Question

The country of Sylvania produces and consumes only three goods: Red Bull, pizza, and T-shirts. The quantity produced and price of each good in 2011 and 2012 are given in the following table:

	2011		2012
	Quantity	Price	Quantity	Price
T-Shirts	100	$25	110	$25
Red Bull (cans)	500	$1	500	$1.50
Pizza (slices)	1000	$2	900	$4

a. Calculate nominal GDP for 2011 and 2012.

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b. Using 2011 as the base year, calculate real GDP for 2011 and 2012.

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c. Based on your answer from part b, by what percent age did real GDP grow between 2011 and 2012?

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d. Now, calculate real GDP for 2011 and 2012 using 2012 as the base year.

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e. Based on your answer from part d, by what percent age did real GDP grow between 2011 and 2012?

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f. Using 2011 as die base year, what was the GDP deflator in 2011 and 2012?

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g. Based on your answer from part f, by what percentage did prices change between 2011 and 2012?

Answer 1

GDP or gross domestic product can be defined as the monetary value of all services and commodities that are used by consumers and are produced with in the country inclusive of taxes. It doesn’t include the value of intermediary goods.

It has a time dimension too. It is generally measured on yearly basis for any country.

Nominal GDP is the GDP calculated at current prices.

Only 3 goods red bull, T-shirts and pizza are produced and consumed by a country S.

a.

The quantity and prices of these 3 goods for two years 2011 and 2012 is given below:

	2011	2012
	Quantity	Price	Quantity	Price
T-shirts	100	$25	110	$25
Red Bull (cans)	500	$1	500	$1.50
Pizza (slices)	1000	$2	900	$4

The nominal GDP for year 2011 is calculated as shown below:

The nominal GDP for year 2012 is calculated as shown below:

b.

Real GDP is GDP calculated at base year prices.

Real GDP for year 2011 and 2012 using 2011 as base year is calculated as below:

The real GDP for year 2011 will be equal to the nominal GDP as calculated on 2011 year as shown below:

The real GDP for year 2012 calculated by using 2011 year as shown below:

c.

The growth rate of real GDP is calculated as shown below:

d.

Real GDP for year 2011 and 2012 using 2012 as base year is calculated as below:

The real GDP for year 2011 will be equal to the nominal GDP as calculated on 2012 year as shown below:

The real GDP for year 2012 calculated by using 2012 year as shown below:

e.

The growth rate of real GDP is calculated as shown below:

f.

The GDP deflator can be defined as a measure of price changes over a period of time. It is a fraction of nominal GDP to real GDP multiplied by hundred.

The formula for calculation of GDP deflator is given below:

The GDP deflator for year 2011 and 2012 by using 2011 can be calculated as shown below:

The value of GDP deflator for the base year is always equal to 100%

g.

To calculate the percentage change in prices calculate the percentage change in GDP deflator in year 2012.

The percentage change in GDP deflator is calculated as shown below:

The percentage change in prices between 2011 and 2012 is.

Answer 2

GDP or gross domestic product can be defined as the monetary value of all services and commodities that are used by consumers and are produced with in the country inclusive of taxes. It doesn’t include the value of intermediary goods.

It has a time dimension too. It is generally measured on yearly basis for any country.

Nominal GDP is the GDP calculated at current prices.

Only 3 goods red bull, T-shirts and pizza are produced and consumed by a country S.

a.

The quantity and prices of these 3 goods for two years 2011 and 2012 is given below:

	2011	2012
	Quantity	Price	Quantity	Price
T-shirts	100	$25	110	$25
Red Bull (cans)	500	$1	500	$1.50
Pizza (slices)	1000	$2	900	$4

The nominal GDP for year 2011 is calculated as shown below:

The nominal GDP for year 2012 is calculated as shown below:

b.

Real GDP is GDP calculated at base year prices.

Real GDP for year 2011 and 2012 using 2011 as base year is calculated as below:

The real GDP for year 2011 will be equal to the nominal GDP as calculated on 2011 year as shown below:

The real GDP for year 2012 calculated by using 2011 year as shown below:

c.

The growth rate of real GDP is calculated as shown below:

d.

Real GDP for year 2011 and 2012 using 2012 as base year is calculated as below:

The real GDP for year 2011 will be equal to the nominal GDP as calculated on 2012 year as shown below:

The real GDP for year 2012 calculated by using 2012 year as shown below:

e.

The growth rate of real GDP is calculated as shown below:

f.

The GDP deflator can be defined as a measure of price changes over a period of time. It is a fraction of nominal GDP to real GDP multiplied by hundred.

The formula for calculation of GDP deflator is given below:

The GDP deflator for year 2011 and 2012 by using 2011 can be calculated as shown below:

The value of GDP deflator for the base year is always equal to 100%

g.

To calculate the percentage change in prices calculate the percentage change in GDP deflator in year 2012.

The percentage change in GDP deflator is calculated as shown below:

The percentage change in prices between 2011 and 2012 is.