Question

7. The difference between nominal Gross Domestic Product and real Gross Domestic Product

a.is that nominal Gross Domestic Product includes only the values of final goods and services, while real Gross Domestic Product includes the values of both final and intermediate goods and services.

b. is that real Gross Domestic Product includes the value of all goods sold in the country (whenever they were produced) during the period, while nominal Gross Domestic Product includes the value of all goods produced in the country during the period.

c. is that real Gross Domestic Product is nominal Gross Domestic Product adjusted for changes in

d. is nothing. They are exactly the same in every time period.

10. Explain how each of the listed events would effect the market for new physics textbooks. (Explain which curve shifts and the effects on the equilibrium price and equilibrium quantity of new physics textbooks.)

I. The price of a used physics textbook rises.

II. The price of printing ink rises.

13. A farmer has taken out a $150,000 three-year loan from a bank to make improvements to his farm. The nominal three-year interest rate on the loan is 5%, which includes an expected three-year inflation rate of 2% and an expected three-year real interest rate of 3%. If the actual inflation rate at the end of the three years is 4%, did the bank or the farmer lose? Explain your answer.

Answer 1

7. Option C

Explanation: Real GDP is the value we get after adjusting the nominal GDP for depreciation.

10.

I. Used physics book is a substitute for new physics book. SO, when the price of used physics books increases, the demand curve for the new physics books shift right. So, the price and quantity both goes up.

II. When the price of printing ink rises, the supply curve for new physics books would shift left. So, the price will go up and quantity would fall.

13. The bank will lose because the inflation rate was higher than expected. The farmer now needs to return money worth less than what was borrowed. SO, farmer is benefited.