"When you purchase $1,000 of stock in Microsoft, your purchase is an investment and hence is part of GDP." Is this assertion correct? Explain your answer
What will be an ideal response?
The assertion is incorrect. Your purchase of $1,000 of Microsoft stock does not increase GDP because it is the purchase of a financial asset. The investment component of GDP is the purchase of new capital goods. Your purchase of stock is not the purchase of a new capital good and hence, as a purely financial transaction, it is not included in GDP.
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If the growth of the quantity of money is 5 percent per year, potential and real GDP grow at 3 percent per year, and velocity does not change, in the long run what is the inflation rate?
What will be an ideal response?
Rhonda has started a new job that almost doubles her income. She walks past the inexpensive ramen in the grocery store and thinks, “Well, I don’t have to eat that anymore!” Instead, she purchases some fresh vegetables and a steak. To Rhonda, the ramen falls into the category of _____________, because now that she can afford better, she doesn’t want it.
a. normal goods b. temporary goods c. inferior goods d. nonutility goods
How does government expenditure discourage some private investment?
The law of increasing opportunity cost results from the varying ability of resources to adapt to the production of different goods and it helps to explain why production possibilities curves are typically bowed outward
Indicate whether the statement is true or false