-Suppose GDP Consists of Wheat and Rice

question 23

Multiple Choice

-Suppose GDP consists of wheat and rice. In 2006, 20 bushels of wheat are sold at $4 per bushel, and 10 bushels of rice are sold at $2 per bushel. If the price of wheat was $2 per bushel and the price of rice was $1 per bushel in 2001, the base year, what can we conclude?

• A)Nominal 2006 GDP is $100, real 2006 GDP is $50, and the GDP deflator is 50.
• B)Nominal 2006 GDP is $100, real 2006 GDP is $50, and the GDP deflator is 200.
• C)Nominal 2006 GDP is $50, real 2006 GDP is $100, and the GDP deflator is 200.
• D)Nominal 2006 GDP is $40, real 2006 GDP is $100, and the GDP deflator is 50.

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Definitions:

Monopolistically Competitive

A market structure characterized by many firms producing similar, but not identical, products and where there are few barriers to entry or exit.

Raises Prices

Refers to the action or factor that causes the price of goods or services to increase.

Profit-Maximizing

A strategy or objective of firms to adjust their production and pricing to achieve the highest possible profit.

Long-Run Demand Curve

Illustrates how the quantity of a good demanded changes over time as all economic factors, including production technologies and preferences, can adjust.