Which of the following represents a problem with using per capita GDP to compare standard of living between less-developed and industrially advanced countries?
a. GDP per capita does not take into account differences in population between countries.
b. GDP is particularly difficult to measure in industrially advanced countries because a much larger percentage of economic activity occurs outside of officially measured market activity than in less-developed countries.
c. GDP per capita will overstate the prevailing standard of living for the average person in countries with extreme levels of income inequality.
d. None of the above are correct.
Question 2
Use the aggregate expenditures model and assume an economy is in equilibrium at 5 trillion which is 250 billion below full-employment GDP. If the marginal propensity to consume (MPC) is 0.60, full-employment GDP can be reached if government spending:
a. decreases by 60 billion.
b. decreases by 100 billion.
c. decreases by 250 billion.
d. is held constant.
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