Velocity in the country of Shem is always stable.In 2012,the money supply was $200 billion and the GDP price deflator was four times as high as it was in the base year.In 2013,the money supply increased to $240 billion,the price level increased by 15 percent,and nominal GDP equalled $1200 billion.By how much did real GDP increase between 2012 and 2013?
A)20 percent
B)4.35 percent
C)2.17 percent
D)0.45 percent

Question

Quizplus · Accepted Answer

To find the increase in real GDP, first calculate the real GDP for both years. In 2012, the price level was 4 times the base year, so the real GDP was $200 billion / 4 = $50 billion. In 2013, the price level increased by 15%, making it 4.6 times the base year. The real GDP in 2013 was $1200 billion / 4.6 = $260.87 billion. The increase in real GDP is ($260.87 billion - $50 billion) / $50 billion = 4.35%.

Velocity in the Country of Shem Is Always Stable