Chapter 11, Problem 2CYU

a)

To determine

The question requires us to determine the effect of a given incident on real GDP.

Explanation of Solution

An increase in the production of corvettes causes the level of production in the economy to rise. A higher level of production is an indication of the higher value of real GDP.

So, the value of real GDP will increase.

Economics Concept Introduction

Real GDP is the value of GDP calculated at the base year prices. It is the inflation-adjusted value of all final goods and services in a given year in an economy.

b)

To determine

The question requires us to determine the effect of a given incident on real GDP.

Explanation of Solution

GDP is the sum of consumer spending, investment spending, government spending, and net exports. An increase in consumer spending will increase the value of GDP in an economy, but the real growth in GDP will be compromised due to the presence of inflation.

So, real GDP will increase but partially caused by inflation.

c)

To determine

The question requires us to determine the effect of a given incident on real GDP.

Explanation of Solution

Spending on hurricane cleanup doesn’t raise the level of production because here the economy is not producing anything. So, the real value of GDP will remain the same.

d)

To determine

The question requires us to determine the effect of a given incident on real GDP.

Explanation of Solution

Spending 1000 hours on a neighbor watch doesn’t increase the level of production in an economy. People are not getting any compensation for their volunteer work. So, here the production will stay the same thus the real GDP will remain the same.