Answer to Question #159973 in Macroeconomics for NURUL KAMAL

Question

In the text, we calculated the change in real GDP in the hypothetical economy of Table 2-3 , using the prices of 2005. Calculate the change in real GDP between 2005 and 2010 using the same data but the prices of 2010 . Your answer should demonstrate that the prices that are used to calculate real GDP do affect the calculated growth rate, but typically not by very much.

Answer 1

The change in real GDP between 2005 and 2010 is a result of an increase in quantity of output produced, but not of an increase in prices which are fixed.

But the prices that are used to calculate real GDP affect the calculated growth rate typically not by very much.