Real GDP equaled $9,191 billion in 2000 and $9,215 billion in 2001. Both figures are adjusted for changes in the value of the dollar using a chained price index with a base year of 1996.
Which of the following could explain the increase in real GDP in 2001?
A. The price level increased.
B. The number of new homes built decreased.
C. Inventories increased.
D. Imports increased.
Which of the following could explain the increase in real GDP in 2001?
(a) The price level increased.
(b) The number of new homes built decreased.
(c) Inventories increased.
(d) Imports increased.
(a) The price level increased.
(b) The number of new homes built decreased.
(c) Inventories increased.
(d) Imports increased.
You failed to state what the problem is asking.
Ignore the previous post.
The answer is c.
a. The GDP is adjusted already, so changes in the price level cannot account for its increase.
b. If the number of new homes built decreased, production decreased, which would lower GDP.
d. If imports increased, GDP would decrease, because GDP increases with net exports.
To determine which of the options could explain the increase in real GDP in 2001, we need to understand the factors that contribute to changes in GDP.
Real GDP measures the total value of goods and services produced in an economy adjusted for changes in the price level. In this case, the figures are adjusted using a chained price index, which means that the value of the dollar is taken into account.
Let's analyze each option and its potential effect on real GDP:
A. The price level increased: If the price level increased, it would mean that the same quantity of goods and services is being produced but at a higher price. This would not directly result in an increase in real GDP because real GDP adjusts for changes in the price level. So, option A is unlikely to explain the increase in real GDP.
B. The number of new homes built decreased: The number of new homes built is an indicator of investment in the economy. A decrease in the number of homes built would mean a decrease in investment, which could potentially lead to a lower real GDP. Therefore, option B is unlikely to explain the increase in real GDP.
C. Inventories increased: An increase in inventories could indicate that businesses are producing more goods than they are currently selling. An increase in inventories contributes to GDP, as it reflects investment in goods to be sold in the future. Therefore, option C is a potential explanation for the increase in real GDP.
D. Imports increased: Imports represent the goods and services that a country purchases from other countries. An increase in imports does not directly contribute to domestic production or GDP. In fact, an increase in imports might lead to a decrease in real GDP, as it implies a decrease in domestic production. Therefore, option D is unlikely to explain the increase in real GDP.
Based on the analysis, the most plausible explanation for the increase in real GDP in 2001 is option C: inventories increased.