**11. Differentiate between nominal and real GDP.**- **Nominal GDP** is the actual measured GDP in terms of current year dollars or prices existing at the time the output was produced.- **Real GDP** reflects the value of GDP after it has been corrected for price changes compared to the price level in a reference year (called the base year).A GDP price index is calculated each year to measure the level of prices relative to the level of prices in the base year. This price index is then expressed as a percentage of the base year price level.

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Answered: 11. Differentiate between nominal and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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2. Real versus nominal GDP Consider a simple economy that produces two goods: coffees and seltzers. The following table shows the prices and quantities of the goods over a three-year period. Price Coffees Quantity Price Seltzers Quantity Year (Dollars per coffee) (Number of coffees) (Dollars per seltzer) (Number of seltzers) 2018 3 260 2 160 2019 4 120 2 220 2020 3 155 2 140 Use the information from the preceding table to fill in the following table. Nominal GDP (Dollars) Real GDP (Base year 2018, dollars) GDP Deflator Year 2018 2019 2020
6. Suppose an extremely simple economy produces only two goods, pillows and rugs. In the first year, 50 pillows are produced and sold at $5 each; 11 rugs are produced and sold at $50 each. In the second year, 56 pillows are produced and sold for $5 each; 12 rugs are produced and sold at $60 each. a. What is nominal GDP in each of the two years? b. What is real GDP in each year, expressed in terms of constant Year 1 dollars? c. What is the growth rate of real GDP (in constant Year 1 dollars)? d. What is the growth rate of real GDP (in constant Year 2 dollars)? e. Are the growth rates calculated in parts (c) and (d) above same or different? Explain why.
2 Calculate GDP for the Yukon Economy Using 3 Methods Consider the Yukon territory, which is very isolated and thus a closed economy. It has two producers (one of potatoes (a farmer) and the other of fried potatoes (a cafe)) a government that administers the postal service, and a consumer. Use the Yukon's national accounts data, given below, to calculate GDP using the product approach, the income approach, and the expenditure approach. Do this by filling out the tables provided below the national accounts data. Table 2: Yukon National Accounts Firms Government Consumer Potato Producer Breakfast Cafe Total Revenue 4 Total Revenue Tax Revenue | 3 Wage Income 6. Interest on Loan 1 Cost of Potatoes 1 Wages 3 Interest Income Wages 1 Wages Taxes Taxes Taxes 1 Profits Distributed from Prod. 1 Table 3: GDP Calculations (for you to complete) Product Approach Expenditure Approach Income Approach Value added of... Consumption Wage Income Potato Producer Investment After-Tax Profits Breakfast Cafe…
2. Which of the following will decline in US GDP according to national income accounting? a. An decrease in government financial assistance to families for groceries and food paid for by income tax revenue b. an increase in imports from China a drop in salaries paid to soldiers in the US military с. d. an old bridge collapses and is left un-repaired and untouched the entire year е. none of the above
2. Activities included (and not included) in the calculation ofGDP The gross domestic product (GDP) of the United States is defined as the all in a given period of time. Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2020. 2020 GDP Scenario Included Excluded Sofaland, a Swedish furniture company, produces a table at a plant in Virginia on December 5, 2020. It sells the table to a college student on December 24. You chop down a cherry tree on your property in California and make a dining room table in 2020. A similar table sells for $800 in a local furniture store. Zippycar, a U.S. automobile company, produces a convertible at a manufacturing plant in Minneapolis on January 21, 2020. It sells the car at a dealership in San Francisco on February 10, 2020. Athleticus, a U.S. shoe company, produces a pair of sneakers at a plant in Vietnam on March 10, 2020. Athleticus imports the pair…
2. GDP Year Price of Tacos 2020 $1 2021 $1 2022 $2 Quantity of Price of Tacos Pizza 100 150 200 $5 $6 $8 Quantity of Pizza 50 50 100 a. Given the data above for a local economy, compute nominal GDP. real GDP, and the GDP deflator for each year, using 2020 as the base year. ( b. Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2021 and 2022 from the preceding year. c. Did economic well-being increase more in 2021 or 2022? Explain.
3. Consider an economy that only produces mittens. In Year 1, 4000 pairs of mittens are produced and the price is $5 per pair. In the Year 2, 5000 pairs of mittens are produced and the price is $7 per pair. In Year 3, 7000 pair of mittens are produced and the price is $9 per pair. Use Year 1 as the base year. What is the nominal GDP for each year? What is the real GDP for each year? What is the GDP deflator for each year? What is the percentage growth rate of real GDP from year 2 to year 3? What is the inflation rate (as measured by the GDP deflator) from year 2 to year 3?
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5. Limitations of GDP Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. The value of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government The costs of air and water pollution Federal government paychecks to soldiers The variety of goods available to consumers When a U.S. company purchases and imports wood from Brazil to use to build new houses within the United States, this purchase increases the component of GDP while also net exports by the same amount. Therefore, the purchase of wood from Brazil causes in US GDP.
67. GDP is defined as the market value of all final goods and services produced within a country in a given period of time. In spite of this definition, some production is left out of GDP. Explain why some final goods and services are not included.
6. Limitations of GDP Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. The costs of overfishing and other overly intensive uses of resources O Federal government paychecks to soldiers The value of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government The leisure time enjoyed by households When a U.S. company purchases and imports wood from Brazil to use to build new houses within the United States, this purchase increases the component of GDP while also net exports by the same amount. Therefore, the purchase of wood in US GDP. from Brazil causes
3. Limitations of GDP Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. The quality of goods available to consumers The loss of enjoyment people incur when scenic land is converted to commercial use The value produced when you wash your own car at home O Federal government paychecks to soldiers When a U.S. company purchases and imports electronic parts from China to use to produce smartphones within the United States, this purchase increases the component of GDP while also net exports by the same amount. Therefore, the purchase of electronic parts from China causes in US GDP.

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