Suppose a Small Economy Produces Only Smart TVs

question 37

Multiple Choice

Suppose a small economy produces only smart TVs. In year one, 100,000 TVs are produced and sold at a price of $1,200 each. In year two, 100,000 TVs are produced and sold at a price of $1,000
Each. As a result,

• A) nominal GDP stays constant, while real GDP decreases.
• B) nominal GDP decreases, while real GDP stays constant.
• C) nominal GDP and real GDP both decrease.
• D) nominal GDP decreases, and real GDP decreases even more.

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Definitions:

Internal Rate Of Return

A metric used in capital budgeting to estimate the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows equal to zero.

Salvage Value

The projected final worth of an asset at the end of its period of use.

Operating Costs

The expenses related to the day-to-day activities of a business, such as wages and rent.

After-Tax Discount Rate

The discount rate used in financial analysis that reflects the net cost or benefit of investment after accounting for taxes.