Question

10.000 Questions 1 and 2 consider the following data, containing the quantities produced of final goods and the respect prices for Orangeland. Using the data below, fill up all the empty cells. Use 2 decimals in your calculations. Quantity of oranges Quantity of computers 2018 100 40 2019 110 40 % Chg. 10.00 0 Price of oranges Price of computers 20 10 100 12 90 Nominal GDP Constant-price GDP in 2019 prices Deflator (based on 2019 prices) Based on your calculations, answer the questions below. Question 1. Which of the statements below is correct? a) in real terms GDP has increased by 2.5% b) In real terms GDP has fallen by about 1.5%. c) At current prices GDP has risen but at constant prices GDP has fallen. d) Using 2019 as base year, real GDP in year 2018 equals $5,000. Question 2. Which statement below is correct? The economy has experienced inflation. The price level has increased by about b) The economy has experienced deflation. The price level has fallen by about 40% The eranomy has experienced deflation. The price level has fallen by less than di The economy has experienced inflation. The price level has increased by exa

Answer 1

Nominal GDP is the sum of all goods produced multiplied by their current year prices.

Nominal GDP for 2018 = Quantity of orange in 2018*Price of orange in 2018 + Quantity of computers in 2018*Price of computers in 2018 = 100*10+40*100 = 1000+4000= 5000

Nominal GDP for 2019 = Quantity of orange in 2019*Price of orange in 2019+ Quantity of computers in 2019*Price of computers in 2019 = 110*12+40*90 = 1320+3600= 4920

Percentage change is calculated using : (New value-old value/Old value)*100

% change in nominal gdp = (4920-5000/5000)*100= (-80/5000)*100 = - 1.6

The constant price Gdp is calculated by using quantity of one year and price of the base year. Here the base year is 2019, so we will use 2019 prices. The constant price GDP is also called Real gdp.

Thus, in 2019 prices, Constant price GDP for 2018 = Quantity of orange in 2018*Price of orange in 2019 +Quantity of computer in 2018*Price of computers in 2019 = 100*12+40*90 = 1200+3600=4800

The constant price gdp for 2019 is same as nominal gdp for 2019, that is,4920.

%change in constant price gdp = (4920-4800/4800)*100=(120/4800)*100= 2.5

Question 1: Using the information obtained, we know that the constant price gdp(real gdp) has increased by 2.5%(there is +ve sign). Thus, correct answer to question 1 is option A. The real gdp has increased by 2.5%.

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Now, the formula for GDP deflator is given as follows :

GDPD = (Nominal gdp/Real gdp)*100

Thus, for 2018, nominal gdp is 5000 and real gdp(in 2019 prices) is 4800. So,

GDPD 2018= (5000/4800)*100 = 104.166

Similarly for 2019, we have

GDPD = 4920/4920 *100 = 100

% CHANGE = (100-104.166/104.166)*100 = (-4.166/104.166)*100 = (-3.99)= - 4(approximately)

Question 2;​​​​​ Thus, we can see that the gdp deflator shows that price level has changed by - 4%, which means that there have been a deflation.

Thus, correct option is B. The economu has experienced deflation. The price level has fallen by 4%.