Question

1.

Suppose that over the last twenty-five years a country's nominal GDP grew to three times its former size. In the meantime, population grew by 40 percent and prices rose by 100 percent. What happened to real GDP per person?

a. It more than doubled.

b. It increased, but it less than doubled.

c. it was unchanged.

d. It decreased.

the answer is b

2.

Suppose an increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events, the demand for tires

a. decreases, and the supply of tires increases.

b. is unaffected, and the supply of tires decreases.

c. is unaffected, and the supply of tires increases.

d. None of the above is necessarily correct.

the answer is D

3.

Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital and so less real GDP per person. Suppose that both increase their saving rate from 3 percent to 4 percent. In the long run

a. both countries will have permanently higher growth rates of real GDP per person, and the growth

rate will be higher in the country with more capital.

b. both countries will have permanently higher growth rates of real GDP per person, and the growth

rate will be higher in the country with less capital.

c. both countries will have higher levels of real GDP per person, and the temporary increase in

growth in the level of real GDP per person will have been greater in the country with more capital.

d. both countries will have higher levels of real GDP per person, and the temporary increase in

growth in the level of real GDP per person will have been greater in the country with less capital.

the answer is D

4.

An economy’s production function has the constant-returns-to-scale property. If the economy’s labor force doubled and all other inputs stayed the same, then real GDP would

a. stay the same.

b. increase by exactly 50 percent.

c. increase by exactly 100 percent.

d. increase, but not necessarily by either 50 percent or 100 percent.

the answer is D

I know all the answers to these questions but dont know the process. Could you tell me how to do it please. thanks!

Also, can you tell me the relationship between GDP with population and labor foce and what is real GDP per person.

thanks!!

Answer 1

1]

b. It increased, but it less than doubled.

Real GDP in the United States is five times as great as it was 50 years ago, yet GDP weighs almost the same as itdid a half century ago and the population has less than doubled.

Real GDP is essentially nominal GDP adjusted for inflation. As given that nominal GDP tripled and inflation doubled. So real GDP is about 1.5x what it was. Since population is 1.4x what it was previously, real GDP per capita increased by a little, but nowhere close to double.

2]

d. None of the above is necessarily correct.

An increase in rubber prices would normally decrease supply, while technological progress will generally increase supply, hence the net effect of both events is ambiguous. Also note that in partial equilibrium analysis demand would be unaffected, hence A is wrong. Thus D is the answer.

3]

D] both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

The real GDP will grow faster as the savings would be higher (C+S=C+I). As there is a diminishing returns to capital, the growth rate will be higher temporarily for the country with less captial

4]

An economy’s production function has the constant-returns-to-scale property. If the economy’s labor force doubled and all other inputs stayed the same, then real GDP would

d] increase, but not necessarily by either 50 percent or 100 percent.

For nearly 150 years, GDP per person in the US economy has grown at a remarkably steady average rate of around 2% per year. Starting at around $3,000 in 1870, per capita GDP rose to more than $50,000 by 2014, a nearly 17-fold increase.