Certainly! Below is the transcribed content from the image, formatted for an educational website.---**Nominal and Real GDP Analysis**The table below presents nominal GDP and the corresponding price index for selected years. Your task is to compute the real GDP and determine whether the nominal GDP data have been inflated or deflated in each case.| Year | Nominal GDP (Billions) | Real GDP (Billions) | GDP Price Index | Inflating? | Deflating? ||------|------------------------|---------------------|-----------------|------------|------------|| 1978 | $2,293.8 | $5,677.72 | 40.40 | | ✔ || 1988 | $5,100.4 | | 66.98 | | ✔ || 1998 | $8,793.5 | $10,283.59 | | | || 2005 | $10,000.0 | $10,000.0 | | | || 2008 | $14,441.4 | | 108.48 | ✔ | || 2018 | $20,501.0 | $15,942.92 | | | ✔ |**Instructions:**1. **Compute the Real GDP**: Utilize the nominal GDP and the price index values to determine the real GDP for the years where it's not provided.2. **Determine Inflation or Deflation**: - If the price index is below 100, deflate the nominal GDP. - If the price index is above 100, inflate the nominal GDP.This exercise will help you understand the relationship between nominal GDP, real GDP, and price indices in assessing economic growth and price level changes over time.

GDP price index = (nominal GDP / real GDP) *100 => Real GDP = (nominal GDP / GDP price index)*100…

Answered: (/ The following table shows nominal…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. Real versus nominal GDP Consider a simple economy that produces two goods: cupcakes and erasers. The following table shows the prices and quantities of the goods over a three-year period. Year 2017 2018 2019 Year 2017 2018 2019 Cupcakes Price (Dollars per cupcake) 1 2 Quantity (Number of cupcakes) 110 140 100 Use the information from the preceding table to fill in the following table Nominal GDP Real GDP (Dollars) (Base year 2017, dollars) Price (Dollars per eraser) 1 Erasers GDP Deflator Quantity (Number of erasers) 180 210 190
16. Nominal GDP differs from real GDP because nominal GDP is based on constant pricesreal GDP is based on current pricesreal GDP is adjusted for changes in the price levelnominal GDP is adjusted for changes in the price level
Formula for the relationship between the purchasing power of the U.S. dollar and the price level. The purchasing power of the U.S. dollar is ( directly, inversely ) related to the price level: when the consumer price index (CPI) goes up, the value of the dollar goes (down, up ). Higher prices ( increase, decrease) the dollar’s purchasing power because people need (fewer, more ) dollars to obtain specific quantity of goods and services. Value of the dollar ($V) =
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3. Consider an economy that only produces mittens. In Year 1, 4000 pairs of mittens are produced and the price is $5 per pair. In the Year 2, 5000 pairs of mittens are produced and the price is $7 per pair. In Year 3, 7000 pair of mittens are produced and the price is $9 per pair. Use Year 1 as the base year. What is the nominal GDP for each year? What is the real GDP for each year? What is the GDP deflator for each year? What is the percentage growth rate of real GDP from year 2 to year 3? What is the inflation rate (as measured by the GDP deflator) from year 2 to year 3?
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Table 2.5.4 from BEA What categories of consumption expenditures have the highest inflation rate between 2012 and 2021? Are there any categories for which prices are relatively stanle or cheaper?
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.
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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