Consider an economy that only produces two goods: strawberries and cream

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Consider an economy that only produces two goods: strawberries and cream

Consider an economy that only produces two goods: strawberries and cream. Use the table below to compute nominal GDP real GDP and the GDP deflator for each year.

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Answer 1

Answer #1

Nominal GDP in 2014 = Price of Strawberries in 2014 * Quantity of Strawberries in 2014 + Price of cream in 2014 * Quantity of cream in 2014 = $1.00 * 100 + $3.00 * 200 = $100 + $600 = $700

Real GDP in 2014 = Nominal GDP in 2014 = $400 (2014 is the base year)

GDP Deflator in 2014 = 100 (Base year)

Nominal GDP in 2015 = Price of Strawberries in 2015 * Quantity of Strawberries in 2015 + Price of cream in 2015 * Quantity of cream in 2015 = $2.00 * 125 + $3.50 * 400 = $250 + $1,400 = $1,650

Real GDP in 2015 = Price of Strawberries in 2014 * Quantity of Strawberries in 2015 + Price of cream in 2014 * Quantity of cream in 2015 = $1.00 * 125 + $3.00 * 400 = $125 + $1,200 = $1,325

GDP Deflator in 2015 = (Nominal GDP in 2015/Real GDP in 2015) * 100 = ($1,650/$1,325) * 100 = 124.53

Nominal GDP in 2016 = Price of Strawberries in 2016 * Quantity of Strawberries in 2016 + Price of cream in 2016 * Quantity of cream in 2016 = $3.00 * 150 + $4.00 * 500 = $450 + $2,000 = $2,450

Real GDP in 2016 = Price of Strawberries in 2014 * Quantity of Strawberries in 2016 + Price of cream in 2014 * Quantity of cream in 2016 = $1.00 * 150 + $3.00 * 500 = $150 + $1,500 = $1,650

GDP Deflator in 2016 = (Nominal GDP in 2016/Real GDP in 2016) * 100 = ($2,450/$1,650) * 100 = 148.48

Year	Nominal GDP	Real GDP	GDP Deflator
2014	700	700	100
2015	1650	1325	124.53
2016	2450	1650	148.48

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Consider an economy that only produces two goods: strawberries and cream

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