Question

In: Economics

In May? 2013, the value of the Consumer Price Index? (CPI) in a certain? country, Polonia,...

In May? 2013, the value of the Consumer Price Index? (CPI) in a certain? country, Polonia, reached an? all-time high of 193 index points and per capita nominal GDP was ?$50900. In January? 1950, the CPI was at its lowest at 58 index points. Per capita nominal GDP in 1950 was ?$8000. Calculate real GDP per capita for 1950 by converting that? year's nominal GDP per capita into current? (2013) dollars. For? 1950, real GDP per capita? (in 2013? dollars) was ?$ ___________. ?(Round your response to one decimal place?.) For the people of? Polonia, life satisfaction was likely higher in ? 1950 or 2013? . The level of life satisfaction hinges on the correlation between happiness and real GDP per capita. Surveys done by social scientists indicate ? a weak positive relationship an indeterminate relationship or a robust positive relationship or a negative relationship between life satisfaction and real GDP per capita.?

Solutions

Expert Solution

The given information states that and per capita nominal GDP is $50900, and , while per capita nominal GDP was $8000. We know that nominal GDP is price level times quantities . The real GDP of that year would be the price of goods and services in current dollars. The real GDP of 1950 in current price level can be founded as, suppose , all we need to find is , where P2 is current price. Now, by the CPI, we have , ie or . Hence, or dollars. Hence, for 1950, real GDP per capita in 2013 dollars was $26620.8.

If current dollar is the measure for real GDP over time, then the current year's nominal GDP is indeed equal to the real GDP. Hence, comparing both, we can say that 1950's production was half than that of today. If the level of life satisfaction hinges on the correlation between happiness and real GDP per capita, then Polonia's life satisfaction is likely higher in 2013.


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