Question

32. If real GDP increases from $14.8 trillion one year to $14.9 trillion in the next year, which will be true?

A) the GDP gap has probably become smaller

B) economic growth is below the long-term trend rate

C) economic growth is above the long-term trend rate

D) economic growth is about the same as the long-term trend rate

E) both A) and C)

Ans: B

Please explain the question.

Answer 1

Real GDP rate measures the Goods and services produced in a country in specific period of time adjusting the rate of Inflation.

Now coming to the question, the Real GDP increases from $14.8 Trillion one year to $14.9 Trillion in the next Year.

Let us take an example of UK the long run trend rate is approximately above 3%.

Step 1. Rate = (Final GDP-Initial GDP)Initial GDP

Step 2. Rate = (14.9-14.8)14.8 = 0.1014.8

Step 3. Rate in Percentage = (0.1014.8)100 = 0.67567.

Step 4. The rate of GDP growth is Below the long term trend.

The answer is (B) Economic Growth is below the long term trend rate.