Question

Question B.1: National Accounts [28 points] Consider a world that consists of only two countries, A and B, that trade with each other The countries use a common currency, so nominal variables are comparable across countries. The total production of these countries is summarized in the following tables Country A Apples Country B Apples Oranges Peaches year year uant ice quant rice uant ice quant ice 2014 1.000 $0.90500$2.00 2015 1.200 $1.00550$2.00 2014 2,000 $0.90500 $3.00 2015 1,900 $1.00 600 $3.50 a) Calculate nominal GDP for these countries for both years b) Calculate real GDP in 2015 prices for both countries and both years c) Find the growth rate of real GDP and the inflation rate (as measured by the GDP deflator) for both countries d) The following tables contain information on the components of nominal GDP in 2015 in both counties. Fill in the missing numbers Countrv A Country B GDP Consumption Investment GDP Consumption Investment $1,800 $0 S0 Government Spending $400 Government Spending $1,000 Exports Exports Imports e) In 2015, country A had a nominal GNP of $2,400. Briefly explain the difference f) The consumption basket of a typical household in country A consists of 10 apples, 6 g) These two countries are closely integrated economically, so that the prices of all $100 Imports between GNP and GDP. What was the nominal GNP of country B in that year? oranges and 3 peaches. Calculate CPI inflation in country A goods are always the same in both countries (see e.g. the price of apples in the table above). Does this mean that CPI inflation is necessarily the same in both counties? Explain.

Answer 1

1) Nominal GDP:

Country A: Year- 2014 $1,900; Year-2015 $2,300

Country B: Year 2014 $3,300 ; Year-2015 $4,000

Working:

		Quantity	Price	Amount
Year - 2014	Apples	1,000	0.9	900
	Oranges	500	2	1000
				1900
		Quantity	Price	Amount
Year - 2015	Apples	1,200	1	1200
	Oranges	550	2	1100
				2300
		Quantity	Price	Amount
Year - 2014	Apples	2,000	0.9	1800
	Oranges	500	3	1500
				3300
		Quantity	Price	Amount
Year - 2015	Apples	1,900	1	1900
	Oranges	600	3.5	2100
				4000

2) Real GDP:

Country A: Year- 2014 $1,900; Year-2015 $2,180

Country B: Year 2014 $3,300; Year-2015 $3,510

Working:

		Quantity	Price	Amount
Year - 2014	Apples	1,000	0.9	900
	Oranges	500	2	1000
				1900
		Quantity	Price	Amount
Year - 2015	Apples	1,200	0.9	1080
	Oranges	550	2	1100
				2180
		Quantity	Price	Amount
Year - 2014	Apples	2,000	0.9	1800
	Oranges	500	3	1500
				3300
		Quantity	Price	Amount
Year - 2015	Apples	1,900	0.9	1710
	Oranges	600	3	1800
				3510

　

3) Growth rate Real GDP:

Country A: 14.74%

Country B: 6.36%

Working:

Country A: (2,180 - 1,900) / 1,900 * 100 = 14.74

Country B: (3,510 - 3,300) / 3,300 *100 = 6.36%

　

Inflation Rate:

Country A: 5.50%

Country B: 13.96%

Working:

Year	Nominal GDP	Real GDP	Price index
2014	1900	1900	100
2015	2300	2180	105.50
Year	Nominal GDP	Real GDP	Price index
2014	3300	3300	100
2015	4000	3510	113.96