Consider a simple economy that produces two goods: apples and envelopes. The following table shows the prices and quantities of the goods over a three-year period.

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Question

Consider a simple economy that produces two goods: apples and envelopes. The following table shows the prices and quantities of the goods over a three-year period.

Use the information from the previous table to fill in the following table.

From 2015 to 2016, nominal GDP _______, and real GDP _______.

The inflation rate in 2016 was _______.

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.
Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.
Real GDP is not influenced by price changes, but nominal GDP is.

business economics

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Answer 1

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Answer #1

Nominal GDP = Sum of the price of a good in the current year * Quantity of good in the current year

Real GDP = Sum of the price of a good in the base year * quantity if good in the current year

GDP Deflator = Nominal GDP/Real GDP * 100

Inflation = (GDP Deflator of the current year - GDP Deflator of the previous year)/ GDP Deflator of the previous year * 100

Now for yr 2014

Nominal GDP = 2*125 + 3*155 = 715

Real GDP = 2*125 + 3*155 = 715

GDP Deflator = 715 / 715 * 100 = 100

Now for yr 2015

Nominal GDP = 4*135 + 3*210 = 1170

Real GDP = 2*135 + 3*210 = 900

GDP Deflator = 1170 / 900 * 100 = 130

Now for yr 2016

Nominal GDP = 2*125 + 3*165 = 745

Real GDP = 2*125 + 3*165 = 745

GDP Deflator = 745 / 745 * 100 = 100

From 2015 to 2016 nominal GDP Decrease and Real GDP decreases

Inflation in 2016 = (100-130)/130 * 100 = -23.07%

Third option is correct i.e. Real GDP is not influenced by price changes but Nominal GDP is

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Answer 2

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Consider a simple economy that produces two goods: apples and envelopes. The following table shows the prices and quantities of the goods over a three-year period.

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Consider a simple economy that produces two goods: apples and envelopes. The following table shows the prices and quantities of the goods over a three-year period.

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Consider a simple economy that produces two goods: apples and envelopes. The following table shows the prices and quantities of the goods over a three-year period.