Polonia produces two goods - X and Y. The quantity produced of the two goods and their prices in two different years are given in the table below:
Year Good X Price Good X Quantity Good Y Price Good Y Quantity
1 $10 100 $12 250
2 $25 120 $22 300
i) Calculate the real GDP of Polonia in Year 2 taking Year 1 as the base year.
ii) What is the growth rate of Polonia's real GDP between Year 1 and Year 2?
i) Real GDP is the total value of a country's output using base year prices. In this case, the base year is Year 1. Therefore, real GDP of Polonia in Year 2 is 120 × $10 + 300 × $12 = $1,200 + $3,600 = $4,800.
ii) Polonia's real GDP for Year 1 is 100 × $10 + 250 × $12 = $1,000 + $3,000 = $4,000 and for Year 2 is $4,800. The growth rate of Polonia's GDP is ($4,800 - $4,000)/$4,000 = 0.2 or 20%.
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Holding money to meet unplanned expenditures and emergencies is known as
A) transactions demand. B) precautionary demand. C) asset demand. D) aggregate demand.