Question

Circle the letter that correspond the best suitable answer:

The table below contains data for a country, which produces only X and Y.

The base year is 2010.

Year	Price of X	Q of X	Price of Y	Q of Y	N GDP	R GDP	Def
2010	$3.00	90	$1.00	150
2011	$4.00	100	$2.00	180
2012	$5.00	120	$3.00	200

For an economy as a whole,

a.	wages must equal profit.
b.	consumption must equal saving.
c.	income must equal expenditure.
d.	the number of buyers must equal the number of sellers.

Answer 1

It shall be noted that NGDP stands for Nominal GDP

It shall be noted that RGDP stands for Real GDP

Also, Def stands for GDP Deflator

Nominal GDP of a YEAR (YEAR=y) = (Price of Good X in Year y * Quantity of Good X in Year y) + (Price of Good Y in Year y * Quantity of Good Y in Year y)

It is given that Base year is 2010

Real GDP of a YEAR (YEAR=y) = (Price of Good X in the Year 2010 * Quantity of Good X in Year y) + (Price of Good Y in the Year 2010 * Quantity of Good Y in Year y)

Thus, GDP Deflator = (Nominal GDP/ Real GDP)*100

Hence, the complete table is:

Year	Price of X	Q of X	Price of Y	Q of Y	N GDP	R GDP	Def
2010	3	90	1	150	420	420	100
2011	4	100	2	180	760	480	158.33
2012	5	120	3	200	1200	560	214.29

It shall be noted that for an economy as a whole, it is the income that must equal expenditure.

According to the circular flow of income, GDP measured as per income approach should equal GDP measure as per the expenditure approach.

Hence, the correct answer is:

c.	income must equal expenditure.