QUESTION 16 In an imaginary economy consumers buy only sandw

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.

Solution

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