Assume that a painter produces 20 paintings this year and 20 paintings next year. What is the annual change in nominal GPD if the price of paintings rises from $1,000 this year to $1,500 next year? Can you conclude that the economy grew from this year
to next year based on your answer? Why?
What will be an ideal response?
The nominal GDP (price times quantity) in year 1 is $20,000 and the nominal GDP in year 2 is $30,000. The change in nominal GDP from the first year to the next is $10,000, but the level of output stayed constant at 20 paintings per year. The economy grew in nominal terms because the price of paintings went up. In reality, this economy did not produce more output in the second year so we can conclude that real growth did not take place from year 1 to year 2.
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According to Lucas' misperception theory, countries with higher rates of inflation should have a _____new classical AS curve
a. flatter. b. steeper. c. downward sloping d. vertical. e. none of the above.
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A. strong national defense B. strong currency C. strong titling system D. stable currency
When the demand for CDs rises, buyers will purchase more CDs at
A. all prices. B. some prices. C. no prices.