QUESTION 16 In an imaginary economy, consumers buy only sandwiches and magazines

Question

QUESTION 16 In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the consumer price index in 2007 was 125, then how much did a magazine cost in 2007? a. S2.25 b. S0.83 c. S3.00 d. S2.50 QUESTION 17 When Americans invest in Russia, the income of Russians (that is, Russian GNP) rises by more than production in Russia (that is, Russian GDP). True False QUESTION 18 The short-run effects of an increase in the saving rate include a. a higher level of productivity b. a higher growth rate of productivity c. a higher growth rate of income d. All of the above are correct.

Explanation / Answer

Question. 17

Answer Option (B) False

Explanation: Russian GNP = Russian GDP + Net factor Income from abroad

Net factor Income from abroad is the difference between the incomes received by Russians from their investment minus the income received by Americans from Russia for their investment.

As per the question if Americans invest in Russia, then the NFIA is negative, which leads to reduction of GNP of Russia then the GDP of Russia.

Question. 18

Answer Option (A) A higher level of productivity

Explanation: increase in saving rate under short-run under solow growth model leads to raise in economic growth which leads to increase in real GDP and a higher level of productivity

Question-16 In the year 2006 Proeuct Quanityt Price Expenditure Sandwiches 20 4 80 Magazines 30 2 60 Total expenditure 140 as per the question the base year is 2006 and Price Index of 2007 is 125% total expenditure of 2007 is 125% of total expenditure of 2006 total expenditure of 2007 = 140 x 125% = 175 In the year 2007 Proeuct Quanityt Price Sandwiches 20 5 100 Magazines 30 Pm (Price of Sandwiche x Quanity of sandwich) + (Price of magazine x Quanity of magazine) = 175 (5 x 20) + (Price of magazine x 30) = 175 100 + (Price of magazine x 30) = 175 Price of magazine x 30 = 175 -100 Price of magazine x 30 = 75 Price of magazine = 75 /30 Price of magazine = $2.5 Answer Option D. $2.50

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