1. A tiny economy only produces baseball bats and sells them in dollars. In 2020, they produced 500 bats for $100 each. In 2021, they produced 800 bats for $200 each. • Calculate nominal GDP for both years. Show your calculations clearly! • Calculate nominal GDP growth rate from 2020 to 2021. O 2020 = (500 x 100) = $50,000 2021 = (800 x 200) = $160,000 O 16,000-50,000 5,000 x 100 = 220% • Calculate real GDP growth rate from 2020 to 2021. 2020 = (500 x 100) = $50,000 2021 (800 x 100) = $80,000 Growth Rate: 80,000-50,000 50,000 x 100 = 60% • In general terms, explain what nominal GDP tells us and what real GDP tells us. You can use the hypothetical numbers here or use actual U.S. statistics in your answer, but be sure to discuss the concept behind nominal GDP vs. real GDP. o Nominal GDP increases when price or quantity increases from year 1 to 2 but real GDP only increases when quantity increases. Thus, real GDP shows real growth only when output increases.
1. A tiny economy only produces baseball bats and sells them in dollars. In 2020, they produced 500 bats for $100 each. In 2021, they produced 800 bats for $200 each. • Calculate nominal GDP for both years. Show your calculations clearly! • Calculate nominal GDP growth rate from 2020 to 2021. O 2020 = (500 x 100) = $50,000 2021 = (800 x 200) = $160,000 O 16,000-50,000 5,000 x 100 = 220% • Calculate real GDP growth rate from 2020 to 2021. 2020 = (500 x 100) = $50,000 2021 (800 x 100) = $80,000 Growth Rate: 80,000-50,000 50,000 x 100 = 60% • In general terms, explain what nominal GDP tells us and what real GDP tells us. You can use the hypothetical numbers here or use actual U.S. statistics in your answer, but be sure to discuss the concept behind nominal GDP vs. real GDP. o Nominal GDP increases when price or quantity increases from year 1 to 2 but real GDP only increases when quantity increases. Thus, real GDP shows real growth only when output increases.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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I need to make sure my answers are correct and I need help with giving an example.
![**GDP Calculation and Growth Rates - Example of a Tiny Economy**
1. **Scenario**:
- A tiny economy only produces baseball bats and sells them in dollars. In 2020, they produced 500 bats for $100 each. In 2021, they produced 800 bats for $200 each.
2. **Calculate Nominal GDP for Both Years**:
- **2020 GDP**:
\[
2020 = (500 \times 100) = \$50,000
\]
- **2021 GDP**:
\[
2021 = (800 \times 200) = \$160,000
\]
3. **Calculate Nominal GDP Growth Rate from 2020 to 2021**:
\[
\left(\frac{160,000 - 50,000}{50,000}\right) \times 100 = 220\%
\]
4. **Calculate Real GDP Growth Rate from 2020 to 2021**:
- Using 2020 prices to calculate real values:
- **2020 Real GDP**:
\[
2020 = (500 \times 100) = \$50,000
\]
- **2021 Real GDP**:
\[
2021 = (800 \times 100) = \$80,000
\]
- **Growth Rate**:
\[
\left(\frac{80,000 - 50,000}{50,000}\right) \times 100 = 60\%
\]
5. **General Explanation**:
- **Nominal GDP vs. Real GDP**:
- Nominal GDP reflects changes in price or quantity from year to year.
- Real GDP only reflects changes in quantity, holding prices constant. Thus, real GDP shows real growth only when output increases.
**Note**: Nominal GDP increases could be due to price changes and/or quantity changes, while real GDP gives a clearer picture of actual output growth by eliminating price inflation effects.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd074ffd1-a21a-4952-bf99-bf8a040ad529%2F73018268-91af-4f36-a83b-9c0a51180dc7%2Fozaxaqk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**GDP Calculation and Growth Rates - Example of a Tiny Economy**
1. **Scenario**:
- A tiny economy only produces baseball bats and sells them in dollars. In 2020, they produced 500 bats for $100 each. In 2021, they produced 800 bats for $200 each.
2. **Calculate Nominal GDP for Both Years**:
- **2020 GDP**:
\[
2020 = (500 \times 100) = \$50,000
\]
- **2021 GDP**:
\[
2021 = (800 \times 200) = \$160,000
\]
3. **Calculate Nominal GDP Growth Rate from 2020 to 2021**:
\[
\left(\frac{160,000 - 50,000}{50,000}\right) \times 100 = 220\%
\]
4. **Calculate Real GDP Growth Rate from 2020 to 2021**:
- Using 2020 prices to calculate real values:
- **2020 Real GDP**:
\[
2020 = (500 \times 100) = \$50,000
\]
- **2021 Real GDP**:
\[
2021 = (800 \times 100) = \$80,000
\]
- **Growth Rate**:
\[
\left(\frac{80,000 - 50,000}{50,000}\right) \times 100 = 60\%
\]
5. **General Explanation**:
- **Nominal GDP vs. Real GDP**:
- Nominal GDP reflects changes in price or quantity from year to year.
- Real GDP only reflects changes in quantity, holding prices constant. Thus, real GDP shows real growth only when output increases.
**Note**: Nominal GDP increases could be due to price changes and/or quantity changes, while real GDP gives a clearer picture of actual output growth by eliminating price inflation effects.
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