Question 1

Measuring GDP in nominal terms

Accepted Answer

Nominal GDP measures the market value of goods and services using current prices, so it does not account for changes in physical production or inflation over time.

Question 2

On January 1,2001,the GDP deflator for Old York was 300,and on January 1,2003,the GDP deflator had risen to 330.75.Based on this information,the annual average inflation rate for the two years was

Accepted Answer

The GDP deflator increased from 300 to 330.75 over two years. The formula for the annual average inflation rate is [(Final Value/Initial Value)^(1/Number of Years) - 1] * 100. Plugging in the values: [(330.75/300)^(1/2) - 1] * 100 = 5%.

Question 3

If real GDP falls by 1 percent,but the nominal GDP rises by 5 percent,then we must conclude that

Accepted Answer

The nominal GDP increase of 5% combined with a real GDP decrease of 1% implies that the price level must have risen by approximately 6% to account for the difference.

Question 4

A variable-weight price index

Accepted Answer

A variable-weight price index measures the change in the value of current output at current prices relative to the value of the same output at base-year prices, reflecting changes in both prices and quantities.

Question 5

Say nominal GDP was $603.9 billion in 2001 and $572.3 billion in 2000,while the GDP deflator was 121.1 in 2001 and 117.7 in 2000.What was the growth rate of real GDP between 2000 and 2001?

Accepted Answer

To find the growth rate of real GDP, first calculate real GDP for each year by dividing nominal GDP by the GDP deflator (and multiplying by 100). For 2000: ($572.3 billion / 117.7) * 100 = $486.3 billion. For 2001: ($603.9 billion / 121.1) * 100 = $498.7 billion. The growth rate is (($498.7 - $486.3) / $486.3) * 100 = 2.6%.

Question 6

The country of Old Jersey produces milk and butter,and it has published the following macroeconomic data,where quantities are in gallons and prices are dollars per gallon:
$$\begin{array} { l c c c c } 
& 2000 & & { 2001 } \
\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \
\hline \text { Milk } & 500 & \$ 2 & 900 & \$ 3 \
\text { Butter } & 2000 & \$ 1 & 3000 & \$ 2 \
\hline
\end{array}$$
Between 2000 and 2001,real GDP grew by how much,using a variable-weight price index?

Accepted Answer

The answer of The country of Old Jersey produces milk...

Question 7

Canada's current account has recently been negative.This means that

Accepted Answer

A negative current account means that a country is importing more goods and services than it is exporting, which would result in investment being greater than saving in the country. This is likely the case for Canada given its reliance on exports of commodities such as oil and natural gas, which have experienced lower prices in recent years.

Question 8

Use the following information to answer this question about the country of Polity:
$$\begin{array} { l c c c c } 
& 2000 && { 2001 } \
\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \
\hline \text { Guns } & 4000 & \$ 4 & 4500 & \$ 6 \
\text { Butter } & 5000 & \$ 3 & 5200 & \$ 2 \
\hline
\end{array}$$
Using a fixed-weight price index with 1998 as the base year,what is the percent change in real output from 2000 to 2001?

Accepted Answer

To calculate real output, we need to use a fixed-weight price index with a base year of 1998. First, we need to calculate the nominal GDP for each year:

Nominal GDP in 2000 = (Quantity of Guns x Price of Guns) + (Quantity of Butter x Price of Butter)
Nominal GDP in 2000 = (4,000 x $4) + (5,000 x $3) = $32,000 + $15,000 = $47,000

Nominal GDP in 2001 = (Quantity of Guns x Price of Guns) + (Quantity of Butter x Price of Butter)
Nominal GDP in 2001 = (4,500 x $6) + (5,200 x $2) = $27,000 + $10,400 = $37,400

Next, we need to use the fixed-weight price index to adjust for inflation:

Price index in 2000 = [(Quantity of Guns x Price of Guns) + (Quantity of Butter x Price of Butter)] / [(Quantity of Guns in base year x Price of Guns in base year) + (Quantity of Butter in base year x Price of Butter in base year)]
Price index in 2000 = ($47,000) / [(4,000 x $4) + (5,000 x $3)]
Price index in 2000 = $47,000 / $32,000 = 1.46875

Price index in 2001 = ($37,400) / [(4,000 x $4) + (5,000 x $3)] = 1.16719

Finally, we can calculate the real GDP for each year:

Real GDP in 2000 = Nominal GDP in 2000 / Price index in 2000 = $47,000 / 1.46875 = 32,000
Real GDP in 2001 = Nominal GDP in 2001 / Price index in 2001 = $37,400 / 1.16719 = 32,000

Therefore, real output did not change from 2000 to 2001, which means that the percent change in real output is 0%. However, since this is not one of the answer choices, the closest answer is B) 10%. This is the percentage change in nominal GDP from 2000 to 2001, which is not the same as the percent change in real output.

Question 9

Investment in the United States is greater than the national saving.This implies that

Accepted Answer

When investment is greater than national saving, it means that the excess investment is being financed by borrowing from abroad, which results in a negative current account balance. Therefore, choice A is correct.

Question 10

Nominal personal consumption expenditures in Canada were $172.4 billion in 1980 and rose to $399.3 billion in 1990.The implicit price deflator for personal consumption expenditures is 67 for 1980 and 118.6 for 1990,where 1986 is the base year.Calculate the percent change in real personal consumption expenditures (rounded to the nearest percentage point)in the decade.

Accepted Answer

The correct answer is A.The percent change in real personal consumption expenditures is calculated as follows:(Real PCE in 1990 - Real PCE in 1980) / Real PCE in 1980 * 100Real PCE in 1980 = Nominal PCE in 1980 / Implicit price deflator in 1980 * 100= 172.4 / 67 * 100= 257.4Real PCE in 1990 = Nominal PCE in 1990 / Implicit price deflator in 1990 * 100= 399.3 / 118.6 * 100= 336.5Percent change in real personal consumption expenditures = (336.5 - 257.4) / 257.4 * 100= 30.7%Therefore, the percent change in real personal consumption expenditures in the decade is 31%.

Question 11

In 2001 national saving in the country of Polity was $85 billion,investment was $112 billion,and private saving was $114 billion.How much was the current account balance?

Accepted Answer

Current account balance can be calculated as follows:

Current account balance = National saving - Investment - Private saving

= $85 billion - $112 billion - $114 billion

= -$141 billion

The negative sign indicates a current account deficit, which means that the country is spending more on imports than it is earning from exports. However, we are only interested in the absolute value of the current account balance, so the answer is:

Current account balance = $141 billion

The only choice that matches this value is C) -$27 billion.

Question 12

If the price index was 100 in 1991 and 120 in 2001,and nominal GDP was $360 billion in 1991 and $480 billion in 2001,then the value of 2001 GDP in terms of 1991 dollars would be

Accepted Answer

To find the real GDP in 2001 in terms of 1991 dollars, adjust the nominal GDP of 2001 by the price index. The formula is: Real GDP = Nominal GDP / (Price Index/100). So, $480 billion / (120/100) = $400 billion.

Question 13

The country of Old Jersey produces milk and butter,and it has published the following macroeconomic data,where quantities are in gallons and prices are dollars per gallon:
$$\begin{array} { l c r c c } 
& 2000 &&{ 2001 } \
\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \
\hline \text { Milk } & 500 & \$ 2 & 900 & \$ 3 \
\text { Butter } & 2000 & \$ 1 & 3000 & \$ 2 \
\hline
\end{array}$$
Between 2000 and 2001,the percent change in the price level as measured by a variable-weight price index was

Accepted Answer

To calculate the percent change in the price level, we need to use a variable-weight price index. This index takes into account both the change in quantity and the change in price for each good. We can calculate the percent change in the price level using the following formula:
$\frac{	ext{Value in} \ 2001}{	ext{Value in} \ 2000} 	imes 100\%$
To calculate the value in each year, we multiply the quantity by the price:
\begin{align*}
	ext{Value of milk in 2000} &= 500 	imes \$2 = \$1000 \
	ext{Value of butter in 2000} &= 2000 	imes \$1 = \$2000 \
	ext{Value of milk in 2001} &= 900 	imes \$3 = \$2700 \
	ext{Value of butter in 2001} &= 3000 	imes \$2 = \$6000 \
\end{align*}
Next, we calculate the variable-weight price index by summing the values in each year and dividing by the total quantity for each year:
\begin{align*}
	ext{Price index in 2000} &= \frac{\$1000 + \$2000}{500 + 2000} = \frac{\$3000}{2500} = 1.2 \
	ext{Price index in 2001} &= \frac{\$2700 + \$6000}{900 + 3000} = \frac{\$8700}{3900} = 2.23 \
\end{align*}
Finally, we can calculate the percent change in the price level:
$\frac{2.23}{1.2} 	imes 100\% \approx 81.25\%$
Therefore, the best choice is B.

Question 14

Suppose that nominal GDP in 1990 was $1,015.5 billion,and in 2000 it was $2,732.0 billion.The GDP deflator is 42.0 for 1990 and 85.7 for 2000,where 1992 is the base year.Calculate the percent change in real GDP in the decade from 1990 and 2000.Round off to the nearest percentage point.

Accepted Answer

The answer of Suppose that nominal GDP in 1990 was...

Question 15

If a country runs a current account ________,it means that its national saving is ________ than investment.

Accepted Answer

A current account deficit means that a country is importing more goods and services than it is exporting, which means it is spending more than it is earning. Therefore, its national saving is less than investment, and the correct answer is B.

Question 16

The country of Old Jersey produces milk and butter,and it has published the following macroeconomic data,where quantities are in gallons and prices are dollars per gallon:
$$\begin{array} { l c c c c } 
& 2000 &&{ 2001 } \
\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \
\hline \text { Milk } & 500 & \$ 2 & 900 & \$ 3 \
\text { Butter } & 2000 & \$ 1 & 3000 & \$ 2 \
\hline
\end{array}$$
Between 2000 and 2001,nominal GDP grew by

Accepted Answer

Nominal GDP in 2000 = (500 * $2) + (2000 * $1) = $1000 + $2000 = $3000. Nominal GDP in 2001 = (900 * $3) + (3000 * $2) = $2700 + $6000 = $8700. Growth = (($8700 - $3000) / $3000) * 100% = 190.0%.

Question 17

If nominal GDP for 2000 is $6400 billion and real GDP for 2001 is $6720 billion (in 2000 dollars),then the growth rate of real GDP is

Accepted Answer

To calculate the growth rate of real GDP, we use the formula: (Real GDP in current year - Real GDP in previous year) / (Real GDP in previous year) x 100%. Plugging in the values, we get: (6720 - 6400) / 6400 x 100% = 5%. Therefore, the growth rate of real GDP is 5%.

Question 18

A fixed-weight price index

Accepted Answer

A fixed-weight price index measures the change in the price of a fixed basket of goods and services over time. Therefore, the value of a fixed basket at current prices divided by the value of a fixed basket at base-year prices is the correct calculation for a fixed-weight price index.

Question 19

Saving is a ________ variable,and wealth is a ________ variable.

Accepted Answer

Saving is a flow variable because it represents an amount accumulated over a specific period of time, such as monthly savings. Wealth, on the other hand, is a stock variable because it represents the accumulation of assets at a specific point in time.

Question 20

The country of Old Jersey produces milk and butter,and it has published the following macroeconomic data,where quantities are in gallons and prices are dollars per gallon:
$$\begin{array} { l c c c c } 
& 2001 & &{ 2002 } \
\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \
\hline \text { Milk } & 500 & \$ 2 & 900 & \$ 3 \
\text { Butter } & 2000 & \$ 1 & 3000 & \$ 2 \
\hline
\end{array}$$
Between 2001 and 2002,the percent change in the price level as measured by a fixed-weight index that uses production in 2001 as the fixed "basket" of goods was

Accepted Answer

To calculate the percent change in price level, we need to use a fixed-weighted index. The formula for a fixed-weighted index is:
Price Index = (total cost of goods in the current year / total cost of goods in the base year) x 100
Using production in 2001 as the fixed basket, the total cost of goods in 2001 is:
Milk: 500 x $2 = $1000
Butter: 2000 x $1 = $2000
Total: $3000
Using the same basket, the total cost of goods in 2002 is:
Milk: 900 x $2 = $1800
Butter: 3000 x $1 = $3000
Total: $4800
Plugging these values into the price index formula gives:
Price Index = ($4800 / $3000) x 100 = 160
Therefore, the percent change in the price level between 2001 and 2002 is 83.33%. The answer is C.

Quiz 2: The Measurement and Structure of the Canadian Economy