Question

1. If the Consumer Price Index is 125, then prices have

a. risen 25 percent in the last year.

b. risen 25 percent since the base year.

c. declined 75 percent since the base year.

2. In the economy of Talikastan in 2015, consumption was $5300, GDP was $8800, government purchases were $1800, imports were $600, and investment was $2000. What were Talikastan’s exports in 2015? (Hint: Use the formula: GDP = C + I + G + X - M)

a. -$900

b. -$600

c. $200

d. $300

3. Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

a. caused measured GDP to fall.

b. not caused any change in measured GDP.

c. caused measured GDP to rise.

d. caused the unemployment rate to increase.

e. declined 25 percent since the base year.

4. Most goods and services produced at home (e.g. making coffee or assembling a desk bought from Home Depot)

a. and most goods and services produced illegally are included in GDP.

b. are included in GDP while most goods and services produced illegally are excluded from GDP.

c. and most goods and services produced illegally are excluded from GDP.

d. are excluded from GDP while most goods and services produced illegally are included in GDP

5. Suppose GDP in an economy is $3,542 billion. Personal Consumption Expenditures (C) are $2,343 billion, Government Spending (G) is $865 billion, and Gross Private Domestic Investment (I) is $379 billion. Net foreign factor income (NFFI) is $ 10 billion.

What are net exports (NX)?

a. 7049

b. 3587

c. – 45

d. + 45

e. 3532

Answer 1

1) Consumer price index can be defined as a measure of inflation which calculate the changes in the price of a basket of goods which reoresents the consumption expenditure in an economy.

Consumer price index can be calculated as fillows.

Consumer price index = (cost of market basket in the given year/ cost of market basket in the base year) *100

The price index for the base year will be 100. A percentage change in the consumer price index over a period of time represents the amount of inflation or changes in the price of basket of goods over the period of time.

Therefore the correct answer is: if the consumer price index is 125, then prices have risen 25% since the base year.

All other options are incorrect

If the consumer price index is 125, then prices have risen 25% in the last year: This is incorrect because consumer price index is calculated using current year and base year market price and the resulting changes in the consumer price index shows the changes in the price over the base year and not the price change in the last year.

If consumer price index is 125, prices have declined 75% since the base year: This is incorrect. Because only if the price index is 25, there will be a 75% decline in price.