If the GDP deflator decreases from 100 to 90 when you had $4,000, then
A. the value of the $4000 decreases.
B. the value of the $4000 remains constant.
C. the $4000 will buy 10 percent less of the goods and services produced by society.
D. the $4000 will buy 10 percent more of the goods and services produced by society.
Answer: C
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Joe runs a small boat factory. He can make ten boats per year and sell them for €25,000 each. It costs Joe €150,000 for the raw materials (fibreglass, wood, paint, and so on) to build the ten boats. Joe has invested €400,000 in the factory and equipment needed to produce the boats: €200,000 from his own savings and €200,000 borrowed at 10 percent interest. (Assume that Joe could have loaned his money out at 10 percent, too.) Joe can work at a competing boat factory for €70,000 per year.
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