Macroeconomics Quiz

Money flows from businesses to households as incomes:

• In exchange for goods and services

• In exchange for incomes

• Because money is a medium of exchange

• In exchange for productive inputs

Norway’s real GDP for 2010 is $9 billion. If the economic growth rate from 2010 to 2011 is 5%, what is the real GDP for 2011?

Answer explanation

$945 billion

Using the table below which shows the total output for the US economy over 2 years, calculate (a) nominal GDP for 2007 (b) real GDP for 2007 using 2006 as the base year (c) economic growth from 2006 to 2007.

Answer explanation

(a) $2,925 (b) $2,637.50 (c) 27%

Calculate the (a) basket CPI for 2004, (b) CPI for 2004 based on 2003 prices, (c) the percent increase in price level from 2003 to 2004.

Answer explanation

(a) $1,025 (b) 114 (c) 14%

Your boss gave you a raise this year that increased your salary from $72,000 to $76,000. The CPI for this year is 106 compared to last year (the base year). Has your real wage rate increased or decreased from last year?

Answer explanation

$71,698.11 is your real “wage rate” for this year – so it has decreased.

Are these activities part of GDP?

• Mrs Miller picks flowers in her garden.

• Fruits are sold on the market.

• Patients, hurt in a car accident, are treated in a hospital.

• Pensioners do community work for free.

• A garage buys spare tyres to sell them to customers next year.

By which methods can GDP be calculated?

Answer explanation

 Output method by calculating the value of produced goods and services  Income method by calculation the value of factor earnings  Expenditure method by calculating the value of spending on goods and services

Calculate GDP:  Consumption (C) 310  Investment (I) 115  Government purchases (G) 60  Exports (X) 305  Imports (M) 245

Answer explanation

GDP = C + I + G + (X - M) = 310 + 115 + 60 + (305 - 245) = 545

Calculate the value added, used for calculating GDP:  Input goods 60  Output 230  Pollution due to the production process (estimated) 5

Answer explanation

Value added = 230 - 60 = 170 Pollution is an externality and not added.

s real GDP, used exclusively, a good indicator for the living standard in a country? Why?

Answer explanation

No, real GDP is not a good indicator. Arguments:  Illegal transactions, household activities and do-it-yourself activities are not included.  The health system, the education system, life expectancy, the environment etc. are not taken into consideration.