The GDP per capita of the U.S. economy is larger than the GDP per capita of Germany, which proves that the standard of living in the United States is higher than in Germany.
Select whether the statement is true or false.
A. True
B. False
B. False
This statement is false. It is not necessarily true that the standard of living in the United States is higher than in Germany just because the U.S. GDP is higher. The average U.S. worker works several hundred more hours per year than the average German worker. The GDP does not consider the extra weeks of vacation that German workers take on average.
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Purchasing power parity means that the expected exchange rate is such that the returns from investing in two nations are equal
Indicate whether the statement is true or false
The "Big Mac Theory of Exchange Rates" tests the accuracy of purchasing power parity theory. In July 2015, the Economist reported that the average price of a Big Mac in the United States was $4.79
In Mexico, the average price of a Big Mac at that time was 49 pesos. If the exchange rate between the dollar and the peso was 13.60 pesos per dollar, how would purchasing power parity predict the exchange rate will change in the long run? Support your answer graphically.
Which of the following is most likely correct about economists?
a. Economists do not determine the answer to the problem first and then draw the graph to illustrate. b. Economists do not use the graph of the theory to determine the answer. c. Economists determine the answer to the problem first and then draw the graph to illustrate. d. Economists identify multiple potential answers and then graph each one to determine the correct answer.
Suppose wheat farmers are price takers. If wheat farmers are currently making economic profits, over time we would expect that
a. existing wheat farmers would plant more acres of wheat. b. farmers growing other crops would switch some of their land from these crops to the growing of wheat. c. the wheat farmers will continue to earn economic profits because they would be driven out of business without such profit. d. both a and b are correct.