Q: What is the GDP deflator in Year 2, given nominal GDP = 360 and real GDP = 240?

$$\frac{360}{240} \times 100 = 150$$

Q: If the price of apples in Year 2 had remained at $2 (the Year 1 price), but quantity increased to 120, what would be the percentage increase in real GDP from Year 1 to Year 2?

$$\frac{240 - 200}{200} \times 100 = 20\%$$

Question 1

Given the following data for an economy: Consumption = 500, Investment = 120, Government spending = 150, Exports = 80, Imports = 100 (all in billions). What is the GDP of this economy?

Accepted Answer

$$500 + 120 + 150 + 80 - 100 = 750$$

Question 2

Based on the data: Exports = 80, Imports = 100 (in billions), is the country running a trade surplus or deficit?

Accepted Answer

Trade deficit, because imports exceed exports by $$100 - 80 = 20$$

Question 3

An economy produces only apples. In Year 1: 100 apples at $$2 each. In Year 2: 120 apples at 3 $$each. What is the nominal GDP in Year 2?

Accepted Answer

$$120 	imes 3 = 360$$

Question 4

Using Year 1 as the base year, what is the real GDP for Year 2 (apples: 120 units, base year price: $2)?

Accepted Answer

$$120 	imes 2 = 240$$

Question 5

What is the GDP deflator in Year 2, given nominal GDP = 360 and real GDP = 240?

Accepted Answer

$$\frac{360}{240} 	imes 100 = 150$$

Question 6

If the marginal propensity to consume (MPC) is 0.75, what is the value of the spending multiplier?

Accepted Answer

$$\frac{1}{1 - 0.75} = 4$$

Question 7

If government spending increases by 40 and the MPC is 0.75, what is the total change in GDP?

Accepted Answer

$$40 	imes 4 = 160$$

Question 8

An economy has: C = 400, I = 100, G = 200, X = 50, M = 70. What is the initial GDP?

Accepted Answer

$$400 + 100 + 200 + 50 - 70 = 680$$

Question 9

If government spending increases by 60 and the MPC is 0.6, what is the value of the spending multiplier?

Accepted Answer

$$\frac{1}{1 - 0.6} = 2.5$$

Question 10

Given a government spending increase of 60 and a spending multiplier of 2.5, what is the total change in GDP?

Accepted Answer

$$60 	imes 2.5 = 150$$

Question 11

After the government spending increase and multiplier effect, what is the new GDP if the initial GDP was 680 and the total change in GDP is 150?

Accepted Answer

$$680 + 150 = 830$$

Question 12

If an economy's MPC increases from 0.6 to 0.8, what happens to the spending multiplier?

Accepted Answer

It increases from $$2.5 to$$ $$5$$

Question 13

Suppose an economy's imports increase by 30, with all other components unchanged. What is the effect on GDP?

Accepted Answer

GDP decreases by 30

Question 14

If the price of apples in Year 2 had remained at $2 (the Year 1 price), but quantity increased to 120, what would be the percentage increase in real GDP from Year 1 to Year 2?

Accepted Answer

$$\frac{240 - 200}{200} 	imes 100 = 20\%$$

Question 15

If the government wants to increase GDP by 200 and the MPC is 0.75, by how much should it increase government spending?

Accepted Answer

$$\frac{200}{4} = 50$$

Question 16

If nominal GDP increases but real GDP remains constant, what does this indicate about the economy?

Accepted Answer

Prices have increased (inflation), but output has not changed

Question 17

If the GDP deflator in Year 2 is 150, what does this mean compared to the base year?

Accepted Answer

The price level has increased by 50% since the base year

Question 18

If the MPC is 0.6 and the government increases spending by 100, what is the total change in GDP?

Accepted Answer

$$100 	imes 2.5 = 250$$

Question 19

If the government increases spending by 40 and the MPC is 0.75, but imports also increase by 10, what is the net change in GDP?

Accepted Answer

$$(40 	imes 4) - 10 = 150$$

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