Question

In: Economics

1. The economy of Britannica produces three goods: computers, DVDs, and pizza. The accompanying table shows...

1. The economy of Britannica produces three goods: computers, DVDs, and pizza. The accompanying table shows the prices and output of the three goods for the years 2012, 2013, and 2014. Computers DVDs Pizzas Year Price Quantity Price Quantity Price Quantity 2012 $700 12 $12 120 $22 4 2013 $825 12.5 $14 125 $23 7 2014 1,150 14 $15 138 $24 9 Calculate nominal GDP in Britannica for 2012,2013,2014;What is the GDP Growth rate from 2012 to 2014? Calculate real GDP in Britannica for 2012, 2013, 2014. Assume the base year is 2012. What is the GDP growth rate from 2012-2014. Compare the growth rates for Nominal and Real GDP, how much of the growth in Nominal GDP was due to inflation

Solutions

Expert Solution

We have the following information

Year

Computers

DVDs

Pizza

Nominal GDP ($)

Price ($)

Quantity

Price ($)

Quantity

Price ($)

Quantity

2012

       700.0

         12.0

         12.0

       120.0

         22.0

           4.0

          9,928.0

2013

       825.0

         12.5

         14.0

       125.0

         23.0

           7.0

        12,223.5

2014

    1,150.0

         14.0

         15.0

       138.0

         24.0

           9.0

        18,386.0

Compound Annual Growth Rate (CAGR) = (GDP in 2014 ÷ GDP in 2012)1/N-1 – 1

N = Number of Years

CAGR = (18,386 ÷ 9928)1/2 – 1

CAGR = 36.1%

Consumer Price Index (CPI) = (Ʃp1q0/Ʃp0q0) × 100

In the above, p1 is the current year price; p0 is base year price; q0 is base year quantity. In the present case the base year is 2012.

Commodity

q0 (2012)

p0 (2012)

p1 (2013)

p1q0

p0q0

Computers

         12.0

       700.0

       825.0

      9,900.0

    8,400.0

DVDs

       120.0

         12.0

         14.0

      1,680.0

    1,440.0

Pizza

           4.0

         22.0

         23.0

            92.0

         88.0

Total

    11,672.0

    9,928.0

CPI for 2013 = (11,672.0/9,928.0) × 100 = 117.6

Commodity

q0 (2012)

p0 (2012)

p1 (2014)

p1q0

p0q0

Computers

         12.0

       700.0

    1,150.0

    13,800.0

    8,400.0

DVDs

       120.0

         12.0

         15.0

      1,800.0

    1,440.0

Pizza

           4.0

         22.0

         24.0

            96.0

         88.0

Total

    15,696.0

    9,928.0

CPI for 2013 = (15,696.0/9,928.0) × 100 = 158.1

Year

Nominal GDP ($)

CPI

Real GDP ($)

2012

          9,928.0

       100.0

      9,928.0

2013

        12,223.5

117.6

    10,397.1

2014

        18,386.0

158.1

    11,629.5

Compound Annual Growth Rate (CAGR) of Real GDP = (Real GDP in 2014 ÷ Real GDP in 2012)1/N-1 – 1

N = Number of Years

CAGR = (11,629.5 ÷ 9,928.0)1/2 – 1

CAGR = 8.2%

So, 27.9 percentage points increase in the annual GDP from 2012 to 2014 was due to inflation.

Rahul Sunny answered 2 years ago
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