Question 2 Below is some data from the land of milk and honey. (8 Pts.) Year Pri

Question

Question 2 Below is some data from the land of milk and honey. (8 Pts.)

Year

Price of Milk

Q of Milk

Price of Honey

Q of Honey

2012

$1

10000

$4

5000

2013

$2

20000

$5

6000

2014

$3

30000

$5

7000

Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2012 as the base year. Need to show detailed calculation. (3 pts.)

2012 Nominal GDP:

2013 Nominal GDP:

2014 Nominal GDP:

2012 Real GDP:

2013 Real GDP:

2014Real GDP:

2012 GDP Deflator:

2013 GDP Deflator:

GDP Deflator:

Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2013 and 2014 from the preceding years. Need to show detailed calculation. (3 Pts.)

2012-13 % change in Nominal GDP:

2013-14 % change in Nominal GDP:

2012-13 % change in Real GDP:

2013-14 % change in Real GDP:

2012-13 % change in GDP Deflator:

2013- 14 % change in GDP Deflator:

Did economic well-being rise more in 2013 (=from 2012 to 2013) or 2014 (from 2013 to 2014)? Explain. (2 Pts.)

Year

Price of Milk

Q of Milk

Price of Honey

Q of Honey

2012

$1

10000

$4

5000

2013

$2

20000

$5

6000

2014

$3

30000

$5

7000

Explanation / Answer

2012 Nominal GDP: ($1 × 10000 ) + ($4 × 5000 ) = $30000

2013 Nominal GDP: ($2 × 20000 ) + ($5 × 6000 ) = $70000

2014 Nominal GDP: ($3 × 30000 ) + ($5 × 7000 ) = $125000

Real GDP taking 2012 as the base year:

2012 Real GDP: ($1 × 10000 ) + ($4 × 5000 ) = $30000

2013 Real GDP: ($1 × 20000 ) + ($4 × 6000 ) = $44000

2014 Real GDP: ($1 × 30000 ) + ($4 × 7000 ) = $58000

GDP Deflator = (Nominal GDP / Real GDP)*100

2012 GDP Deflator: ($30000/$30000) × 100 = 100

2013 GDP Deflator: ($70000/$44000) × 100 = 159.1

2014 GDP Deflator: ($125000/$58000) × 100 = 215.52

2012-13 % change in Nominal GDP: [($70000 – $30000)/$30000] × 100 = 133.33%.

2013-14 % change in Nominal GDP: [($125000 – $70000)/$70000] × 100 = 78.57%.

2012-13 % change in Real GDP: [($44000 – $30000)/$30000] × 100 = 46.67%.

2013-14 % change in Real GDP: [($58000 – $44000)/$44000] × 100 = 31.82%.

2012-13 % change in GDP Deflator: [(159.1 – 100)/100] × 100 = 59.1%.

2013- 14 % change in GDP Deflator: [(215.52 – 159.1)/159.1] × 100 = 35.46%.

Economic well being rose more in 2013 than in 2014, since real GDP rose more (46.67%) in 2013 than in 2015 (31.82%).

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