Question
In: Economics
Net Exports: 2017 2017 2018 2018 Goods/Services Quantity Price Quantity Price Technology 1,000 $280,000 1,000 $300,000...
| Net Exports: | |||||||||
| 2017 | 2017 | 2018 | 2018 | ||||||
| Goods/Services | Quantity | Price | Quantity | Price | |||||
| Technology | 1,000 | $280,000 | 1,000 | $300,000 | |||||
| Military Arms | 7,000 | $20,000 | 5,000 | $25,000 | |||||
| Textiles | 845,000 | $39.99 | 750,000 | $49.99 | |||||
| Toys | 900,000 | $18.99 | 925,000 | $19.99 | |||||
| Total | |||||||||
| Calculate the Nominal GDP for 2017. | |||||||||
| Calculate the Real GDP with a base year of 2017. | |||||||||
| What is the GDP Deflator? | |||||||||
| What is the economy experiencing? | |||||||||
Solutions
Expert Solution
(1) Nominal GDP = 
(Current
year price x Current year quantity)
2017 ($) = 280,000 x 1,000 + 20,000 x 7,000 + 39.99 x 845,000 + 18.00 x 900,000
= 280,000,000 + 140,000,000 + 33,791,550 + 16,200,000
= 469,991,550
2018 ($) = 300,000 x 1,000 + 25,000 x 5,000 + 49.99 x 750,000 + 19.99 x 925,000
= 300,000,000 + 125,000,000 + 37,492,500 + 18,490,750
= 480,983,250
(2) Real GDP = (Base
year (2017) price x Current year quantity)
2017 ($) = 280,000 x 1,000 + 20,000 x 7,000 + 39.99 x 845,000 + 18.00 x 900,000
= 280,000,000 + 140,000,000 + 33,791,550 + 16,200,000
= 469,991,550
2018 ($) = 280,000 x 1,000 + 20,000 x 5,000 + 39.99 x 750,000 + 18.00 x 925,000
= 280,000,000 + 100,000,000 + 29,992,500 + 16,650,000
= 399,649,250
(3) GDP Deflator = (Nominal GDP / Real GDP) x 100
GDP Deflator, 2017 = 100 (Since in base year, GDP deflator is 100 as Nominal GDP = Real GDP)
FDP Deflator, 2018 = (480,983,250 / 399,649,250) x 100 = 120.35
(4) Since real GDP has decreased in 2018 compared to 2017, the economy is experiencing recession, since a recession occurs when economic growth rate decreases, as is measured by the change in real GDP.
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