Question

1) In a given year the nominal growth rate is 7% with inflation and population growth rates of 2% and 1.2% respectively, then real growth rate of GDP per capita is:

A. 3.8%.

B. 5.0 %.

C. 5.8%.

D. 7.0 %.

2) You purchase a bag of chocolate chips for $3, a bag of flour for $1, a bag of sugar for $.50, a half dozen eggs for $.50, and a half pound of butter for $2. You use all these ingredients to make three dozen cookies. Your roommate offers you $15 for them, and you happily accept. How much does this process contribute to GDP?

A. $7

B. $15

C. $22

D. $8

Please show how to calculate.

Answer 1

(1)

the correct answer is (A) 3.8%

Formula:

Growth rate of (AB) = Growth rate of A + Growth rate of B --------------------------(1)

Growth rate of (A/B) = Growth rate of A - Growth rate of B --------------------------(2)

Real GDP = Nominal GDP/ Price level

=> Real GDP per capita = Real GDP/population = Nominal GDP/ (Price level*Population)

=> Growth rate of (Real GDP per capita) = Growth rate of (Nominal GDP/ (Price level*Population))

Using above formulas (1) and (2) we get:
Growth rate of (Real GDP per capita) = Growth rate of (Nominal GDP) - Growth rate of (Price) - Growth rate of population

Note : Inflation rate = Growth rate of (Price)

=> Growth rate of (Real GDP per capita) = 7% - 2% - 1.2%

= 3.8%

Hence, the correct answer is (A) 3.8%

(2)

The correct answer is (D) $8

Contribution to GDP = Value of Final Product - Total Intermediate Cost

Here Value of final Product = Value of three dozen cookies = $15

Total Intermediate cost = Cost of bag of chocolate + Cost of a bag of flour + Cost of bag of sugar + Cost of half dozen eggs + Cost of half pound of butter

=> Total Intermediate cost = 3 + 1 + 0.5 + 0.5 + 2 = 7

So, Contribution to GDP = Value of Final Product - Total Intermediate Cost

= 15 - 7

= $8

Hence, the correct answer is (D) $8