Question

Over the course of 10 years, a country's population doubles. During this time, its GDP increases from $10 trillion to $12 trillion. Pete, who lives in this country and buys the same goods and services every year, finds that he is still paying the same price for them. This implies that ________.

A) productivity in this country has decreased

B) purchasing power parity in this country has decreased

C) the country's workforce has more than doubled

D) Both A and B

Answer 1

Option A.

• Even though the population doubled over the course of 10 year's the price remained constant. This implies that the productivity in this country has decreased even though its GDP increased from $10 trillion to $12 trillion.
• The price's remain Same or constant for a longer period of time if the country's aggregate demand and aggregate supply do not equalize.
• This means that the price does not change with respect to the demand and supply conditions of the economy.
• Each firm individually contributes very little to the economy's output which decreases the overall productivity of a country as the price's of their goods and services respond slowly to the changes in supply and demand.