Assume a DVC and an IAC currently have real per capita outputs of $2,000 and $20

Question

Assume a DVC and an IAC currently have real per capita outputs of $2,000 and $20,000, respectively. Furthur assume that both nations have a 2 percent increase in their real per capita outputs.

Instructions: Enter all values as whole numbers.

a) Assume that both nations have a 2 percent increase in their real per capita outputs. Calculate the new level of real per capita output for each country.

     i) DVC: $ _____?______

     ii) IAC: $____?_______

c) Calculate the output gaps.

     i) Before growth: $_____?_______

     ii) After growth: $______?_______

d) By how much did the output gap change? $_____?________

Explanation / Answer

Assume a DVC and an IAC currently have real per capita outputs of $2,000 and $20,000, respectively. Furthur assume that both nations have a 2 percent increase in their real per capita output

a) Assume that both nations have a 2 percent increase in their real per capita outputs. Calculate the new level of real per capita output for each country.
New levels are 2000*1.02 = 2040 and 20000*1.02 = 20400
i) DVC: $2040

ii) IAC: $20400

c) Calculate the output gaps.

i) Before growth: $ (20000 - $2000) = $18000

ii) After growth: $ (20400 - 2040) = $18360

d) By how much did the output gap change? $18360 - $18000 = $360

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