Economics ECO401?

Question

Question no 1:

a. Suppose an economy's real GDP is $50,000 in year 1 and $51,200 in

year 2. What is the growth rate of its real GDP?

b. Assume that population was 200 in year 1 and 202 in year 2 and real

GDP is $50,000 in year 1 and $51,200 in year 2. What is the growth

rate of GDP per capita?

(2+6)

Question no 2:

The following table shows nominal GDP and an appropriate price index for

a group of selected years. Compute real GDP.

Year Nominal GDP,BillionsPrice index(1996=100)Real GDP,

Billions

1989 527.4 22.19 $

1990 911.5 26.29 $

1991 2295.9 48.22 $

1992 4742.5 80.22 $

1993 8790.2 103.22 $

(Marks=5)

Question no 3:

What is the multiplier effect? What relationship does the MPC bear to the

size of the multiplier? (Marks=2)

Answer 1

1:

a)

Growth=51200/50000=1.024 = +2.4%

b) Per capita growth = (51200 / 202) / (50000 / 200) = 1.01386= +1.386%

2:

RealGDP=NominalGDP*100/Price Index

Year..Nominal GDP.. Price Ind...Real GDP(1996)

1989......527.4........... 22.19.....2376.75

1990......911.5........... 26.29.....3467.10

1991.....2295.9.......... 48.22.....4761.30

1992.....4742.5.......... 80.22.....5911.87

1993.....8970.2......... 103.22.....8690.37

3:

Multiplier= ΔY/ΔX = 1/(1-MPC)

http://en.wikipedia.org/wiki/Multiplier_...

Answer 2

a. Suppose an economy's real GDP is $50,000 in year 1 and $51,200 in

year 2. What is the growth rate of its real GDP?

Ans: (51200-50000)/50000=1200/50000=12/500=2.... 2.4%

b. Assume that population was 200 in year 1 and 202 in year 2 and real

GDP is $50,000 in year 1 and $51,200 in year 2. What is the growth

rate of GDP per capita

Ans: growth rate of Population=2/200=1/100=1%

growth rate of GDP= 2.4%

So, growrh rate in GDP per capita= (2.4-1)% = 1.4%

Question no 2:

The following table shows nominal GDP and an appropriate price index for

a group of selected years. Compute real GDP.

Please note that RealGDP=NominalGDP*100/Price Index

Year..Nominal GDP.. Price Ind...Real GDP

1989......527.4........... 22.19.....2376.75

1990......911.5........... 26.29.....3467.10

1991.....2295.9.......... 48.22.....4761.30

1992.....4742.5.......... 80.22.....5911.87

1993.....8970.2......... 103.22.....8690.37

Question no 3:

What is the multiplier effect? What relationship does the MPC bear to the

size of the multiplier? (

Mulyiplier  effect is the generation of additional Income or GDP due to an autonomous increse in expenditure from some source that goes in successive rounds as initial increase in expenditure leads to equal increase in income from which except for the savings part the consumtion expenditure increases which results in furyhjer increase in income, further increse in consumotion expenditure, further more increase in income and so on.

Size of the multiplier is the inverse of 1-mpc= 1/(1-mpc) where mpc is the marginal pro[pensity to consume.