Question

Lucitania produced the following in 2012, 2013, and 2014:

2012: 10 books priced at $10 each; 20 magazines priced at $5 each, and 100 newspapers priced at $1 each

2013: 11 books priced at $11 each; 22 magazines priced at $5.5 each, and 110 newspapers priced at $1.1 each

2014: 12 books priced at $12 each; 25 magazines priced at $5 each, and 105 newspapers priced at $0.9 each

The President of Lucitania gives a speech in which he says that due to his economic policies, the economy grew from 2012 to 2014. How do you respond? (Respond using sentences and use economic reasoning that demonstrates your understanding of economic growth calculations)

Answer #1

Let us calculate and compare the real GDP of 2012 and 2014. Let us take 2012 as the base year. While calculating real GDP, we consider the price of the base year and the quantity of the current year.

The real GDP in 2012 = 10 * $10 + 20 * $5 + 100 * $1 = $100 + $100 + $100 = $300

The real GDP in 2014 = 12 * $10 + 25 * $5 + 105 * $1 = $120 + $125 + $105 = $350

The % increase in the real GDP from 2012 to 2014 = (350 - 300)/300 * 100 = 50/300 * 100 = 16.67%

So, the economy grew by 16.67% from 2012 to 2014.

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