Question

Suppose the information in the following table is for a simple economy that produces only the following four goods: shoes, hamburgers, shirts, and cotton. Further, assume that all of the cotton is used to produce shirts. 2009 Statistics Quantity Price Quantity 2018 Statistics 2019 Statistics Product Shoes Hamburgers Shirts Cotton 110 $55.00 3.00 70 40.00 0.90 120 60 12,000 120 $70.00 3.00 35.00 0.75 Price Quantity Price 120 $75.00 3.50 85 35.00 0.80 85 135 12,000 13,000 a. f the base year is the year 2009, then real GDP for 2018 equals (round your answer to the nearest penny) and the real GDP for 2019 equals S(round your answer to the nearest penny). b. The (annual) growth rate of real GDP in 2019 is% (Enter your response as a percentage rounded to two decimal places.)

Answer 1

(a)

Base Year = 2009

It is provided that all cotton is used to make the shirts. This means that cotton is an intermediate good and intermediate goods are not taken in GDP as GDP includes only final goods and services.

So, cotton would not be taken while calculating the real GDP.

Calculate the real GDP for 2018 -

Real GDP = (Quantity of shoes in 2018 * Price of shoes in 2009) + (Quantity of hamburgers in 2018 * Price of hamburgers in 2009) + (Quantity of shirts in 2018 * Price of shirts in 2009)

Real GDP = (120 * $55) + (120 * $3) + (60 * $40)

Real GDP = $6,600 + $360 + $2,400

Real GDP = $9,360

The real GDP for 2018 equals $9,360

Calculate the real GDP for 2019 -

Real GDP = (Quantity of shoes in 2019 * Price of shoes in 2009) + (Quantity of hamburgers in 2019 * Price of hamburgers in 2009) + (Quantity of shirts in 2019 * Price of shirts in 2009)

Real GDP = (120 * $55) + (135 * $3) + (85 * $40)

Real GDP = $6,600 + $405 + $3,400

Real GDP = $10,405

The real GDP for 2019 equals $10,405.

(b)

Calculate the growth rate of real GDP in 2019 -

Growth rate = [(Real GDP in 2019 - Real GDP in 2018)/Real GDP in 2018] * 100

Growth rate = [($10,405 - $9,360)/$9,360] * 100

Growth rate = 11.16%

Thus,

The (annual) growth rate of real GDP in 2019 is 11.16%