Chapter 6, Problem 21TPS

Sub part (a):

To determine

The percentage change in the real GDP and price level from 1929 to 1933.

Answer to Problem 21TPS

Real GDP fell by 36% and price level fell by 27% : 9% per year fall in real GDP and 6.75% fall in prices per year.

Explanation of Solution

The percentage change in the real GDP can be calculated by subtracting the previous year real GDP from the present year and dividing it with the past real GDP and multiplying it with 100. Thus, the percentage change in the real GDP can be calculated as follows:

$\begin{array}{c}\text{Prcentage change in Real GDP}=\frac{{\text{Real GDP}}_{1933}-{\text{Real GDP}}_{1929}}{{\text{Real GDP}}_{1929}}\times 100\\ =\frac{206-323}{323}\times 100\\ =-0.36\times 100\\ =-36\end{array}$

Thus, the percentage change in the real GDP is by approximately -36 percent, which means the economy moved into trough.

The percentage change in the price level can be calculated in the similar way using the present and past price levels as follows:

$\begin{array}{c}\text{Prcentage change in Price level}=\frac{{\text{Price level}}_{1933}-{\text{Price level}}_{1929}}{{\text{Price level}}_{1929}}\times 100\\ =\frac{24-33}{33}\times 100\\ =-0.27\times 100\\ =-27\end{array}$

Thus, the percentage change in the price level is by approximately 27 percent which means it fell due to trough.

Per year fall in the real GDP can be calculated by dividing the total change by the number of years. The total change is calculated to be by 36 percent and the number of years is 4. Thus, by dividing the total change by number of years, it will give the value as 9 percent. Similarly, the total change in the price level is by 27 percent and dividing it with 4 gives the per year fall in the price level as 6.75 percent.

Economics Concept Introduction

Concept introduction:

Gross Domestic Product: The Gross Domestic Product is the money value of all the final goods and services produced within the domestic territory of the nation in a financial year.

Sub part (b):

To determine

The percentage change in the real GDP and price level from 1933 to 1945.

Answer to Problem 21TPS

Real GDP increased by 189% and price level increased by 58% : 15.75% per year rise in real GDP and 4.83% rise in prices per year.

Explanation of Solution

The percentage change in the real GDP can be calculated by subtracting the previous year real GDP from the present year and dividing it with the past real GDP and multiplying it with 100. Thus, the percentage change in the real GDP can be calculated as follows:

$\begin{array}{c}\text{Prcentage change in Real GDP}=\frac{{\text{Real GDP}}_{1945}-{\text{Real GDP}}_{1933}}{{\text{Real GDP}}_{1933}}\times 100\\ =\frac{596-206}{206}\times 100\\ =1.89\times 100\\ =189\end{array}$

Thus, the percentage change in the real GDP is by approximately 189 percent.

The percentage change in the price level can be calculated in the similar way using the present and past price levels as follows:

$\begin{array}{c}\text{Prcentage change in Price level}=\frac{{\text{Price level}}_{1945}-{\text{Price level}}_{1933}}{{\text{Price level}}_{1933}}\times 100\\ =\frac{38-24}{24}\times 100\\ =0.58\times 100\\ =58\end{array}$

Thus, the percentage change in the price level is by approximately 58 percent.

Per year fall in the real GDP can be calculated by dividing the total change by the number of years. The total change in the real GDP calculated to be by 189 percent and the number of years is 12. Thus, dividing the total change by number of years will give the value as 15.75 percent. Similarly, the total change in the price level is by 58 percent and dividing it with 12 gives the per year fall in the price level as 4.83 percent.

Economics Concept Introduction

Concept introduction:

Gross Domestic Product: The Gross Domestic Product is the money value of all the final goods and services produced within the domestic territory of the nation in a financial year.

Sub part (c):

To determine

The percentage change in the real GDP and price level from 1870 to 1900.

Answer to Problem 21TPS

Real GDP increased by 244% and price level fell by 27% : 8% per year rise in real GDP and 0.93% fall in prices per year.

Explanation of Solution

The percentage change in the real GDP can be calculated by subtracting the previous year real GDP from the present year and dividing it with the past real GDP and multiplying it with 100. Thus, the percentage change in the real GDP can be calculated as follows:

$\begin{array}{c}\text{Prcentage change in Real GDP}=\frac{{\text{Real GDP}}_{1900}-{\text{Real GDP}}_{1870}}{{\text{Real GDP}}_{1870}}\times 100\\ =\frac{124-36}{36}\times 100\\ =2.44\times 100\\ =244\end{array}$

Thus, the percentage change in the real GDP is by approximately 244 percent.

The percentage change in the price level can be calculated in the similar way using the present and past price levels as follows:

$\begin{array}{c}\text{Prcentage change in Price level}=\frac{{\text{Price level}}_{1900}-{\text{Price level}}_{1870}}{{\text{Price level}}_{1870}}\times 100\\ =\frac{16-22}{22}\times 100\\ =-0.27\times 100\\ =-27\end{array}$

Thus, the percentage change in the price level is by approximately - 27 percent.

Per year fall in the Real GDP can be calculated by dividing the total change by the number of years. The total change in the real GDP calculated to be by 244 percent and the number of years is 29. Thus, dividing the total change by number of years will give the value as around 8 percent. Similarly, the total change in the price level is by -27 percent and dividing it with 29 gives the per year fall in the price level as -0.93 percent.

Economics Concept Introduction

Concept introduction:

Gross Domestic Product: The Gross Domestic Product is the money value of all the final goods and services produced within the domestic territory of the nation in a financial year.