Suppose there is a very small country called Micro-opolis

Economics Apr 25, 2021

Suppose there is a very small country called Micro-opolis. It makes only two goods: cell phones and pears. Their prices and quantities are the following:

Price of pears Quantity of pears Price of cell phones Quantity of cell phones

2017 $2 100 $200 100

2018 $2.50 110 $225 110

2019 $3 145 $250 145

If 2017 is the base year, what is the growth in real GDP from 2018 to 2019?

Expert Solution

Computation of Growth in real GDP from 2018 to 2019:

Growth in real GDP from 2018 to 2019 = [(Real GDP in year 2019) - (Real GDP in year 2018)*100]/ (Real GDP in year 2018)

Here,

Real GDP in year 2018 = $2 * 110 + $200 * 110 = $220 + $22,000 = $22,220

Real GDP in year 2019 = $2 * 145 + $200 * 145 = $290 + $29,000 = $29,290

Growth in real GDP from 2018 to 2019 = [(29,290-$22,220)*100]/$22,220 = $7,070*100/$22,220 = 31.82%

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