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Chapter 8: Q.18 (page 187)

Consider the diagram below, and answer the following questions.

a. What is the base year? Explain.

b. Has this country experienced inflation or deflation since the base year? How can you tell?

Short Answer

Expert verified

a. the base year is 2011.

b. It is correct. The country experienced inflation or deflation since the base year.

Step by step solution

01

Introduction

  • The rate at which prices grow over time is referred to as inflation. Inflation is typically described as a broad measure of price changes or increases in a country's cost of living.
  • Deflation happens when a country's total price levels fall, whereas inflation happens when prices rise.
  • Deflation can be caused by a boost in productivity, a decline in overall demand, or a fall in the quantity of credit available in the economy.
02

Explanation Part (a)

  • The graph shows that 2011 is the starting point.
  • The nominal GDP was lower than the real GDP between 2011 and 2016.
  • This demonstrates how the situation has affected the entire country.
  • The current year's price index was lower than the base year's index.
03

Explanation Part (b)

  • Between 2011 and 2016, the economy experienced deflation.
  • Genuine GDP and nominal GDP were equal in 2016 for the first time.
  • After 2016, there is a substantial increase in nominal GDP, implying that the economy is expanding but true GDP is decreasing.
  • It's important to remember that as nominal GDP rises, so does yearly GDP.

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Most popular questions from this chapter

In the first stage of manufacturing each final unit of a product, a firm purchases a key input at a price of \(4 per unit. The firm then pays a wage rate of \)3 for the time that labor is exerted, combining an additional \(2 of inputs for each final unit of output produced. The firm sells every unit of the product for \)10. What is the contribution of each unit of output to GDP in the current year?

Why might current intangible investments in recorded music by Katie Perry or Rihanna be harder to measure with greater precision today than long-past investments in the recorded music of, say, Elvis Presley in the 1960 s or Elton John in the 1970s? (Hint: Is it easier to project forward or to look back at past data?)

Suppose that U.S. consumption spending is \(13 trillion, gross private domestic investment is \)3.5 trillion, government spending is \(4 trillion, and net exports are \)0.5 trillion. If interest income is \(1 trillion, depreciation is \)0.5 trillion, wages are \(12 trillion, and rental income is \)0.75 trillion, what is the net domestic product?

Discuss the key components of national income.

Which of the following activities of a computer manufacturer during the current year are included in this year's measure of GDP?

a. The manufacturer produces a chip in June, uses it as a component in a computer in August, and sells the computer to a customer in November.

b. A retail outlet of the firm sells a computer completely built during the current year.

c. A marketing arm of the company receives fee income during the current year when a buyer of one of its computers elects to use the computer manufacturer as her Internet service provider.
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