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Last year Country A had a population of 16 million, nominal GDP of 480,000 million, and...

Last year Country A had a population of 16 million, nominal GDP of 480,000 million, and a GDP deflator of 120. Country B had a population of 10 million a nominal GDP of 400,000 million and a GDP deflator of 125. Which country is likely to have the higher standard of living?

A.Country B because it has the higher level of real GDP per person.

B.Country B because it has the higher level of nominal GDP per person.

C. Country A because it has the higher level of real GDP per person.

D.Country A because it has the higher level of nominal GDP per person.

An American company operates a coffeehouse in Lisbon, Portugal. Which of the following statements is accurate?

Use letters in alphabetical order to select options

A.The value of the goods and services produced by the coffeehouse is included in Portuguese GDP, but not in U.S. GDP.

B.The value of the goods and services produced by the coffeehouse is included in both Portuguese GDP and U.S. GDP.

C.The value added by American workers and equipment in Portugal is included in U.S. GDP and the value added by Portuguese workers and equipment is included in Portuguese GDP.

D.The value of the goods and services produced by the coffeehouse is included in U.S. GDP, but not in Portuguese GDP.

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Homework Answers

Answer #1

(Question 1) Option (A)

Real GDP (RGDP) = (Nominal GDP / GDP Deflator) x 100

RGDP, country A = (480,000 million / 120) x 100 = 400,000 million

RGDP, country B = (400,000 million / 125) x 100 = 320,000 million

RGDP per person = RGDP / Population

RGDP per person, country A = 400,000 million / 16 million = 25,000

RGDP per person, country B = 320,000 million / 10 million = 32,000

Since country B has higher RGDP per person, country B has higher standard of living. Note that standard of living is mostly measured by RGDP per person.

(Question 2) Option (A)

For US, output of the American company is Portugal is produced outside US. So value of this output is not considered in US GDP. But for Portugal, output of the American company is Portugal is produced within Portugal. So value of this output is considered in Portuguese GDP.

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