Question

Question 4

The table below shows the real GDP (US$) for two countries in 2019.

Table 2

	Country A	Country B
GDP (constant 2010 US$)	4.6 million	3 million
Population	12,000	8,000
Total hours of employment	80,000	48,000

a) Based on the information provided in Table 2, analyse whether it is correct to assume that productivity and standard of living is higher in country A than country B. Workings has to be shown.                                                                                                                           (5 marks)

b) Generally, most economists agree that increases in money supply growth will increase inflation and that inflation has undesirable consequences. In this context, analyse and explain why hyperinflations persist and what should be done to end hyperinflations?   

                                                                                                                                    (5 marks)

Answer 1

ANS

No it is not correct to assume that standard of living in country A is higher than country B as GDP of country A is 4.6 million and that of counntry B is 3 million but per capita income of both nations according to the population is $383 for country A and $375 for country B the difference between the two is not much and the average working hours of country A is 6.6 hrs per person and that of country B is 6 hours per person . In one scenario country A has better per capita income than country B but on the other hand country A has lesser average working hours than country B and it seen that most of developed countries have less average working hours , so no final conclusion can be made with this much information.

ANS

Hyperinflation occurs when the rate of inflation rises over 50% and when this happens the prices of goods and services rises rapidly in an exponential manner and due to which the economy goes towards higher instability.The main reasons why hyperinflation persists when the ire is constant increase in money supply due to higher exports or by government policies or due to the policies of federal or reserve banks and due to limited resources the supply cannot oncrease and due to increase in money supply the demand of goods and services increase and due to which the prices of goods and services go higher and this consequence is also called demand driven inflation.There are many ways to solve the problem of hyper inflation and those can be increase in rate of interest of loans , increase in taxes ,reduce in government spending etc. can be used to reduce hyperinflation.