Question

Suppose country A produces 3 goods only; textbooks, computers and cell-phones. The total production and prices of all goods are given in the following table. Year 2000 is the base year.

Item	2000		2001		2002
	Price	Quantity	Price	Quantity	Price	Quantity
Textbooks	$200	12	$250	16	$400	14
Computers	$1,000	5	$1,200	9	$1,500	7
Cell-phones	$600	10	$650	15	$800	12

1. Explain why real GDP decreased between 2001 and 2002.
2. Without calculations, explain why nominal GDP increased between 2001 and 2002.
3. Calculate the inflation rate between 2000 and 2002.
4. Suppose students resold their textbooks. Will this affect GDP? Explain.

Answer 1

1.

As we all know that real GDP is calculated from the base year and here thegiven base year is 2000

So price will be fixed of 2000

Now we can see that if we compare the year 2001 and 2002 with fix price then the value of quantity total is less in 2002 as compared to 2001

So real GDP decreased between 2001 and 2002

1) RG OP LOUD P2000 x 9 2000 fixed always 2008 12 t looox 5 + foodlo - 2400 + 5000 t 6000 = $13400 Rapp 2001 = Prow xq 2001 - 200 x 16t 1000 x 9 + Gooxis = 3200t gooo t gooo $21200 RG PP 2002 P2000 x 92001 = 200x14+ 1000 x 7 t Goox 12 = 2800t 7ooo f 7200 = $17000 → So Rapp decreased from $21200 to $17000

Nominal Gap is Calculated for the Corrent -NGpp 2001 - Rool x 9 2001 = 250x16 to 1200 xgt 650x15 Youot 18800 + 9750 $24550 NGOP 2002 P2000 & 92002 yourly + 15000 7 + 800-x12 a 5600 + 10500 + 9600 - $25700 Now NGOR s Gispalle flator (Good) X100 Roop Gopd 2008 NGPP 2000 Jx100 RGpp 2000 = /13400 Xloo 113400 loo (base year)

Gppd 2002 NGRP2002 RAPP2002 Xloo 25700 X100 17000 = 151.17 r. Inflation of change in Gunp deflator Rate (IR) (2000-02) 151.17 - 100 Xloo loo IR 51.171. (1)

3.

GDP only includes the production value of final goods and services that is done within the domestic boundary of a country in a financial year

It does not include the black market, reselling of product, reuse the product etc

Here the student are we selling their textbook

So it will not affect the GDP