Question

2. An economy produces 5 goods. The quantities produced and the prices of the 5 goods in year 1 and year 2 are shown below: Good A Good B Good C Good D Good E Year 1 Pi Q 30 100 50 200 20 300 80 100 0 100 Year 2 P2 Q2 32 100 49 210 21 295 82 110 40 95 (a) Let year 1 be the base year (i) Calculate the nominal GDP and real GDP in year 1 and year (ii) Calculate the percentage changes from year 1 to year 2 in nominal GDP and real GDP. (b) Calculate the equal-weighted diffusion index of (i real GDP in year 2 (ii) nominal GDP in year 2

Answer 1

Nominal GDP Yearl Year2 P2 32 P101 3000 10000 6000 8000 4000 31000 Q2 100 210 295 110 95 P1 01 P202 Good A 30 Good B 50 Good C 20 Good D 80 Good E 40 100 100 49 21 82 10290 6195 9020 3800 32505 300 100 Nominal GDP in Year 1 31000 Nominal GDP in Year 2 3250

Real GDRP For calculating Real GDP for year 2, we shall keep the prices from yearl constant i.e. P1 Q2 Yearl Year2 P2 32 01 Q2 100 210 295 110 95 P1 Good A 30 Good B 50 Good C 20 Good D 80 Good E 40 100 P101 3000 10000 6000 8000 4000 31000 P102 3000 10500 5900 8800 3800 100 49 21 82 300 100 Real GDP In Year1 31000 Real GDP in Year2 32000 Answer A (2) % change formula = [(Nominal GDP in Year2-Nominal GDP in Year!)/ (Nominal GDP in Year!】 100