5. Real versus nominal GDP Consider a simple economy that produces two goods: coffees and enamel pins. The following table shows the prices and quantities of the goods over a three-year period. Year 2020 2021 2022 Year 2020 2021 2022 Price (Dollars per coffee) 2 2 4 Coffees Quantity (Number of coffees) 295 Use the information from the preceding table to fill in the following table. From 2021 to 2022, nominal GDP The inflation rate in 2022 was 120 Nominal GDP Real GDP (Dollars) (Base year 2020, dollars) GDP Deflator Price (Dollars per enamel pin) and real GDP 4 Enamel pins 4 Why is real GDP a more accurate measure of an economy's production than nominal GDP? Quantity (Number of enamel pins) 195 225 180 O Real GDP is not influenced by price changes, but nominal GDP is. O Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes. O Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

5. Real versus nominal GDP Consider a simple economy that produces two goods: coffees and enamel pins. The following table shows the prices and quantities of the goods over a three-year period. Year 2020 2021 2022 Year 2020 2021 2022 Price (Dollars per coffee) 2 2 4 Coffees Quantity (Number of coffees) 295 Use the information from the preceding table to fill in the following table. From 2021 to 2022, nominal GDP The inflation rate in 2022 was 120 Nominal GDP Real GDP (Dollars) (Base year 2020, dollars) GDP Deflator Price (Dollars per enamel pin) and real GDP 4 Enamel pins 4 Why is real GDP a more accurate measure of an economy's production than nominal GDP? Quantity (Number of enamel pins) 195 225 180 O Real GDP is not influenced by price changes, but nominal GDP is. O Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes. O Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

5. Real versus nominal GDP
Consider a simple economy that produces two goods: coffees and enamel pins. The following table shows the prices and quantities of the goods over a
three-year period.
Price
Year (Dollars per coffee)
2020
2
2021
2022
Year
2020
2021
2
2022
4
Coffees
Nominal GDP
(Dollars)
Use the information from the preceding table to fill in the following table.
Quantity
(Number of coffees)
295
s
From 2021 to 2022, nominal GDP
The inflation rate in 2022 was
120
Real GDP
(Base year 2020, dollars) GDP Deflator
Price
(Dollars per enamel pin)
and real GDP
4
4
Enamel pins
4
Why is real GDP a more accurate measure of an economy's production than nominal GDP?
Quantity
(Number of enamel pins)
195
225
180
Real GDP is not influenced by price changes, but nominal GDP is.
Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and
services an economy consumes.
O Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

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3. In a small community, breakfast is the most important meal of the day. Therefore, the only two goods that this community produces are coffee and scones in the following amounts: Year 2020 2021 Quantity 60 cups 90 cups Coffee Price $1.25 $1.45 Quantity 45 units 65 units Scones Price $2.10 $3.95 a) Calculate the inflation rate for 2021 using the GDP deflator method (assume that 2020 is the base year for real GDP calculations). Show your work. b) Calculate the inflation rate for 2021 using the CPI method (assume that 2020 is the base year for CPI calculations). Additionally, assume that the consumption basket for both years contains only 10 cups of coffee and 40 scones. Show your work. c) Compare the results of both inflation calculations and explain why they are similar or different based on the two methods and on the specific data used in this example.
6. The following table shows the CPI for each year from 2009 to 2021 Year CPI 2009 172 2010 177 2011 189 2012 200 2013 212 2014 220 2015 220 2016 230 2017 250 2018 255 2019 270 2020 280 2021 300 (a) In 2010, I deposited $380 in by interest bearing saving account. In 2021, in my account I had $412 expressed in 2013 prices. What is the average annual nominal interest rate I earned on my deposit from 2010-2021? (b) In another account, I deposited $1200 in an interest bearing saving account in 2008. I held the money in the account from 2008-2014. The annual real interest rate I earned on the account was r = 0. How much did I have in my account in 2014 (the nominal value)
4. Calculate the Nominal GDP, Real GDP using 2019 as the base year, and the GDP Deflator. Year Quantity of Milk 100 Price of Honey $4 $4 Price of Milk Quantity of Honey $2 $4 2017 200 2018 100 210 2019 $4 120 $6 220
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