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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

  1. If the price of a hot dog is $2 and the price of a hamburger is $4, then 30 hot dogs contribute as much to GDP as _____ hamburgers.
    1. a. 5
    2. b. 15
    3. c. 30
    4. d. 60

To determine

The contribution to GDP.

Answer

Option ‘b’ is correct.

Explanation

GDP is the summation of money value of all the goods and services that are produced by the country within its political boundary, within a financial year. Thus, it will take all the goods and services produced in a year in the country into account.

Here, we have given two commodities hotdogs and hamburgers. Both are commodities are produced by the economy, thus both are contributors to the GDP of the economy. The price of hotdogs is $2 and that of hamburgers is $4. We have to calculate how many hamburgers will equal the contribution of 30 hotdogs.

Option (b):

The quantity of hamburgers which equals the contribution from 30 hotdogs can be calculated by multiplying the 30 hotdogs with their per-unit price and dividing the product with the price of Hamburgers as follows:

Quantity of Hamburgers=Quantity of Hotdog×Per unit pricePer unit price of Hamburgers=30×24=604=15

Thus, 15 hamburgers contribute the same amount as 30 hotdogs. Since option ‘b’ gives the correct value equal to that of the calculated value, option ‘b’ is correct.

Option (a):

The price of hamburgers is twice as that of hotdogs. This means that the quantity of hamburgers required to contribute the same amount as 30 hotdogs will be half of the quantity of hotdogs, as calculated above. Thus, the required quantity of hamburgers is only 15. Since the value of 5, given in option ‘a’, is less than the actual calculated value, option ‘a’ is incorrect.

Option (c):

The price of hamburgers is twice as that of hotdogs. This means that the quantity of hamburgers required to contribute the same amount as 30 hotdogs will be half of the quantity of hotdogs, as calculated above. Thus, the required quantity of Hamburgers is only 15. Since the value of 30, given in option ‘c’, is twice of the calculated actual value, option ‘c’ is incorrect.

Option (d):

It is calculated that 15 hamburgers contribute the same to the GDP as 30 hotdogs. Here, the given value is 60, which is four times higher than the calculated value. This means that option ‘d’ is also incorrect.

Concept

Concept introduction:

GDP (gross domestic product): Gross domestic product refers to the value of total goods and services produced in the given period of time within the boundaries.

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