QUESTION: 1385

In year 0, $10 could purchase a certain basket of goods. In year 20, the identical basket of goods cost $36. What was the average annualized inflation rate during this period?

4.51%
7.88%
12.21%
30.00%
6.61%

Answer(s): E

Explanation:

The calculation is as follows: (36/10)^(1/20)-1=0.0661

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QUESTION: 1386

Which of the following would increase GDP?

buying a 10-year-old house
giving $100 to a charity
buying a new automobile made in Indiana by a Japanese owned firm
buying hamburger buns by McDonald's

Answer(s): C

Explanation:

Since GDP is the total market value of all final goods and services produced domestically during a specific period, the purchase of any good that was produced within the U.S. will positively contribute to the calculation of GDP. Despite the fact that the transaction profits a foreign company, the good was produced within the U.S.
and therefore is counted in GDP.
The hamburger buns do not contribute to GDP because they are an intermediate good. The house is a re-sold item, which would have been counted in GDP when it was produced, therefore is not recounted when sold.

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QUESTION: 1387

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

prices
velocity
real income
employment

Answer(s): A

Explanation:

The quantity theory of money implies that the existing money stock M multiplied by velocity V equals the nominal GDP (output times the price level). In order to maintain the equality, if M increases, the price level P must also increase.

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QUESTION: 1388

Higher unemployment insurance benefits tend to increase unemployment because they

reduce the opportunity cost of job search and hence decrease the search time.
increase the opportunity cost of job search and hence increase the search time.
reduce the opportunity cost of job search and hence increase the search time.
increase the opportunity cost of job search and hence decrease the search time.

Answer(s): C

Explanation:

A change that reduced the job seeker's cost of continued search would lead to more lengthy periods of search.
If unemployment benefits increase, it is less costly to continue looking for a preferred job. This reduction in the cost of job search would induce job seekers to expand their search time.
Unemployment would be pushed upward.

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QUESTION: 1385

Explanation:

QUESTION: 1386

Explanation:

QUESTION: 1387

Explanation:

QUESTION: 1388

Explanation: