Question

year	price per milk kg	quantity of milk kg	price of honey kg	quantity of honey
2011	1	100	2	50
2012	1	200	2	100
2013	2	200	4	100

compute the percentage change in nominal gap, real gap and the gap deflator in 2011 and 2012 from the preceding year. for each year, identify the variable that does not change. explain in words why your answer makes sense.

Answer 1

NGDP in 2011 = ($1 * 100) + ($2 * 50) = 100 + 100 = $200

NGDP in 2012 = ($1 * 200) + ($2 * 100) = 200 + 200 = $400

NGDP in 2013 = ($2 * 200) + ($4 * 100) = 400 + 400 = $800

RGDP in 2011 = ($1 * 100) + ($2 * 50) = 100 + 100 = $200

RGDP in 2012 = ($1 * 200) + ($2 * 100) = 200 + 200 = $400

RGDP in 2013 = ($1 * 200) + ($2 * 100) = 200 + 200 = $400

GDP deflator in 2011 = (NGDP / RGDP) * 100 = (200 / 200) * 100 = 100

GDP deflator in 2012 = (NGDP / RGDP) * 100 = (400 / 400) * 100 = 100

GDP deflator in 2013 = (NGDP / RGDP) * 100 = (800 / 400) * 100 = 200

% change in NGDP from 2011 to 2012 = [(400 - 200) / 200] * 100 = 100%

% change in NGDP from 2012 to 2013 = [(800 - 400) / 400] * 100 = 100%

% change in RGDP from 2011 to 2012 = [(400 - 200) / 200] * 100 = 100%

% change in RGDP from 2012 to 2013 = [(400 - 400) / 400] * 100 = 0%

% change in GDP deflator from 2011 to 2012 = [(100 - 100) / 100] * 100 = 0%

% change in GDP deflator from 2012 to 2013 = [(200 - 100) / 100] * 100 = 100%

The RGDP from 2012 to 2013 does not change.

The GDP deflator from 2011 to 2012 does not change.