In: Economics
Question 5:
The country of Pantherville produces two goods: footballs and basketballs. Below is a table showing prices and quantities of output for three years:
Year |
Price of Footballs |
Quantity of Footballs |
Price of Basketballs |
Quantity of Basketballs |
Population Pantherville |
Year 1 |
$10 |
120 |
$12 |
200 |
100 |
Year 2 |
12 |
200 |
15 |
300 |
110 |
Year 3 |
14 |
180 |
18 |
275 |
130 |
(a)
Nominal GDP (NGDP) = (Current year price x Current year quantity)
Year 1 = 10 x 120 + 12 x 200 = 1200 + 2400 = 3600
Year 2 = 12 x 200 + 15 x 300 = 2400 + 4500 = 6900
Year 3 = 14 x 180 + 18 x 275 = 2520 + 4950 = 7470
(b)
Real GDP (RGDP) = (Base year (year 1) price x Current year quantity)
Year 1 = 10 x 120 + 12 x 200 = 1200 + 2400 = 3600
Year 2 = 10 x 200 + 12 x 300 = 2000 + 3600 = 5600
Year 3 = 10 x 180 + 12 x 275 = 1800 + 3300 = 5100
(c)
Economic growth rate is measured by % Change in RGDP.
Year 2 = (5600/3600) - 1 = 1.5556 - 1 = 0.5556 = 55.56%
Year 3 = (5100/5600) - 1 = 0.9107 - 1 = - 0.0893 = - 8.93%
(d)
GDP per capita = RGDP / Population
Year 1 = 3600/100 = 36
Year 2 = 5600/110 = 50.91
Year 3 = 5100/130 = 39.23
(e)
GDP Deflator = (NGDP / RGDP) x 100
Year 1 = (3600/3600) x 100 = 100
Year 2 = (6900/5600) x 100 = 123.21
Year 3 = (7470/5100) x 100 = 146.47
Inflation rate = % Change in GDP Deflator
Inflation, year 2 = (123.21/100) - 1 = 1.2321 - 1 = 0.2321 = 23.21%
Inflation, year 3 = (146.47/123.21) - 1 = 1.1888 - 1 = 0.1888 = 18.88%