Question

13.1

An unexpected increase in total spending will cause an increase in GDP

• if prices are sticky.

• if prices are fully flexible.

• regardless of whether prices are sticky or fully flexible.

• only if prices are stuck in the long term.

15.1

Gross Domestic Product (GDP)	Consumption (C)
$100	$140
200	200
300	260
400	320
500	380

(Advanced analysis) The accompanying table is the before-tax consumption schedule for a closed economy. A 10 percent proportional tax on income would cause

• both consumption and saving to increase by smaller and smaller absolute amounts as GDP rises.

• no change in the amounts consumed and saved at each level of GDP.

• both consumption and saving to increase by larger and larger absolute amounts as GDP rises.

• consumption to decrease by larger amounts and saving to decrease by smaller amounts as GDP rises.

16.1

If the price index rises from 100 to 130, then the purchasing power of the dollar will fall by about

• 15 percent.

• 19 percent.

• 23 percent.

• 30 percent.

Answer 1

13.1 if prices are sticky.
(If prices are sticks then GDP will increase with increase in total spending because prices can't adjust downward.)

15.1 both consumption and saving to increase by smaller and smaller absolute amounts as GDP rises.
(Due to proportional tax, as GDP increases, both consumption and saving will increase but by lesser and lesser amount.)

16.1 30 percent
(Rise in prices = [(130-100)/100]*100 = 30%. So, purchasing power will fall by about 30%.)