( 1.) Which of the following is the best measure of economic well-being? A. Nomi
ID: 1127746 • Letter: #
Question
( 1.) Which of the following is the best measure of economic well-being?
A. Nominal GDP.
B. Real GDP.
C. Real GDP per person.
D. Inflation rate.
( 2.) If a country's net exports are negative, what does this mean?
A. The country is exporting more than it is importing.
B. Real GDP is falling.
C. The country is importing more than it is exporting.
D. Prices are falling.
( 3.) The price index in the base year is
A. 0
B. 100
C. It depends on the rate of inflation.
( 4.) If the nominal interest rate is 5% and the expected rate of inflation is 2%, the real interest rate is
A. 0%
B. 2%
C. 3%
D. 5%
( 5.) The percent change in the price level over time is referred to as the
A. Inflation rate.
B. Consumer price index.
C. GDP deflator.
D. Price level.
Explanation / Answer
Answer - Real GDP per person is the best measure of well-being in the country. Real GDP per person measures the distribution of resource into the economy. Actually it is very hard to measure well being in the economy accurately. Real GDP per person gives better understanding of well being in comparison of others.
Option C is the correct answer.
Answer 2 - Net export defined as export minus imports. If net exports are negative it means the country is importing more than exporting.
NX = X – M
NX = Net exports
M = Imports
X = Exports
Option C is the correct answer.
Answer 3 - The price index in base year is 100. Price index measures change in the price level in the economy. We need a starting line for the comparison between prices. Thus we assume index value as 100 in the base year.
Option B is the correct answer.
Answer 4 - We have been given that, nominal interest rate is 5% and expected rate of inflation is 2%. We know that,
Real Interest Rate = Nominal Interest Rate - Inflation
Real interest rate = 5 - 2
Real interest rate = 3%
Option C is the correct answer.
Answer 5 - The percent change in the price level over time is referred to as the Inflation rate. This is the widely accepted definition for inflation. The rate of price change in the long run is known as inflation rate.
Option A is the correct answer.
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