Question

Product		Price 2019	Quantity 2019		Price "20	Q "20
Food		10	1000		12	1200
Clothing		40	400		48	500
Education		100	600		120	620
Health care		200	300		240	360

1. What is the nominal GDP in 2019?

2. What is the nominal GDP in 2020?

3. Assuming 2019 is the base year, calculate the price index for 2020. ROUNDING UP TO TWO DECIMAL POINTS. For Example, 2.136986 is rounded up to 2.14.

4. What is the real GDP in 2020?

5. What is the real rate of growth of GDP from 2019 to 2020?

6.  Assuming the marginal propensity to consume (MPC) is 0.60 and the equilibrium GDP (Ye) is $5,000, calculate government multiplier. following:

Answer 1

(1) Nominal GDP in 2019 = Quantity of 2019 * Price of 2019

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

=> Nominal GDP in 2019 = 146000

(2) Nominal GDP in 2020 = Quantity of 2020 * Price of 2020

=> Nominal GDP in 2020 = (1200 * 12) + (500 * 48) +(620 * 120) + (300 * 240)

=> Nominal GDP in 2020 = 184800

(3) 2019 is the base year.

Price index for 2020 = (Nominal GDP in 2020 / Real GDP in 2020)

Real GDP = quantity of current year * Price of base year

Real GDP in 2020 = Quantity of 2020 * Price of 2019

Real GDP in 2020 = (1200 * 10) + (500 * 40) +(620 * 100) + (300 * 200)

Real GDP in 2020 = 154000.

Price index for 2020 = (184800 / 154000)

Price indec for 2020 = 1.20

(4) real GDP in 2020 is 154000.

See part (3) for reference.

(5) In base year, real GDP = nominal GDP.

2019 is the base year.

=> Real GDP in 2019 = Nominal GDP in 2019.

=> Real GDP in 2019 = 146000

(6) Government spending multiplier = 1 / (1-MPC)

Government spending multiplier = 1 / (1-0.6)

Government spending multiplier = 1/0.4

Government spending multiplier = 2.5