options: real output was____(4%,3.5%,%,2.5%) rate for nominal output was( 7%,8%,
ID: 1162499 • Letter: O
Question
options:
real output was____(4%,3.5%,%,2.5%)
rate for nominal output was( 7%,8%,5%,12%)
period is between ______( 5% and 6%, 1% and 2%, 3% and 4%, 4% and 5%, 2% and 3%)
If you start with a growth rate, you can use the rule of 70 to estimate the change in a variable. This question shows you that sometimes you can also do the reverse and use the rule of 70 to work back from changes in a variable to calculate the underlying rate of growth This table shows the two measures of output in the years 1950 and 1990. Nominal output is measured in current dollars. Real output is measured in constant 2005 dollars. Nominal Output (Billions of dollars) 313 5,846 Real Output (Billions of 2005 dollars) 2,084 7,982 1950 1990 In round numbers, real output doubled two times in the 40 years between 1950 and 1990, so it doubled every 20 years. This means that real output grew at a rate z that solves the equation 20-70/ z Over this 40-year period, the average annual rate of growth of real output was Between 1950 and 1990, nominal output increased by a factor of nearly 19, doubling more than four times. To simplify the calculation, assume that nominal output doubled exactly four times in 40 years, or doubled every 10 years. This would imply the annual growth rate for nominal output was First you used the rule of 70 to estimate the rate of growth of real output. Then you used it to estimate the rate of growth of nominal output. Now you can use these two estimates to construct an estimate of the inflation rate. The difference between the growth rate of nominal output and the growth rate of real output is the inflation rate. The resulting estimate of the average rate of inflation over this 40-year period is between per yearExplanation / Answer
Over this 40 year period, the average annual growth rate of real output was 70/20 = 3.5%.
To simplify the calculation .... This would imply the annual growth rate for nominal output was 70/10 = 7%.
The difference between the growth rate of nominal output and the growth of real output is the Inflation rate. The resulting estimate of the average rate of inflation over this 40 year period is between 3% and 4% per year.
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