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Chapter 7: Q3. (page 282)

What business problems might China’s untrustworthy numbers create?

Short Answer

Expert verified

The untrustworthy figures can mislead the business forecasts and decisions, ultimately causing losses.

Step by step solution

01

Explanation

China was manipulating the figures for economic growth to make people believe the optimistic story of the government. However, these figures were untrustworthy for the citizens and businesses in China.

The manipulated figures could have led to misinformation, which creates a forecast bias. Wrong forecasts result in wrong implications and decisions.Thus, the businesses can suffer losses and face complete closures due to wrong choices.

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Most popular questions from this chapter

From 2010 to 2015, the price of electronic equipment fell dramatically and the price of housing rose dramatically. What are the implications of this in deciding whether to use 2010 or 2015 as the base year in calculating 2013 real GDP?

How do the three statistics that Li Keqiang cited fit into the three different ways to calculate GDP?

Assume there are only two goods in the economy, french fries and onion rings. In 2015, 1,000,000 servings of french fries were sold at 0.40eachand800,000servingsofonionringsat0.60 each. From 2015 to 2016 the price of french fries rose by 25% and the servings sold fell by 10%; the price of onion rings fell by 15% and the servings sold rose by 5%.

  1. Calculate nominal GDP in 2015 and 2016. Calculate real GDP in 2016 using 2015 prices.
  2. Why would an assessment of growth using nominal GDP be misguided?

Explain why the three methods of calculating GDP produce the same estimate of GDP.

Consider Table 7-3 but suppose that the market basket is composed of 100 oranges, 50 grapefruit, and 200 lemons. How does this change the pre-frost and post-frost price indexes? Explain. Generalize your explanation to how the construction of the market basket affects the price index.
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