Imagine that an economy produces two goods, flashlights and fishing lures. In 2015, the economy produced 100 flashlights and 50 fishing lures, and the prices of flashlights and fishing lures were $5 and $11, respectively. In 2016, the economy produced 120 flashlights and 60 fishing lures, and the prices of flashlights and fishing lures were $7 and $14, respectively. respectively. What happened to nominal GDP from 2015 to 2016? What happened to real GDP?
What will be an ideal response?
Nominal GDP in 2015 was (100 × 5) + (50 × 11) = $1,050. In 2016 nominal GDP was (120 × 7) + (60 × 14) = $1,680. For real GDP, we calculate GDP for 2016 in 2015 dollars. 2016 GDP in 2015 dollars would be (120 × 5) + (60 × 11) = $1,260. So while nominal GDP increased by 60 percent, real GDP only increased by 20 percent.
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Suppose a paper mill earns $1,000,000 in profits when it pollutes a river, and it can abate pollution at a cost of $A. The effects of the pollution are confined to a single farmer who earns $400,000 if the water he uses from the river is clean and $300,000 if it's polluted. Which of the following expressions gives the combined profit of both firms with abatement?
A. $(1,300,000 - A) B. $(1,400,000 - A) C. $(700,000 + A) D. $(1,700,000 - A)
In a command economy, a planning agency sets prices for various inputs and final goods. In a market economy, supply and demand decide the prices of various goods. In both cases, there is a set of prices operating in the economy
Then why are market economies considered more efficient than planned economies?
Which of the following is most likely to lead to an inward shift of the aggregate demand curve?
a. A decrease in the prices of raw materials b. A decline in foreign price levels c. A decline in the domestic price level d. An optimistic expectation about the economy's performance in the near future e. A decrease in foreign income
The per-worker production function in the Solow model assumes
A. constant returns to scale and increasing marginal productivity of capital. B. constant returns to scale and diminishing marginal productivity of capital. C. decreasing returns to scale and diminishing marginal productivity of capital. D. increasing returns to scale and diminishing marginal productivity of capital.