Question

Needed clear explaination for (d) and (e)

Question 1. National Income Accounting (45 marks) Consider an economy where only three types of vehicles are produced and sold, namely: Tesla, GM and BMW. The following table shows the quantity sold (in millions) and the price per unit of each vehicle: 2011 40 S3 200 $2 12 $4 2012 2013 50 $4.50 210 $4 13 $7 2014 2015 Tesla GM Quantity produced and sold BMW Quantity produced and sold Quantity produced and sold Price per unit Price per unit Price per unit $4 200 3.75 12 S5 300 S5 S2.50 S2.50 17 20 Copy and paste the above table in excel to conduct the computations for each question Present your results clearly in a table as they apply to each question a) Compute the yearly total value for each vehicle and the yearly nominal GDP for the economy. What is the growth rate in nominal GDP for each year? b) Assume 2012 is the base year. Compute the yearly real GDP for the economy. What is the growth rate in real GDP for each year? Compare this growth rate to the nominal GDP growth rate c) Compute the GDP deflator for each year. What is the yearly change (in percentage terms) in the overall price level relative to the base year? d) Would you say that the growth rate in nominal GDP for each year is due more to the increase in the physical volume of output or the increase in prices? e) From 20 to 2012, the price per unit of the three vehicles increased but the quantities did not. However, from 2014 to 2015, the quantities changed but the price per unit of each good did not change. In which case would you say that an average resident of this economy was better off? Explain briefly

Answer 1

d) The Nominal GDP for each growth rate is due to both increase in prices and increase in the output. From the abpab table it is clear that in 2011 and 2012 the output is constant but the price increase, so for those two years the growth rate in Nominal GDP is due to increase in prices. From 2013-2015 the price either remain constant or declined but in physical output there is an increase, so in those years the nominal GDP increase due to increase in Output.

So nominal GDP growth rate can be due to increase of price and output.

e) The consumer will have a better off when the price of the good is either constant or declining and the output is increasing for that price. This is a better off because the consumer pay same amount for good every year but the quantity that he will get every year for same price is increasing which means at he is getting more quantity at less price. So for a consumer always increase in quantity at a less price is a better off.