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ECON 1BB3 Study Guide - Midterm Guide: Economic Equilibrium, Nominal Interest Rate, Peanut Butter


Department
Economics
Course Code
ECON 1BB3
Professor
Bridget O' Shaughnessy
Study Guide
Midterm

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Test 1 Review 10 Most Difficult Questions from Prac Test 1
38. If there is a reduction in the price of large tractors imported into Canada from Russia, what happens
to the GDP deflator and the consumer price index?
a. The GDP deflator will decrease, and the consumer price index will increase.
b. The GDP deflator will increase, but the consumer price index will remain unchanged.
c. Both the GDP deflator and the consumer price index will decrease.
d. Neither the GDP deflator nor the consumer price index will decrease.
-D) because tractors aren’t bought by typical consumers so won’t be included in CPI, GDP is only
G/S made domestically
-GDP: the final market value of all G/S produced within a given country (made in Russia so not
included)
-CPI: avg consumer wont be purchasing large tractors
20. If Robert works as a lawyer, how should his contributions to GDP be calculated?
a. using his income from providing legal services, not his expenditure on goods and services
b. using his expenditure, not his income
c. using both his income and his expenditure
d. using either his income or his expenditure, not both
-D) using either income or expenditure – don’t use both b/c by including both you’ll be double
counting, this is assuming all his income is going to be spent somehow (even saving spending its
still going somewhere) since income = expenditure
-GDP meausures two things: total income OR total expenditure
-Income must equal expenditure in an economy
-Refer to circular flow diagram in ch 2
21. How often does the basket of goods in the consumer price index change?
a. occasionally, as does the basket of goods used to compute the GDP deflator
b. yearly, as does the basket of goods used to compute the GDP deflator
c. occasionally, while the basket of goods used to compute the GDP deflator changes yearly
d. yearly, while the basket of goods used to compute the GDP deflator changes occasionally
-C. Stats Can decides when to update the CPI and it’s used to measure inflation – you want a
similar basket of goods to be comparing year after year, so goods don't change just prices
change
-GDP changes with peoples consumption and investment patterns, used to measure country’s
yearly production – must change yearly – the actual bundle of what makes up the GDP each ear
changes
30. A country reported a nominal GDP of $115 billion in 2007 and $125 billion in 2006, and reported a
GDP deflator of 85 in 2007 and 100 in 2006. What happened to real output and prices from 2006 to
2007?
a. Real output and prices both rose.
b. Real output fell and prices rose.
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