Question

1.The labor market and the market for capital in some economy are examples of

a) factor markets
b) product markets
c) final goods markets
d) equilibrium markets
e) growth markets

2.Which type of expenditure would not contribute to the USA's GDP?
a)A tire manufacturer located in the USA buys rubber from a rubber plantation located in the USA.
b)Thomas, who is CEO of a hedge fund located in the USA, purchases a pair of boots made in the USA.
c)Anne buys a ticket to an opera performance which takes place in the USA.
d)Jill buys a washing machine manufactured in the USA using some parts which were manufactured overseas.

3)When would you prefer to hold $10,000 in cash to purchasing $10,000 in bonds?  

a)When the expected rate of inflation is greater than the nominal interest rate paid by bonds
b)When the real interest rate paid by bonds is positive.
c)When the nominal interest rate is greater than the expected rate of inflation.
d)When the growth rate of the price level is lower than the nominal interest rate paid by bonds.
e)When the stock market is outperforming the real rate of interest on bonds.

Answer 1

1. In the circular flow model labor market and market for capital are represented by the factors market.

2. d)Jill buys a washing machine manufactured in the USA using some parts which were manufactured overseas.

In case of GDP calculation the final goods and services produced domestically are included. In the given case some of the parts were produced outside therefore it will not be added in the US GDP.

3. The price of Bond and the interest rate are inversely proportional to each other. That is higher the interest rate lower the price of the bond and vice versa. Therefore in case of a higher interest rate less number of Bond will be sold why when the interest rate onto the lower side higher will be the price of the bond.

c)When the nominal interest rate is greater than the expected rate of inflation.

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