Could someone please explain what the answer to question 6 on this multiple choice paper is please? Thank you
Econ 2 multiple choice question? watch
- Thread Starter
- 14-04-2013 21:33
- Thread Starter
- 15-04-2013 08:11
Posted from TSR Mobile
- 15-04-2013 08:30
Current prices take no account of price increases over the years.
Rise in real GDP: (110 - 80)/ 80.
You can do the calculations.
- 15-04-2013 08:48
Firstly, when data is presented in index number form, you shouldn't confuse changes in index points with percentage changes
In the left hand column, nominal GDP rose by 50 index points, which is 62.5 % change. Statement B is therefore wrong.
Because the right-hand column tells us that inflation was positive over the data period, the % increase in real income must have been less than this. The inflation rate over the whole period was 37.5%. This means that the increase in real income was approximately 25% - (62.5% minus 37.5%) Real GDP therefore rose by less than 50%, so C is the correct answer.
Hope that make's sense!
- 15-04-2013 18:10
I agree with Zigggyy, above.
Also, if you are stuck on a multiple choice question then refer back to the examiners report - they always explain in good detail the questions that were statically found to be the hardest.
So for this question, the examiners report said...
This question proved to be more demanding than expected with a facility of less than 50 per
cent. Only 46.27 per cent of students selected the key C, with the distractors A, B and D
attracting 11.48, 16.26 and 25.19 per cent respectively. This pattern of responses shows a
serious weakness in students’ understanding of the difference between nominal and real
GDP and the calculation of real GDP. It also revealed a disappointing inability to calculate a
simple percentage. Distractor D states that nominal GDP rose by less than 50%. The index
number data given for nominal GDP shows an increase from 80 to 130 which by very simple
arithmetic is an increase of more than 50%. The change in real GDP is calculated by
comparing the percentage increase in nominal GDP with the associated increase in the price
level. Nominal GDP, measured by the index of GDP at current prices, increased by 62.5%
and the price level by 37.5% which translates into an increase in real GDP of less than 50%.