Assume that we have a country with the following production: For each of the que
ID: 1189267 • Letter: A
Question
Assume that we have a country with the following production: For each of the questions below, show your calculations: Calculate nominal GDP in 2011 and 2012. Calculate real GDP in 2011 and 2012 using 2011 as your base year. Calculate the growth rates in nominal and real GDP. What was the growth rate in the amount of goods and services from 2011 to 2012? (Find ONE number) You are in charge of making a price index for textbooks based on the information above. You find that a typical student buys one English textbook and two Econ books per year. Calculate the cost of this basket in each year. Calculate the price index for each year, using 2012 as the base year. Calculate the inflation rate from 2011 to 2012 based on your price index. A country can produce the following combinations of amounts of cars or bicycles. Number of cars Number of bicycles 40 30 20 10 0 0 500 300 150 75 Draw the production possibilities frontier for this economy. The economy starts out producing 10 cars. If the economy is operating efficiently, how many bicycles are being produced? Starting out at 10 cars, what is the opportunity cost of producing 10 more cars? Assume that technology is improved, so it is possible to produce more cars in the same amount of time. Illustrate this case in your graph. Make clear which curve is from before and which is from after the new technology. 3. Discuss briefly two reasons why GDP may not be a good measure of living standard in a country. Use full sentences and explain briefly your arguments. (No more than 2 sentences for each reason!). The book is not too detailed on this question, so you will need to use lecture material to answer the question.Explanation / Answer
QUESTION - 1
Working notes:
1. Nominal GDP = Sum of (Current year price x current year quantity)
2. Real GDP = Sum of (Base year price x current year quantity)
(a) Nominal GDP
2011: 50 x $50 + 55 x $80 = $2,500 + $4,400 = $6,900
2012: 60 x $55 + 85 x $90 = $3,300 + $7,650 = $10,950
(b) Real GDP (Base: 2011)
2011: 50 x $50 + 55 x $80 = $2,500 + $4,400 = $6,900
2012: 60 x $50 + 85 x $80 = $3,000 + $6,800 = $9,800
(c) Growth rate
Nominal GDP = [(10,950 / 6,900) - 1] x 100 = 58.69%
Real GDP = [(9,800 / 6,900) - 1] x 100 = 42.03%
(d)
Total quantity, 2011 = 50 + 55 = 105
Total quantity, 2012 = 60 + 85 = 145
Growth rate in total quantity = [(145 / 105) - 1] x 100 = 38.09%
(e) Price index
Cost of basket, 2011 = $50 + 2 x $80 = $(50 + 160) = $210
Cost of basket, 2012 = $80 + 2 x $90 = $(80 + 180) = $260
(f)
Price index, 2011: Nominal GDP (2012) / Cost of basket in 2011 = $6,900 / $210 = 32.86
Price index, 2012: Nominal GDP (2012) / Cost of basket in 2012 = $10,950 / $260 = 42.12
(g)
Inflation rate = Change in price index from 2011 to 2012
= [(42.12 / 32.86) - 1] x 100
= 28.18%
NOTE: Out of 3 multi-part questions, the 1st question is answered in full.