Suppose that the economy produces two goods: coffee (in cups) and cookies. The p

Question

Suppose that the economy produces two goods: coffee (in cups) and cookies. The price of a cup of coffee is fixed at $2 and the price of a cookie is fixed at $3.

a) In 2013, the economy produced 2000 coffees and 3000 cookies. Calculate the economy’s nominal GDP.

b) In 2014, the economy produced 2500 coffees and 2600 cookies. Calculate the economy’s growth in nominal GDP from 2013 to 2014.

c) In 2015, the economy produced 2500 coffees and 2600 cookies, but the price of cookies rose from $3 to $3.50. Calculate the economy’s growth in nominal GDP from 2014 to 2015.

Explanation / Answer

Nominal GDP is defined as value of total production of goods and services in a partiular year in the country.

a) nominal GDP 2013 = price of coffee * coffee produced + price of cookie * cookie produced

= 2*2000 + 3*3000 = $13,000

b) nominal GDP in 2014 = 2*2500 + 3*2600 = $12,800

Economys growth rate 2014 = (12800/13000-1) = -1.54%

c) nominal GDP in 2015 = 2*2500 + 3.5*2600 = $14,100

Economys growth rate 2015 = (14100/12800-1) = 10.2%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.