1. Consider a country that produces only two products: computers and motorcycles
ID: 1150431 • Letter: 1
Question
1. Consider a country that produces only two products: computers and motorcycles. Sales and price data for these two products for two different years are as follows: Number of Computers Number of Price per Motorcycles $6,000 s2,000 1,500,000 Price per Motorcycle $12,000 Year Sold 2008 500,000 Computer Sold 1,000,000 2018 5,000,000 $20,000 a. Calculate the percentage change in real GDP between 2008 and 2018 using 2008 as the base year b. Calculate the percentage change in real GDP between 2008 and 2018 using 2018 as the base year. c. Explain why your answers to Parts c and e are different.Explanation / Answer
(a) Real GDP in 2008 = ($6,000 * 500,000) + ($12,000 * 1,000,000)
= $3,000,000,000 + $12,000,000,000
= $15,000,000,000
Real GDP in 2018 = ($6,000 * 5,000,000) + ($12,000 * 1,500,000)
= $30,000,000,000 + $18,000,000,000
= $48,000,000,000
Percentage change in real GDP = [(48,000,000,000 - 15,000,000,000) / 15,000,000,000] * 100 = 220%
(b) Real GDP in 2008 = ($2,000 * 500,000) + ($20,000 * 1,000,000)
= $1,000,000,000 + $20,000,000,000
= $21,000,000,000
Real GDP in 2018 = ($2,000 * 5,000,000) + ($20,000 * 1,500,000)
= $10,000,000,000 + $30,000,000,000
= $40,000,000,000
Percentage change in real GDP = [(40,000,000,000 - 21,000,000,000) / 21,000,000,000] * 100 = 90.48%
(c) The answers are differents becauses real GDP is the value of goods and srevices evaluated at base year price. Since base year prices are different, thats why answers are different,
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