Let us use what we have learned in the first part of the chapter to compare living standards in the United States and a hypothetical country, Argonia, in 2008. The U.S. GDP in 2008 was approximately $14 trillion, and the U.S. population was approximately 300 million. What was the per capita GDP in the United States in 2008? Suppose that in the local currency, Argonian dollars, Argonia’s GDP in 2008 was 1 trillion, and its population was 10 million. What was Argonia’s GDP per capita in Argonian dollars? What problems do you foresee in comparing this number to the U.S. GDP per capita in U.S. dollars computed in part (a)? The Argonian dollar/U.S. dollar exchange rate was equal to 6 on January 1, 2008 (meaning that 1 U.S. dollar was worth 6 Argonian dollars) and reached 9 on August 1, 2008. Compute an exchange-rate-based measure of the GDP per capita in Argonia in U.S. dollars on these two dates. Do you think the change in Argonia’s exchange-rate-based measure of GDP per capita between these two dates reflects a true change in living standards?
Let us use what we have learned in the first part of the chapter to compare living standards in the United States and a hypothetical country, Argonia, in 2008.
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The U.S.
GDP in 2008 was approximately $14 trillion, and the U.S. population was approximately 300 million. What was the per capita GDP in the United States in 2008? -
Suppose that in the local currency, Argonian dollars, Argonia’s GDP in 2008 was 1 trillion, and its population was 10 million. What was Argonia’s GDP per capita in Argonian dollars? What problems do you foresee in comparing this number to the U.S. GDP per capita in U.S. dollars computed in part (a)?
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The Argonian dollar/U.S. dollar exchange rate was equal to 6 on January 1, 2008 (meaning that 1 U.S. dollar was worth 6 Argonian dollars) and reached 9 on August 1, 2008. Compute an exchange-rate-based measure of the GDP per capita in Argonia in U.S. dollars on these two dates. Do you think the change in Argonia’s exchange-rate-based measure of GDP per capita between these two dates reflects a true change in living standards?
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McDonald’s has a thriving business in Argonia and sold a Big Mac for 7 Argonian dollars in 2008, while at the same time, a Big Mac sold for $3.50 in the United States. Using this information, provide an alternative estimate of GDP per capita in Argonia. Would you trust this estimate better than the one based on exchange rates? Why or why not?
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