Suppose we are looking at an economy that produces only toys. In 2009 the countr

Question

Suppose we are looking at an economy that produces only toys. In 2009 the country’s toy factories produced 8 million toys, which it sold on the international market for $10 per toy. In 2010 the country produced 10 million toys, which it sold for $14 per toy

Instruction: Enter your responses as whole numbers.
a) The percentage increase in the production of toys from 2009 to 2010 was  %.

b) The gross domestic product of this economy in 2009 was $  million.

The gross domestic product in 2010 was $  million. (Remember that GDP is the monetary value of the economy’s output, valued at the market price.)

c) The percentage increase in nominal GDP from 2009 to 2010 was  %.

d) Assume that the rate of inflation was equal to the rate of change of the price of toys. The growth rate of the economy from 2009 to 2010 was  %.

Explanation / Answer

a) The percentage increase in the production of toys from 2009 to 2010 was ((10-8)/8)*100 = 25 %. So there was 25% increase in production of toys from 2009 to 2010.

b) The gross domestic product of this economy in 2009 was $ (8*10) = $80 million.

c) The percentage increase in nominal GDP from 2009 to 2010 was ((140-80)/80)*100 = 75 %.

GDP in 2010 = $14* 10 = $140 million

d) Assume that the rate of inflation was equal to the rate of change of the price of toys. The growth rate of the economy from 2009 to 2010 was 1.875%.

rate of inflation = ((14-10)/10)*100 = 40 %

The growth rate of economy from 2009 to 2010 = growth in nominal GDP/ Growth in inflation = 75/40 =1.875.

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