Question

Question 2 If over a period of time real gross domestic product (GDP) increases while nominal GDP decreases, then this implies Select one:

a. a significant rise in the price level.

b. a significant drop in the price level.

c. that real GDP is higher than nominal GDP.

d. that the given period occurs before the base period.

e. that the given period year occurs after the base period.

Question 3 Indicate which expenditure category of GDP changes and the direction of the change that results for each of the following transactions:

a. A domestic business purchases a domestically produced computer to use in a business office.

b. A domestic business produces a computer that is sold to a foreign company.

c. The federal government purchases a domestically produced computer to use in a government office.

d. A domestic household purchases a domestically produced computer to use in a home.

e. A domestic household purchases a computer produced in a foreign country to use in a home.

Answer 1

(2) (b)

Real GDP = Nominal GDP / Price level, so

Change in Real GDP = Change in Nominal GDP - Change in Price level

If Change in Real GDP > Change in Nominal GDP, it means that Change in Price level < 0.

(3)

(a) Fixed gross private investment increases.

(b) Exports increase, so Net export increases.

(c) Government purchase of goods and services increases.

(d) Personal consumption expenditure increases.

(e) Imports increase, so Net export decreases.