Terms of trade refers to?

a. What goods are importedb. What goods are exported

c. The volume of trade.

d. The prices at which trade occurs.

Answer - d

2. The use of real GDP rather than nominal GDP allows us to?

a. Measure the value of output in a given year at constant prices that have been adjusted for changes in inflation.

b. Compare changes in real output rather than changes in prices.

c. Derive growth in per capita real GDP by subtracting the population growth rate from the growth in real GDP.

d. To see the actual money price paid for a good.

Answer - a

3. The national supply of good S as derived in Figure 2.8a in the textbook (p.48) has an upward slope because?

a. The production possibility frontier reflects increasing opportunity costs. b. Higher indifference curves can be reached as the price of S increases.

c. Consumers prefer good S over good T.

d. All of the above.

Answer - d

Short Answer:

4. 1. Feasible production points – U,V, W, X and Y

2. Efficient production points – X. V and W are inefficient as we can still produce more of one good by maintaining the same amount of another good. Point U and Y does not maximize the CIC. Point X is the optimal production point as it lies at the point where CIC is tangential to production possibility frontier curve.

3. As PT increases, there is an increase in the relative price of T and lower relative price of S leading to an decrease in the slope of the budget constraint as the constraint rotates outward along the horizontal axis.