Macroeconomics 11th Edition by Michael Parkin

Exercise 8

The Uses and Limitations of Real GDP
Use the news clip in Problem.
a. Why might China's recent GDP growth rates overstate the actual increase in the level of production taking place in China?
b. Explain the complications involved with attempting to compare the economic welfare in China and the United States by using the GDP for each country.
Problem
Use the following data to work Problem. An economy produces only apples and oranges. The base year is 2012, and the table gives the quantities produced and the prices.
GDP Expands 11.4 Percent, Fastest in 13 Years
China's gross domestic product grew 11.4 percent last year and marked a fifth year of doubledigit growth. The increase was especially remarkable given that the United States is experiencing a slowdown due to the sub-prime crisis and housing slump. Citigroup estimates that each 1 percent drop in the U.S. economy will shave 1.3 percent off China's growth, because Americans are heavy users of Chinese products. In spite of the uncertainties, China is expected to post its sixth year of double-digit growth next year.
Use the expenditure approach for calculating China's GDP to explain why "each 1 percent drop in the U.S. economy will shave 1.3 percent off China's growth."