Explain how the purchases of used goods and of financial assets affect GDP
What will be an ideal response?
Used goods count in GDP for the year in which they were produced. Hence the purchase of a used good is not included in GDP. Purchases of financial assets, such as stocks, are a transfer of funds and not the purchase of a newly produced good or service. When the firm uses the funds it acquires from selling the stocks or bonds to purchase capital, the purchase of the capital will count as investment, but the initial purchase (and sale) of the financial asset itself does not count in GDP.
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If the economy is currently in equilibrium at a level of GDP that is above potential GDP, which of the following would move the economy back to potential GDP?
A) a decrease in interest rates B) a decrease in wealth C) a decrease in the value of the dollar relative to other currencies D) an increase in business confidence
Under the price-specie-flow mechanism, what happens when, say, Germany's current account surplus is greater than its non-reserve capital account deficits?
A) German loans will finance all foreign net imports. B) Automatic drop in German domestic prices and rise in foreign prices. C) Gold reserves will flow into Germany. D) Gold reserves will flow out of Germany. E) Germany will experience a deficit.
Adverse selection occurs in the health insurance market because:
A. it is difficult for insurance companies to distinguish between high risk and low risk customers. B. people cannot predict their future health status. C. the least healthy people are the least likely to acquire insurance. D. health care markets are unregulated.
Refer to the data provided in Table 9.2 below to answer the question(s) that follow.
Table 9.2
Refer to Table 9.2. If the market price is $28 and the firm produces 5 units of output, then its profit would be
A. -$50. B. -$44. C. $0. D. $18.