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NAME:_________________________________________ THE GEORGE WASHINGTON UNIVERSITY Department of Economics Economics 280 Prof. Steve Suranovic Spring 2010 Quiz #1 – Answers 1. (9) Write the term that is described by each of the following statements. Note that the answer relates to the italicized word or phase. A. the measure of national output that accounts for all production within the borders of the country during the year. GDP B. the approximate value of US GDP in 2008. $14 trillion (accept 12-16 trillion) C. the approximate value of world GDP today $70 trillion (accept 60-80 trillion) D. approximately, the US unemployment rate today AND the highest US unemployment rate during the Great Depression 10% AND 25% (accept 9-12 AND 20-30) E. approximately, the highest US unemployment rate in the post WWII era. 10.8% (accept 10-12%) F. term used in the balance of payments accounts to describe profit earned by a domestic resident on business operations abroad. Income receipts G. In what category and in which account are remittances recorded in the balance of payments. Unilateral transfers in the current account H. The value of a country’s GDP if, consumption is $30 billion, government spending is $10 billion, investment is $15 billion, tax revenues are $8 billion, the goods and services balance has a surplus of $10 billion and private saving is $15 billion. I. The value of a country’s budget deficit if consumption is $30 billion, government spending is $10 billion, investment is $15 billion, tax revenues are $8 billion, transfer payments are $4 billion and private saving is $15 billion. C + I + G + Trade surplus = $65 billion G + TR – T = 10 + 4 – 8 = $6 billion 2. (2) In your opinion, what is the most important aspect of national economic well-being that is not captured adequately by the gross domestic product. A. does not include income per capita or per household B. does not describe distribution of income C. considers only income, not national wealth D. measures output but not domestic spending (C + I + G) E. does not consider negative social effects of things like pollution F. includes reconstruction after natural disasters G. does not consider negative effects of some production, like military H. “nominal” GDP value does not consider inflation effects. I. Does not include many things that affect quality of life. J. Does not include non-market activity – housework, barter, etc. K. Et.al……. 3. A. (2) Use the twin deficit identity to fill in the blanks for the two fictitious countries of Alpha and Beta. Each entry is given as a percentage of GDP. Assume there are no errors in measurement. Country Private Saving Investment CA Deficit Govt. Budget Deficit Alpha Beta 25% 35% 15% 33.0% -10% 8% 0% 10% A. (1) Which country may be financing its government budget deficit mostly by borrowing from the rest of the world? B. (1) Which country may be saving a portion of its money in the rest of the world? Beta Alpha