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Question 5: The country of Pantherville produces two goods: footballs and basketballs. Below is a table...

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

Calculate Nominal GDP for Years 1, 2 and 3

Using Year 1 as the base Year, calculate Real GDP for years 1, 2 and 3

What is the economic growth rate from year 1 to 2 and from year 2 to 3?

What is the GDP per capita in Pantherville in years 1, 2 and 3?

What is the inflation rate from year 1 to year 2 and from year 2 to year 3?

Expert Solution

(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%

Rahul Sunny answered 8 months ago

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