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(a) Between 2004 and 2009 GDP measured in current prices rose from $120 billion to $130...

(a) Between 2004 and 2009 GDP measured in current prices rose from $120 billion to $130 billion. Over the same period, the GDP deflator rose from 110 to 136. What was economic growth rate during this period?

(b) Provide two reasons why real GDP might under-estimate the actual production in the economy.

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Answer #1

B.

1) BECAUSE IT IS CALCULATED ON THE VALUES OF BASE YEAR PRICE

2 Underground economy: Oliver (2006) in his book ‘Macroeconomics’ states about the underground economy as follows: ‘Underground economy is the part of economic activity not measured in official statistics, either because the activity is illegal, or because firms and workers would rather not report it to avoid paying taxes – is an old issue in Spain

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