Answered: From 2017 to 2018, nominal GDP The…

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

Year	Apples	Envelopes
Price	Quantity	Price	Quantity
(Dollars per apple)	(Number of apples)	(Dollars per envelope)	(Number of envelopes)
2016	2	115	5	175
2017	4	150	2	180
2018	1	100	2	160

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

Year	Nominal GDP (Dollars)	Real GDP (Base year 2016, dollars)	GDP Deflator
2016
2017
2018

From 2017 to 2018, nominal GDP: (a. increased, b. decreased), and real GDP (a. increased, b. decreased) .

The inflation rate in 2018 was: (a. -47.5%, b. -0.5%, c. 47.5%, d. 52.5%, e. 190.5%) .

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

a. Real GDP includes the value of exports, but nominal GDP does not.

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

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

Consider a simple economy that produces two goods: apples and envelopes. The following table shows the prices and quantities of the goods over a
three-year period.
Year
2016
2017
2018
Year
2016
2017
2018
4
Price
Quantity
Price
(Dollars per apple) (Number of apples) (Dollars per envelope)
2
115
5
150
100
1
Apples
Use the information from the preceding table to fill in the following table.
Real GDP
(Base year 2016, dollars) GDP Deflator
Nominal GDP
(Dollars)
2
Envelopes
2
Quantity
(Number of envelopes)
175
180
160

From 2017 to 2018, nominal GDP
The inflation rate in 2018 was
"
and real GDP
Why is real GDP a more accurate measure of an economy's production than nominal GDP?
Real GDP includes the value of exports, but nominal GDP does not.
Real GDP is not influenced by price changes, but nominal GDP is.
Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.

Expert Solution

Step 1

Nominal GDP is calculated by measuring current year prices and current year quantities

Nominal GDP = Current Year Price × Current Year Quantity

Real GDP is calculated by multiplying base year prices with current year quantities.

Real GDP = Base Year Price × Current Year Quantity

GDP Deflator = Nominal GDP / Real GDP × 100

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