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Examples in National Income Changes With International Trade

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1.Assume last year's real GDP was $7,000 billion, this year's nominal GDP is $8,820 billion, and the GDP-deflator for this year is 120. What was the growth rate of real GDP? Does this show an improvement in economic welfare?

2.Suppose the value of the French Franc in terms of the dollar is 50 on October 12 , and 44 on October 17.

By how much has the Franc appreciated or depreciated against the dollar?

3.Suppose the Value of French Franc in terms of the dollar is 40 on October 12 and 45 on October 17.

By how much has the Franc appreciated or depreciated against the dollar?

4. A --------------------in the exchange rate makes imported goods and services more expensive in the US. Producers may then pass on higher costs of imported components and raw materials onto consumers. This causes extra --------------- ----------------- inflation (identify the type of inflation to fill in the blank). Wages may rise in response to this, thus triggering off the possibility of a wage-price spiral.

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1. GDP is the value of all goods and services produced, and hence depends on the price level. If last year's GDP was $7000 billion, and there is no mention of the year's price level you can safely assume that last year was the base year. In the base year the deflator is always 100, and real GDP is equal to nominal GDP.

The formula is

Real GDP = (Nominal GDP/Deflator)*100

So for current year use the same formula, to get Real GDP = (8820/120)*100

Once you have the real GDP for the current year there are two ways to find the growth rate. The simpler one is you just find the difference and ...

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