Question

2. An economy produces 5 goods. The quantities produced and the prices of the 5 goods in year 1 and year 2 are shown below: Good A Good B Good C Good D Good E Year 1 PQ1 30 100 50 200 20 300 80 100 40 100 ear P2 Q2 32 100 49 210 21 295 82110 40 95 (a) Let year 1 be the base year (i) Calculate the nominal GDP and real GDP in year 1 and year 2 (ii) Calculate the percentage changes from year l to year 2 in nominal GDP and real GDP (b) Calculate the equal-weighted diffusion index of (i) real GDP in year 2 (ii) nominal GDP in year 2

Answer 1

Hello ,

Please find the answer below:

A(1)

Nominal GDP
	Year1			Year2
	P1	Q1	P1Q1	P2	Q2	P2Q2
Good A	30	100	3000	32	100	3200
Good B	50	200	10000	49	210	10290
Good C	20	300	6000	21	295	6195
Good D	80	100	8000	82	110	9020
Good E	40	100	4000	40	95	3800
			31000			32505
Nominal GDP in Year 1 = 31000
Nominal GDP in Year 2 = 32505
Real GDP
For calculating Real GDP for year 2 , we shall keep the prices from year1 constant i.e. P1*Q2
	Year1			Year2
	P1	Q1	P1Q1	P2	Q2	P1Q2
Good A	30	100	3000	32	100	3000
Good B	50	200	10000	49	210	10500
Good C	20	300	6000	21	295	5900
Good D	80	100	8000	82	110	8800
Good E	40	100	4000	40	95	3800
			31000			32000
Real GDP In Year1 = 31000
Real GDP in Year2 = 32000
Answer A (2) % change formula = [(Nominal GDP in Year2 - Nominal GDP in Year1)/ (Nominal GDP in Year1)]*100
[(32505-31000)/31000]*100
4.85%
% change formula = [(Real GDP in Year2 - Real GDP in Year1)/ (Real GDP in Year1)]*100
[(32000-31000)/31000]*100
3.22%

Hope this helps. Thank you!!!