Fig. 1 shows quarterly real GDP figures for the country of Norland. The national statistics office adjusts the figures for changes in the general price leve...
Question 1 Report
Fig. 1 shows quarterly real GDP figures for the country of Norland. The national statistics office adjusts the figures for changes in the general price level. Norland's government has set economic growth as an objective because several manufacturing firms are considering new investment. However, the finance minister wishes to avoid growth that depends only on household borrowing. The figures are published in billions of Norland dollars.
(a) Identify the quarter in which real GDP first exceeded $420 billion. [1]
(b) Calculate the percentage economic growth in real GDP between Q1 and Q4. Show your working. [2]
(c) Explain two likely benefits to Norland of sustained economic growth. [4]
(d) Which one of the following is most likely to make the GDP figure rise without increasing real output: a fall in unemployment, a rise in the price level, new factory production or higher labour productivity? [1]
Answer Details
(a) Real GDP first exceeded $420 billion in Q4. [1]
(b) [2]
\[\frac{424-412}{412}\times100=\frac{12}{412}\times100=2.91\ldots\%\]
Economic growth was 2.9% (accept 3%).
(c) Sustained growth increases output, which can raise firms' revenue and profits and encourage investment and employment. [4] Higher employment and incomes can reduce unemployment and raise living standards. Higher incomes and profits also raise tax revenue, allowing higher government spending or lower borrowing.
(d) A rise in the price level can make a GDP figure rise without increasing real output. [1] Real GDP removes price-level changes, which is why it is more useful for measuring actual output growth.
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