Table shows the Quantity Consumed and the Price of Good Base Year Current Year P
ID: 1167388 • Letter: T
Question
Table shows the Quantity Consumed and the Price of Good
Base Year
Current Year
Price of good A
$100
$200
Quantity of good A
100
200
Price of good B
$100
$100
Quantity of good B
100
100
In the exhibit, the citizens of country come to desire more of good A. As a result, the quantity and price of the good both rise.
a.
Compute the nominal GDP in the base year and the current year.
b
Compute the real GDP in the base yearand the current year (in base-year prices).
c.
Compute the GDP deflator in the current year, using your answers to parts a and b.
Table shows the Quantity Consumed and the Price of Good
Base Year
Current Year
Price of good A
$100
$200
Quantity of good A
100
200
Price of good B
$100
$100
Quantity of good B
100
100
In the exhibit, the citizens of country come to desire more of good A. As a result, the quantity and price of the good both rise.
a.
Compute the nominal GDP in the base year and the current year.
b
Compute the real GDP in the base yearand the current year (in base-year prices).
c.
Compute the GDP deflator in the current year, using your answers to parts a and b.
Explanation / Answer
(a) Nominal GDP
Base year = ($100 x 100) + ($100 x 100) = $20,000
Current year = ($200 x 200) + ($100 x 100) = $50,000
(b) Real GDP
Base year = ($100 x 100) + ($100 x 100) = $20,000
Current year = ($100 x 200) + ($100 x 100) = $30,000
(c) GDP Deflator = Nominal GDP / Real GDP x 100
Base year = $20,000 / $20,000 x 100 = 100
Current year = $50,000 / $30,000 x 100 = 166.67
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