Question

Q1 Look at the table labeled Lemonade and Cookies. Assuming that the economy produces only these two commodities, fill in the blanks on the answer sheet for the letters A to H in the paragraph below. Be sure to show your calculation (maximum one line for each). You may leave your answer as a fraction, rather than as a specific number. Table: Lemonade and Cookies Lemonade Cookies 2013 Output 200 glasses 100 cookies 2013 Prices $1 per glass $2 per cookie 2014 Output 300 glasses 100 cookies 2014 Prices $1 per glass $2.20 per cookie According to the table, nominal GDP in 2013 was [A], in 2014 it was [B]. Thus, the growth rate of nominal GDP from 2013 to 2014 was [C]. If 2013 is the base year, real GDP in 2013 was [D], and real GDP in 2014 was [E]. Thus, the real GPD grow by [F] %.

Answer 1

Nominal GDP 2013 = 200 $\times$ $ 1 + 100 $\times$ $ 2

Nominal GDP 2013 = $ 400

Nominal GDP in 2014 = 300 $\times$ $ 1 + 100 $\times$ $ 2.20

Nominal GDP in 2014 = $ 520

$520 - $400 Growth rate nominal GDP 2013 to 2014 = 30% $400

Base year 2013

Real GDP in 2013 = 200 $\times$ $ 1 + 100 $\times$ $ 2

Real GDP in 2013 = $ 400

Real GDP in 2014 = 300 $\times$ $ 1 + 100 $\times$ $ 2

Real GDP in 2014 = $ 500

$500 - $400 Real GDP growth rate from 2013 to 2014 = ? =25% $400