Briefly explain the difference between the variables depicted by each of the two curves. (4 marks)...

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Briefly explain the difference between the variables depicted by each of the two curves. (4 marks) b. In which years shown was the level of GDP at current market prices at its highest and at its lowest? Briefly explain your answers. (4 marks) c. If the index value for GDP in 2005 was 100, estimate the index value for real GDP in XXXXXXXXXXmarks) d. Estimate real GDP growth over the period 2003 to XXXXXXXXXXmarks) e. Explain why the information which the diagram reveals about changes in living standards in this country, over the period shown, may be misleading. (14 marks) QUESTION 2 a. Explain how aggregate demand and productive capacity jointly determine the level of economic activity in a modern economy. (20 marks) b. Explain how the government and the banking system jointly determine the amount of money in a modern economy
	
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QF112V14-0

University of Reading BSc 
Final date for  
 
receipt at CEM: 
ECONOMICS 
Tuesday 
 
 10.00 a.m. (UK time)
 
28 May 2013
ASSIGNMENT 2 Module Code: F101ECO
 
There are THREE questions in this assignment. 
The overall word length for this assignment should be in the range of 2,600–3,400 
words. You may incur a penalty if you exceed the upper value. You must state the 
total number of words used at the end of your assignment; however, the content of 
appendices and references/bibliographies may be excluded from your word count.  
You must acknowledge in your assignment the sources of information that you have 
included using the Harvard system of referencing. Please refer to CEM’s guide on the 
VLE under ‘Study Skills’.  
Please note: Your assignment may be checked using anti-plagiarism software. 
Answer after studying Papers 9–17 and watching the DVD. 
Marks will not be given for copying large sections of the study material or textbooks. 
Use diagrams where appropriate.  
QUESTION 1 
The following chart gives information about a small industrialised country.

(Please turn over)Economics: Assignment 2    QF112    Page 2 
  
a. Briefly explain the difference between the variables depicted by each of the 
two curves. 
(4 marks) 
b. In which years shown was the level of GDP at current market prices at its 
highest and at its lowest? Briefly explain your answers. 
(4 marks) 
c. If the index value for GDP in 2005 was 100, estimate the index value for real 
GDP in 2009. 
(4 marks) 
d. Estimate real GDP growth over the period 2003 to 2012. 
(4 marks) 
e. Explain why the information which the diagram reveals about changes in 
living standards in this country, over the period shown, may be misleading. 
(14 marks) 
QUESTION 2 
a. Explain how aggregate demand and productive capacity jointly determine the 
level of economic activity in a modern economy. 
(20 marks) 
b. Explain how the government and the banking...

Robert · Accepted Answer

1.(a) The blue line represents the percent change in GDP at the market price while the black line represents the percent change in GDP at the 2005 price from 2003 to 2012. The first line measures the change in nominal GDP where the final goods and services are evaluated by the current year prices, while the second line represents the changes in real GDP which uses the prices of the base year 2005.
(b) The level of GDP at current market prices was highest in the year 2009 as the GDP at 
current market price increased consecutively from the year 2006 to 2009 and then it dropped after that. Similarly, the level of GDP at current market prices was lowest in the year 2006 as the percentage changes GDP was negative from 2004 to 2005 and then again from 2005 to 2006 but the change became positive in the year 2006.
(c) The index value of GDP at 2005 was 100. Real GDP decreased by around 9.5% in 2006, so real  GDP should be 90.5 in the year 2006. Following that the percentage change in real GDP was around 3% which means Real GDP in 2007 was 90.5*(1+.03)= 93.215. The percentage change in GDO in the year 2008 stood at around 7% which means real GDP should be 93.215*(1+.

Briefly explain the difference between the variables depicted by each of the two curves. (4 marks) b. In which years shown was the level of GDP at current market prices at its highest and at its...

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