EFB231

An economy produces only fun and food. Table 1 shows the prices and the quantities
of fun and food produced in 2013 and 2014. The base year is 2013. Calculate nominal GDP in 2013 and 2014?

• Nominal GDP in 2013: $260/ Nominal GDP in 2014: $235

• Nominal GDP in 2013: $293/ Nominal GDP in 2014: $223

• Nominal GDP in 2013: $254/ Nominal GDP in 2014: $229

• Nominal GDP in 2013: $273/ Nominal GDP in 2014: $235

Answer explanation

Nominal GDP in 2013 is equal to (40 units of fun × $2) + (60 units of food × $3) = $260.

Nominal GDP in 2014 is equal to (35 units of fun × $3) + (65 units of food × $2) = $235.

An economy produces only fun and food. Table 1 shows the prices and the quantities of fun and food
produced in 2013 and 2014. The base year is 2013. Calculate the percentage increase in production in
2014?

• 1.9%

• 2.4%

• 2.3%

• 7.1%

Answer explanation

The percentage increase in production is equal to the percentage increase in real GDP. In the base year, real GDP equals nominal GDP, so real GDP in 2013 is $260.

Using prices from 2013, real GDP in 2013 is $260 and real GDP in 2014 is $265. Using 2013 prices, real GDP grew [($265 - $260)/$260] × 100, or 1.9 per cent

In current prices, retail sales rose 3.3 per cent in December 2014 compared with December 2013. In real volume terms, the trend estimate for Australian retail sales rose 0.9 per cent in the December quarter 2014. Which component of GDP changed and caused retail sales to increase?

• Consumption expenditure

• Investment

• Government expenditure

• Net exports of goods and services

Answer explanation

The increase in retail sales means that consumption expenditure on goods and
services increased.

In current prices, retail sales rose 3.3 per cent in December 2014 compared with December 2013. In real volume terms, the trend estimate for Australian retail sales rose 0.9 per cent in the December quarter 2014. Explain how a rise in retail sales increases incomes to make aggregate expenditure equal to aggregate income.

In current prices, retail sales rose 3.3 per cent in December 2014 compared with December 2013. In real volume terms, the trend estimate for Australian retail sales rose 0.9 per cent in the December quarter 2014. Which information in the ABS report tells us about a change that influences real GDP? Explain your answer.

Where do new-home sales appear in the circular flow of expenditure and income? Explain how a fall in new home sales affects real GDP.

Where do sales of previously owned homes appear in the circular flow of expenditure and income? Explain how a fall in sales of previously owned homes affects real GDP.

Answer explanation

A real estate commission paid to sell a used home, however, does add to GDP because it is a part
of current production.

Explain how an increase in population and labour supply changes labour productivity. Why do diminishing returns arise? Provide an example of diminishing returns. Use graphs of the production function and labour market to illustrate your answer.

Answer explanation

Explain how an increase in human capital changes labour productivity. Use a graph to illustrate your answer.

Answer explanation

Distinguish among the three types of unemployment: frictional, structural and cyclical. Provide an example of each type of unemployment in Australia today.

Answer explanation

A university student graduating and entering the labour force to look for a job is frictionally unemployed. An assembly worker who is fired when the company moves production to Singapore is structurally unemployed. And a sales assistant who is laid off when the economy contracts and consumer expenditure falls is cyclically unemployed