Question

decreased/increased

-12.5% or 0.1% or 12.5% or 88.9% or 112.5%

5. Real versus nominal GDP Consider a simple economy that produces two goods: pens and erasers. The following table shows the prices and quantities of the goods over a three year period. Pens Erasers Price (Dollars per pen) Quantity (Number of pens) Price (Dollars per eraser) 150 Year 2018 2019 2020 Quantity (Number of erasers) 160 230 165 N 135 110 Use the information from the preceding table to fill in the following table. Nominal GDP (Dollars) Real GDP (Base year 2018, dollars) Year GDP Deflator 2018 2019 2020 From 2019 to 2020, nominal GDP and real GDP The inflation rate in 2020 was Why is real GDP a more accurate measure of an economy's production than nominal GDP? Real GDP indudes the value of exports, but nominal GDP does not. Real GDP is not influenced by price changes, but nominal GDP is. O Real GDP does not include the value of intermediate goods and services, but nominal GDP does

Answer 1

Solution:-

Nominal GDP:-

	Pens		Erasers		Nominal
Year	Price	Quantity	Price	Quantity	GDP
2018	1	150	2	160	(1 * 150 + 2 * 160) = 470
2019	2	135	4	230	(2 *135 + 4 * 230) = 1190
2020	3	110	4	165	(3 * 110 + 4 * 165) = 990

Real GDP:-

	Pens		Erasers		Real
Year	Price	Quantity	Price	Quantity	GDP
2018	1	150	2	160	(1 * 150 + 2 * 160) = 470
2019	2	135	4	230	(1 *135 + 2 * 230) = 595
2020	3	110	4	165	(1 * 110 + 2 * 165) = 440

GDP Deflator:-

2018:- 470 / 470 * 100 =100

2019:- 1190 / 595 * 100 = 200

2020:- 990/440*100 = 225

From 2019 to 2020, Nominal GDP decreased and Real GDP decreased.

The inflation rate in 2020 = 225-200/200*100

                                                   = 25/ 200 * 100

                                                   = 0.125 * 100

                                                   = 12.5%

Hence, the correct option is

• Real GDP is not influenced by price changes, but nominal GDP is.