In 1997, GDP in the tiny country of Lindora was $4 million and the price of a market basket of goods was $15. In 2011, GDP in Lindora was $5 million and the price of a market basket of goods was $35. Given this information, it is clear that Lindora GDP
had a higher level of production in 2011 than 1997. Evaluate this statement.
What will be an ideal response?
Whether or not the level of production in Lindora was higher in 2011 than 1997 depends on whether the GDP figures given are nominal or real GDP. If they are real GDP then production in 2011 is clearly higher than production in 1997. If the figures are nominal GDP, then we have to calculate the real GDP figures to be able to make an accurate comparison.
To calculate the real GDP for 1997, we use the market basket value for that year as the base year. Calculating the consumer price index, we find: 15/15 = 1 ? 100=100. So calculating the real GDP value for 1997 we find: 4 million/1 (price index in hundredths) = $4 million. Calculating the consumer price index for 2011, we find: 35/15=2.233 ? 100 = 223.3. To calculate real GDP for 2011, we find: $5 million/2.233 = 2.4 million. If the figures are nominal GDP figures, then real GDP in 1997 was higher than real GDP in 2011 in Lindora.
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A ________ exists when naturally occurring incentives encourage sufficient numbers of people to act in a way that makes everybody worse off
Fill in the blank(s) with correct word
The ATC rises whenever the
a. upward pull of the AVC is greater than the downward pull of the AFC. b. upward pull of the AFC is greater than the downward pull of the AVC. c. AVC is equal to the AFC. d. MC is above the AVC.
Is it possible to see gains in a nation's real standard of living without any positive economic growth?
A) No, a nation's standard of living cannot improve without economic growth. B) Yes, but only if the government prints more money so people feel rich. C) Yes, if workers can produce the same level of output in fewer work hours, so that more leisure time could push up the real standard of living. D) None of the above: Economic growth has nothing to do with a nation's standard of living.
When Bob's willingness to pay for a cup of coffee is $1, and the price of a cup of coffee is $1:
A. Bob will get the same surplus whether he purchases the coffee or not. B. Bob is indifferent about purchasing the coffee. C. Bob will get no surplus by purchasing the coffee. D. All of these are true.