6 In 2010 price level in Kentucky was 40 Nominal GDP of Kent

6. In 2010 price level in Kentucky was $40. Nominal GDP of Kentucky was $10 billion. What was the real GDP of Kentucky?

a) 20

b) 10 billion

c) .25 billion

d) 200 billion

7. In the circular flow diagram, which of the following is true?

a) Money flows from the household to the firms in the form of wages.

b) Money flows from the firms to the household in the form of wages.

c) Both (a) and (b)

d) None of the above

8. In medieval England, a blacksmith makes 15 swords in one day. He sells 7 swords on average per day. He keeps the remaining 8 swords to sell the next day. What is he doing?

a) Reducing inventory

b) Accumulating inventory

c) Both (a) and (b)

d) None of the above

9. In 2015, Labor force was 100 million. Adult population was 150 million. What was the labor force participation rate?

a) 15%

b) 10%

c) 66.67%

d) 100%

10. In an economy, Money market mutual funds = 5000. Savings balances = 4000. Small time deposits = 0. The government wants M2 to be equal to 10000. What should be M1?

a) 1000

b) 2000

c) 3000

d) 0

Solution

6. Real GDP = Nominal GDP/Price level = 10billion/40 = 0.25 billion

7. b) Money flows from the firms to the household in the form of wages.

Wages are paid by firms to the households so money flows from firms to households.

8. b) Accumulating inventory

In this case, inventory is accumulated for sale in tomorrow.

9. labor force participation rate = Labor force/Adult population x 100 = 100 million / 150 million x 100 = 66.67%

Answer is c) 66.67%