Question

1.     Use the following information and answer the following:

Product	Price 2019	Quantity 2019	Price 2020	Quantity 2020
Food	$10	1,000	$12	1,200
Clothing	$40	400	$48	500
Education	$100	600	$120	120
Health care	$200	300	$240	360

a.     Nominal GDP for 2019 and 2020.

b.     Assume 2019 is the base year and calculate the price index for 2020.

c.      Real GDP for 2020.

d.     Nominal and real rate of growth of GDP.

e.     Inflation rate between 2019 and 2020.

Answer 1

Ans:

GDP is the market value of final goods and services produced by a country during a specific period of time.

Real GDP is GDP adjusted for price changes.

a)

Nominal GDP for 2019 = (1000 * $10) + (400 * $40) + ( 600 * $100) + (300 * $200)

= $10,000 + $16,000 + $60,000 + $60,000  

= $146,000

Nominal GDP for 2020 = (1200 * $12) + (500 * $48) + ( 120 * $120) + (360 * $240)

= $14,400 + $24,000 + $14,400 + $86,400

= $139,200

b)

price index for 2020 = (cost of market basket for current year / cost of market basket for base year) * 100

= (((1000 * $12) + (400 * $48) + ( 600 * $120) + (300 * $240)) / ((1000 * $10) + (400 * $40) + ( 600 * $100) + (300 * $200))) * 100

= (($12000 + $19200 + $72000 + $72,000) / ($10,000 + $16,000 + $60,000 + $60,000)) * 100

= ($175,200 / $146,000) * 100

= 120

c)

Real GDP for 2020 = (1200 * $10) + (500 * $40) + ( 120 * $100) + (360 * $200)

= $12,000 + $20,000 + $12,000 + $72,000

= $116,000

d)

Nominal rate of growth of GDP = (Nominal GDP in 2020 - Nominal GDP in 2019) / Nominal GDP in 2019

= ($139,200 - $146,000) / $146,000

= -$6,800 / $146,000

= -4.66%

Real rate of growth of GDP = (Real GDP in 2020 - Real GDP in 2019) / Real GDP in 2019

= ($116,000 - $146,000) / $146,000

= $30,000 / $146,000

= 20.55%

e)

Inflation rate between 2019 and 2020 = (price index in 2020 - price index in 2019) / price index in 2019

= (120 - 100) / 100

= 20 / 100

= 20%