2. Suppose the following data describe output in two different years: Item Apple

Question

2. Suppose the following data describe output in two different years: Item Apples Exports Bicycles Imports Bicycles Year 2 Year 1 100,000 @ $0.1 each 100 a $100 each 50 @ $50 each 200,000 @ S0.2 each 100 a $150 each 50 @$ 100 each a) Compute the nominal GDP in Year 1. b) Compute the real GDP in Year 2 using the prices in Year 1 . c) By what percentage did real GDP increase from Year 1 to Year 2 using Year I's prices? d) Assume the total population is 1000 in Year 1. Compute the per capital GDP in Year l

Explanation / Answer

(a)

Year I

Nominal GDP = Price of Year I * quantities of Year I

=100,000*0.1 + 100*100 + 50*50

=10,000 +10,000+2,500

=$22,500

(b)

Real GDP of Year 2 = Price of year I * quantities of year II

=200,000*0.1 + 100*100 + 50*50

=20,000 +10,000+2,500

=$32,500

  

(c)

Real GDP of Year I = Price of Year I * quantities of Year I

=100,000*0.1 + 100*100 + 50*50

=10,000 +10,000+2,500

=$22,500

Percentage change in the real GDP between year I and Year II

= {(real GDP of year II - Real GDP of year I)/ real GDP of year I)}*100

= {(32,500-22500)/22,500)}*100

=(10,000/22500)*100

=44.44%

(d)

Total population in year I was 1000

Per capita GDP in year I = GDP of year I / total population

=22500/10000

=$2.25

Hence the per capita GDP in the year I was $2.25

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