practice-problems - Practice Problems 1 If real salaries...

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Practice Problems 1) If real salaries increase but nominal salaries do not, this means that: A) the purchasing power of money has decreased. B) prices have not changed. C) prices have risen. D) prices have fallen. Answer: D 2) Suppose your bank pays you 4 percent interest per year on your savings account, so that $100 grows to $104 over a one-year period. If prices increase by 3 percent per year over that time, approximately how much do you gain by keeping $100 in the bank for a year? 3) When product prices increase faster than nominal wages increase, the real value of wages decreases. 4) If product prices decrease more than nominal wages decrease, the real value of wages will decrease. 5) The circular flow is used to make the point that: 6) As depicted in the circular flow diagram, firms: 7) Gross domestic product calculations count only final goods and services because: A) these are the only goods and services that are purchased in an economy. B) counting all goods and services would lead to double-counting of many activities. C) it is difficult to measure the prices of intermediate goods produced.
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D) one cannot calculate the quantities of intermediate goods produced. Answer: B 8) "Final goods and services" are those that are: 9) A rancher raises sheep. Once a year he shears them and sells the raw wool to a processor who cleans it and spins it into yarn. The yarn is then sold to a knitting mill, which produces and sells sweaters. In calculating GDP we would count:
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