Consider a simple economy that produces two goods: beers and paper plates. The following table shows the prices and quantities of the goods over athree-year period.Year201920202021Year201920202021Price(Dollars per beer)242BeersUse the information from the preceding table to fill in the following table.Nominal GDP(Dollars)Quantity(Number of beers)215135150From 2020 to 2021, nominal GDPThe inflation rate in 2021 wasReal GDP(Base year 2019, dollars) GDP DeflatorPrice(Dollars per paper plate)I000and real GDP33w w3Paper plates7155210Why is real GDP a more accurate measure of an economy's production than nominal GDP?Real GDP is not influenced by price changes, but nominal GDP is.Real GDP includes the value of exports, but nominal GDP does not.Quantity(Number of paper plates)O Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.190

Answered: Consider a simple economy that produces…

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

Consider a simple economy that produces two goods: beers and paper plates. The following table shows the prices and quantities of the goods over a
three-year period.
Year
2019
2020
2021
Year
2019
2020
2021
Price
(Dollars per beer)
2
4
2
Beers
Use the information from the preceding table to fill in the following table.
Nominal GDP
(Dollars)
Quantity
(Number of beers)
215
135
150
From 2020 to 2021, nominal GDP
The inflation rate in 2021 was
Real GDP
(Base year 2019, dollars) GDP Deflator
Price
(Dollars per paper plate)
I
000
and real GDP
3
3
w w
3
Paper plates
7
155
210
Why is real GDP a more accurate measure of an economy's production than nominal GDP?
Real GDP is not influenced by price changes, but nominal GDP is.
Real GDP includes the value of exports, but nominal GDP does not.
Quantity
(Number of paper plates)
O Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.
190

Expert Solution

Step 1

Nominal GDP refers to the market value of all the final goods and services produced in an economy during that accounting year, using the same year's prices.

However, the real GDP refers to the GDP obtained after making adjustment for the inflation.

GDP deflator is used to measure the impact of price change on the GDP during an accounting year. It is the ratio of the nominal GDP to real GDP and this ratio is then multiplied by 100.