Economics 102

Answers to Practice Questions 2

Spring 2001

Answer Key:

I. Refer to the textbook.

II. True/False and explain

1. T.

2. F. nominal – inflation = real

3. T.

4. T.

5. F. they are inversely related

6. F. aggregation within the market

7. F. only final goods and services

8. F. production during the current year

9. F. for the marketplace

10. T.

11. F. within nation’s borders

12. T.

13. T.

14. F. the rule is residency

15. T.

16. F. he is producing services

17. F. 16 or more

18. T.

19. T.

20. F. his/her first occupation is student

21. T.

22. F. 0% of unemployment rate it is impossible to achieve

23. T. maybe not 0% but a small number

24. T.

25. F. only consumers

26. T.

27. F. they might be choosing a different consumption basket and/or having different income

28. T.

29. F. The real interest rate is the nominal interest rate minus the inflation rate.

30. T.

III. Problems

1. a. nominal GDP for 1999 = 3500

nominal GDP for 2000 = 4240

nominal GDP for 2001 = 5340

b. rate of change of nominal GDP in 1999 to 2000 = 21%

rate of change of nominal GDP in 2000 to 2001 = 26%

c. CPI for 1999 = 100

CPI for 2000 = 114

CPI for 2001 = 127

d. real GDP for 1999 = 3500

real GDP for 2000 = 3719

real GDP for 2001 = 4205

e. rate of change of real GDP from 1999 to 2000 = 6.25%

rate of change of real GDP from 2000 to 2001 = 13%

2. a. nominal income 1999 = 230

nominal income 2000 = 210

nominal income 2001 = 240

b. rate of change in nominal income from 1999 to 2000 = -9%

rate of change in nominal income from 2000 to 2001 = 14%

c. price index for 1999 = 100

price index for 2000 = 91.3

price index for 2001 = 104.3

d. real income in 1999 = 230

real income in 2000 = 230.01

real income in 2001 = 230.11