U) TOTIAL WIapanese CBP per capita be in the year 2100? (2 points) 24. (10 point

Question

U) TOTIAL WIapanese CBP per capita be in the year 2100? (2 points) 24. (10 points) Suppose that there are only two nternationally, and ice cream, which is not. The following table shows information on the production and rices of computers and ice cream in two countries: goods produced in the world: computers, which are traded Computers Ice cream Price of Price of ice GDP per capita Country produced per produced per computers incream in local in local currency local currency capita 12 3 capita currency Richland Poorland (a) Calculate the level of GDP per capita in each country, measured in its own currency (i.e, get the values for the last column). (1 point) (b) Calculate the market exchange rate between the currencies of the two countries. [Hint: the price of the traded good should be the same; it could be expressed as, "X Richland dollar(s) to Y Poorland dollar(s)" where X and Y are numbers]. (1 point) (c) What is the ratio of GDP per capita in Richland to GDP per capita in Poorland, using the market exchange rate? (2 points) (d) Calculate the PPP exchange rate between the two currencies. (3 points) (e) What is the ratio of GDP per capita in Richland to GDP per capita in Poorland using the PPP exchange rate? (3 points)

Explanation / Answer

a) Richland GDP= No. of comp*price of comp + No.of ice creams * price of ice cream = 12*2 + 4*4 = 40

Poorland GDP = 3*1 + 1*1 = 4

b)

For market exchange rate, nontraded goods should not be calculated. Ice cream should not be included.

Price of computer = 2 Richland = 1 Poorland

2 Richland dollars to 1 Poorland dollars

c)

GDP per capita Richland/ GDP per capita Poorland = 24/3 = 8

d) Basket of goods including non traded goods = 3 computers and 1 ice cream = 10 Richland currency= 4 Poorland currency

10 Richland dollars = 4 Poorland dollars using purchasing power parity

e) GDP Per capita Richland PPP/ GDP per capita Porland PPP = 40/4 = 10

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