You own a cigar shop in Uxbridge, Ontario which sells Made in Canada cigars (gross!). In 2019, you sold 11,000 cigars for $50 per cigar. In 2020, you sold 11,000 cigars for $60 per cigar. Let 2019 be the base year and show your work. (a) What is your contribution to nominal GDP in 2019? In 2020? And What is your contribution to real GDP in 2019? In 2020? (b) If you were to calculate a GDP deflator based solely on your cigar sales in 2020 (that is, assuming your cigars are the only products in the economy), what would be thenumerical amount of the GDP deflator? (c) How does this example illustrate that nominal GDP can be a deceptive figure?
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3. You own a cigar shop in Uxbridge, Ontario which sells Made in Canada cigars (gross!).
In 2019, you sold 11,000 cigars for $50 per cigar. In 2020, you sold 11,000 cigars for $60 per cigar. Let 2019 be the base year and show your work.
(a) What is your contribution to nominal GDP in 2019? In 2020? And What is your contribution to real GDP in 2019? In 2020?
(b) If you were to calculate a GDP deflator based solely on your cigar sales in 2020
(that is, assuming your cigars are the only products in the economy), what would be thenumerical amount of the GDP deflator?
(c) How does this example illustrate that nominal GDP can be a deceptive figure?
Nominal GDP is calculated by multiplying current year prices with current year quantities.
Real GDP is calculated by multiplying base year price with current year quantities.
GDP Deflator = Nominal GDP / Real GDP * 100
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