32.People in affluent countries may not be getting any happier over time becausea.people greatly value the luxuries they have and what matters is absolute incomeb.people begin taking luxuries for granted and income does not matterc.what matters is relative income and perceptions of luxuries do not matterd.people begin taking luxuries for granted and what matters is absolute incomee.people begin taking luxuries for granted and what matters is relative income
33.Bubble in “B” on your scantron to acknowledge that you have correctly bubbled in your name and student ID numbers in the appropriate spaces on the left-hand side of your scantron.34.This is a multiple choice extra credit question and will be worth the equivalent of two test questions, but the possible answers (A-E) will not be displayed until shortly before I pick up the tests. Hence, in order to answer correctly, you'll need to work through the problem to the end on your own, and if you've gotten it cor-rect then your answer will be one of the options. If you did not get to the correct answer, there's no penalty for guessing. However, I will not permit any extra credit if you turn in the test early. You're welcome to leave, but if you want the shot at extra credit, stay put, keep your test, and work through this problem.Using the following information and assuming that the circular flow model is accurate, calculate Real GDP.Hint: In trying to remember all the components that go into GDP, try sketching out the circular flow model including the role of firms, households, government, financial markets, and the rest of the world along with how to money flows into and out of each and the decisions they make.Consumption: 600Expected inflation rate: 2.5%Exports: 250Labor Force Participation rate: 42%GDP Price index: 200Government purchases: 400Government borrowing: 0Rent payments: 200Savings: 200Wages: 700
Test 2Answer SectionMULTIPLE CHOICE1.ANS:A2.ANS:C3.ANS:A4.ANS:D5.ANS:A6.ANS:D7.ANS:E8.ANS:D9.ANS:D10.ANS:C11.ANS:B12.ANS:A13.ANS:E14.ANS:C15.ANS:C16.ANS:D17.ANS:B18.ANS:D19.ANS:E20.ANS:B21.ANS:A22.ANS:E23.ANS:D24.ANS:A25.ANS:A26.ANS:E27.ANS:A28.ANS:B29.ANS:C30.ANS:C31.ANS:E32.ANS:E33.ANS:B34.ANS:BMethod 1: By the income half of the circular flow, GDP = Disposable Income + Net TaxesGovernment borrowing is zero, so Government Purchases = Net TaxesDisposable Income is used by households who make decisions about Consumption and Savings DI = C + SA price index of 200 indicates that prices have doubled since the base year, so to get Real GDP, divide your Nominal GDP by two.Method 2: Alternatively, since Government Borrowing is equal to zero, any net leakage from financial insti-tutions must be made up by an injection from the Rest of the World, all on the Expenditure side.Therefore I + (X – M) = SThen you have C + I + G + (X – M) = GDP.Use the price index to get it in Real Terms.
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