 2080. So, using the same method, we can say that

260*(1+x)⁶⁰=640

Solving for x, we get

x=1.51%

hence, option C is correct.

4. The federal deficit will increase.

Deficit is when the difference between government's spending and its earnings. Its earnings mean taxes. As the government lower taxes and increases spending to fight recession, it means that the difference between spending and earnings would increase, resulting in inceased deficit.

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