Consider a simple economy that produces two goods: pencils and erasers. The following table shows the prices and quantities of the goods over a three-year period.YearPencilsErasersPriceQuantityPriceQuantity(Dollars per pencil)(Number of pencils)(Dollars per eraser)(Number of erasers)201511402200201621254220201731204180 Use the information from the preceding table to fill in the following table.YearNominal GDPReal GDPGDP Deflator(Dollars)(Base year 2015, dollars)2015 2016 2017 From 2016 to 2017, nominal GDP_____, and real GDP_____. The inflation rate in 2017 was_____%. Why is real GDP a more accurate measure of an economy's production than nominal GDP? a) Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not. b) Real GDP is not influenced by price changes, but nominal GDP is. c) Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

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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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Consider a simple economy that produces two goods: pencils and erasers. The following table shows the prices and quantities of the goods over a three-year period.

Year	Pencils	Erasers
Price	Quantity	Price	Quantity
(Dollars per pencil)	(Number of pencils)	(Dollars per eraser)	(Number of erasers)
2015	1	140	2	200
2016	2	125	4	220
2017	3	120	4	180

Use the information from the preceding table to fill in the following table.

Year	Nominal GDP	Real GDP	GDP Deflator
(Dollars)	(Base year 2015, dollars)
2015
2016
2017

From 2016 to 2017, nominal GDP_____, and real GDP_____.

The inflation rate in 2017 was_____%.

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

a) Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.

b) Real GDP is not influenced by price changes, but nominal GDP is.

c) Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

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