Question

1) Considering that Germany has a huge trade surplus, who has likely gained from having trade as opposed to international trade being banned?

a. Domestic consumers

b. Domestic producers

c. Government

d. Domestic consumers and domestic producers

2) Suppose we have the country of Carrieopolis with the following prices and quantities:

                   P of Laptops   P of Tablets   # of Laptops   # of Tablets

2017 $100               $100 200 200

2018 $120               $120 230 230

2019 $200              $200 350 350

If the base year for prices is 2017, what is the CPI for the year 2018?

a. 60

b. 91

c. 100

d. 120

3) Using the information from the previous problem, what is the annual real GDP growth for 2019?

a. 10%

b. 30.4%

c. 52.2%

d. 75%

Answer 1

1. Ans: Domestic consumers

Explanation:

When there is free trade, world price of the good will be less than the domestic equilibrium price. So, consuner surplus increases. Thus, consumers have likely gained from having trade.

2. Ans: 120

Explanation:

Let, the base year (2017) quantity consists of fixed basket of goods.

Cost of basket of goods in 2017 = ($100 * 200) + ($100 * 200) = 20,000 + 20,000 = 40,000

Cost of basket of goods in 2018 = ($120 * 200) + ($120 * 200) = 24,000 + 24,000 = 48,000

CPI in 2017 = (40,000 / 40,000) * 100 = 100

CPI in 2018 = (48,000 / 40,000) * 100 = 120

Thus, the CPI for the year 2018 is 12.

3. Ans: 52.2%

Explanation:

Nominal GDP in 2017 = ($100 * 200) + ($100 * 200) = 20,000 + 20,000 = 40,000

Real GDP in 2017 = ($100 * 200) + ($100 * 200) = 20,000 + 20,000 = 40,000

Nominal GDP in 2018 = ($120 * 230) + ($120 * 230) = 27,600 + 27,600 = 55,200

Real GDP in 2018 = ($100 * 230) + ($100 * 230) = 23,000 + 23,000 = 46,000

Nominal GDP in 2019 = ($200 * 350) + ($200 * 350) = 70,000 + 70,000 = 140,000

Real GDP in 2019 = ($100 * 350) + ($100 * 350) = 35,000 + 35,000 = 70,000

Real GDP growth for 2019 = [70,000 - 46,000) / 46,000] * 100 = 52.2%