Consider a simple economy that produces two goods: pencils and muffins. The following table shows the prices and quantities of the goods over a three-year period.YearPencilsMuffinsPriceQuantityPriceQuantity(Dollars per pencil)(Number of pencils)(Dollars per muffin)(Number of muffins)201811402200201921254220202031204180 Use the information from the preceding table to fill in the following table.YearNominal GDPReal GDPGDP Deflator(Dollars)(Base year 2018, dollars)2018 2019 2020 From 2019 to 2020, nominal GDP , and real GDP . The inflation rate in 2020 was . Why is real GDP a more accurate measure of an economy's production than nominal GDP?Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not. 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. Real GDP is not influenced by price changes, but nominal GDP is.

Nominal GDP is the GDP measured in the current year prices. Nominal GDP in 2018 = Price per pencils…

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 muffins. The following table shows the prices and quantities of the goods over a three-year period.

Year	Pencils	Muffins
Price	Quantity	Price	Quantity
(Dollars per pencil)	(Number of pencils)	(Dollars per muffin)	(Number of muffins)
2018	1	140	2	200
2019	2	125	4	220
2020	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 2018, dollars)
2018
2019
2020

From 2019 to 2020, nominal GDP , and real GDP .

The inflation rate in 2020 was .

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

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

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.

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

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