Answer to Question #46274 in Macroeconomics for Coleine

Question

1.The global economic downturn since 2008 has affected the Jamaican economy and the general question from the Jamaican people is that when will the economy recover from the recession. To find an answer to the state of the economy’s health, a television reporter interviews Mr. Carter, a local car dealer. Mr. Carter said “I do not see any recovery. In the third quarter of this year we sold more cars compared to the second quarter but sales in these two quarters were far below that in the first quarter.”
a. Is Mr. Carter correct?
b. Are these observations consistent with the peak, recession, trough or recovery phase of the
business cycle?

Suppose you borrow $10,000 from a NCB at 5% interest rate for one year and the inflation rate for that year is 10%.
c. Was this loan advantageous to you or to the bank?

2. Why is growth in GDP different from growth in a nation's standard of living? Is it possible for
a nation's GDP to grow while its standard of living falls?

Answer 1

1. “I do not see any recovery. In the third quarter of this year we sold more cars compared to the second quarter but sales in these two quarters were far below that in the first quarter.”
a. Is Mr. Carter correct? No, he was not correct.
b. Are these observations consistent with the peak, recession, trough or recovery phase of the business cycle? These observations are consistent with the recovery phase of the business cycle.
Suppose you borrow $10,000 from a NCB at 5% interest rate for one year and the inflation rate for that year is 10%.
c. Was this loan advantageous to you or to the bank? The loan is advantageous, because the inflation will cover the interest.
2. Why is growth in GDP different from growth in a nation's standard of living? Is it possible for a nation's GDP to grow while its standard of living falls? Nominal GDP may grow, but the standart of living may fall. Usually, GDP per capita is used to show a nation's standard of living.