Help on MC question (1 Viewer)

[zelda]

need some help on this mc from 2002 independant trial

1) The following shows selected economic data for a nation

Year 1 Year 2
GDP $b 575 660
CPI 100 110

What is the real growth in GDP for this nation between year 1 and year 2?

(a) $25b
(b) $85b
(c) 151b
(d) $550b

The answer is (a) $25b, but i want to know how to get that, thanks!

 

[i-color]

The GDP they gave you is the nominal GDP.

Recall that Real GDP = money GDP x 100/CPI

Thus, in year 1, Real GDP = 575 x 100/100 = 575
year 2 Real GDP = 660 x 100/110 = 600

therefore, real change in GDP was only $25bn

To explain this, your nominal GDP increased by 85, but part of this increase was due to inflation (indicated by increase CPI), so the REAL growth in GDP is 25

Hope this helps!

 

[zelda]

thanks for the explanation, i understand now ^_^

 

[zelda]

oh and 1 more thing i need help on
i dont know how to answer this short answer question, the rest i can do but just this..can anyone help? icolor? thanks again..

 

[i-color]

1) Equilibrium income would occur when leakages = injections in circular flow.
therefore at $600 when S = I = 40

2) MPC = change in consumption/change in income
therefore MPC = 120/200 = 0.6

k = 1/1-MPC = 1/0.4 = 2.5

3) If total leakges > total injections, there is a contraction of the circular flow (in this question specifically, it would mean savings increased). This amount would be compounded as it moves through the various sectors of the circular flow and the final change in real GDP & national income would be 2.5 times larger than the initial change in total leakages. (which works out when you look at increase savings by 80 times this by multiplier 2.5 gives you change in national income of 200) --> you would just need to explain all this a bit better.