Velocity in the country of Shem is always stable. In 2009, the money supply was $200 billion and the GDP price deflator was four times as high as it was in the base year. In 2010, 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 2009 and 2010?
A)20 percent
B)4.35 percent
C)2.17 percent
D)There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

To find the real GDP increase, use the formula: Real GDP = Nominal GDP / Price Level. In 2009, the price level was 4 times the base year, and in 2010 it increased by 15%, making it 4.6 times the base year. Real GDP in 2010 = $1200 billion / 4.6 = $260.87 billion. In 2009, Real GDP = $200 billion / 4 = $50 billion. The increase is ($260.87 - $50) / $50 = 4.35%.

Velocity in the Country of Shem Is Always Stable