Suppose that the British economy produces two goods: laptops and books. The quantity produced and the...

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Suppose that the British economy produces two goods: laptops and books. The quantity produced and the prices of these items f

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Answer 1

Answer #1

Nominal GDP = Sum of price of a good in the current year * Quantity of good in the current year

Real GDP = Sum of price of a good in the base year * quantity if good in the current year

Growth rate = (GDP2-GDP1)/GDP1 * 100

a.

Let price of books be P

As 2015 is base year, Given Real GDP in 2015 = 15000

Nominal GDP in 2015 = Real GDP of 2015 = 60*200 + 800 *P = 15000

P = (15000 - 12000) / 800 = 3.75

b.

Growth rate of Nominal GDP = 15%

Nominal GDP in 2016 = 15000 * 0.15 + 15000 = 17250

Let Books produced be B in 2016

Nominal GDP in 2016 = 70 *120 + B * 8 = 8400+B *8 = 17250

B = (17250 - 8400)/ 8 = 1106.25 = 1106 (Nearest Whole number)

c.

Real GDP in 2016 = 70 * 200 + 1106*3.75 = 18147.50

Growth rate in Real GDP = (18147.50 - 15000) / 15000 * 100 = 20.98% = 21.0%

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Answer 2

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