(a)
| Year 1 | Year 2 | |||
| Quantity | Quantity | Price | ||
| Oranges | 100 | $5 | 150 | $5 |
| Pears | 100 | $3 | 75 | $4 |
The growth rate of constant-dollar real
Answer to Problem 3E
The growth rate of constant dollar GDP is negative 3.21% with year 1 as the base price.
Explanation of Solution
| Year 1 | Year 2 | Year 1 | Year 2 | |||
| Quantity | Price | Quantity | Price | Value of goods with Year 1 as base | Value of goods with Year 1 as base | |
| Oranges | 100 | $5 | 150 | $5 | $500 | $750 |
| Pears | 100 | $3 | 75 | $4 | $300 | $225 |
| Total | $800 | $775 | ||||
The growth rate of GDP from Year 1to Year 2 is given by:
Growth Rate of GDP =
Growth Rate of GDP =
Growth Rate of GDP =
Constant dollar real GDP - The nominal GDP adjusted for the inflation which reflects the value of all services and goods produced within the country in a year expressed in base year price.
(b)
| Year 1 | Year 2 | |||
| Quantity | Price | Quantity | Price | |
| Oranges | 100 | $5 | 150 | $5 |
| Pears | 100 | $3 | 75 | $4 |
The growth rate of constant-dollar real GDP with Year 2 as base.
Answer to Problem 3E
The growth rate of constant dollar GDP with year 2 as base price is 16.67%.
Explanation of Solution
| Year 1 | Year 2 | Year 1 | Year 2 | |||
| Quantity | Price | Quantity | Price | Value of goods with Year 2 as base | Value of goods with Year 2 as base | |
| Oranges | 100 | $5 | 150 | $5 | $500 | $750 |
| Pears | 100 | $3 | 75 | $4 | $400 | $300 |
| Total | $900 | $1050 | ||||
The growth rate of GDP from Year 1to Year 2 is given by
Growth Rate of GDP =
Growth Rate of GDP =
Growth Rate of GDP =
Constant dollar real GDP - The nominal GDP adjusted for the inflation which reflects the value of all goods and services produced within the country in a year expressed in base year price.
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