Question

2. Use the data provided below and calculate:

1. Nominal GNP for 2014 and 2015.
2. Assuming 2014 is the base year, calculate price index for 2015.
3. Real GNP for 2014 and 2015.
4. Inflation rate from 2014 to 2015.
5. Real and nominal rates of economic growth from 2014 to 2015. (Note, rate of change is measured by “absolute change” from one year to another divided by what the GNP was in the previous year.

Goods & Services	Price 2014	Quantity 2015	Price 2015	Quantity 2015
Food	$10	10,000	$8	12,000
Clothing	$60	4,000	$40	5,000
Health Care	$2,500	500	$4,000	600

Answer 1

Goods and servies	Price in 2014	Quantity in 2014	Price in 2015	Quantity in 2015
Food	$10	10000	$8	12000
Clothing	$60	4000	$40	5000
Health care	$2,500	500	$4,000	600

Nominal GNP = Current year Quantity * Current year price.

Real GNP = Current year Quantity * Base year price.

(a) Nominal GNP for 2014 = Quantity of 2014 * Price of 2014

Nominal GNP for 2014 = (10000*$10) + (4000*$60) + (500*$2500)

Nominal GNP for 2014 = $100000 + $240000 + $1250000

Nominal GNP for 2014 = $1590000

Nominal GNP for 2015 = Quantity of 2015 * Price of 2015

Nominal GNP for 2015 = (12000 * $8) + (5000 * $40) + (600 * $4000)

Nominal GNP for 2015 = $96000 + $200000 + 2400000

Nominal GNP for 2015 = $2696000

(b) Price index for 2015 = (Nominal GNP for 2015 / Real GNP for 2015) * 100

Real GNP for 2015 = Quantity of 2015 * Price of 2014.

Note: 2014 is the base year.

Real GNP for 2015 = (12000 * $10) + (5000 * $60) + (600 * $2500)

Real GNP for 2015 = $120000 + $300000 + $1500000

Real GNP for 2015 = $1920000

Price index = ($2696000 / $1920000)*100

Price index= 140.42

(c)Real GNP = Current year Quantity * Base year price.   

2014 is the base year.

Real GNP for 2014 = Quantity of 2014 * Price of 2014

Real GNP for 2014 = (10000*$10) + (4000*$60) + (500*$2500)

Real GNP for 2014 = $100000 + $240000 + $1250000

Real GNP for 2014 = $1590000

Real GNP for 2015 = Quantity of 2015 * Price of 2014.

Real GNP for 2015 = (12000 * $10) + (5000 * $60) + (600 * $2500)

Real GNP for 2015 = $120000 + $300000 + $1500000

Real GNP for 2015 = $1920000

(d) Price index for 2014 = (Nominal GNP of 2014 / Real GNP of 2014) * 100

Price index for 2014 = ($1590000 / $1590000)*100

Price index for 2014 = 100

Inflation rate from 2014 to 2015 = [(Price index for 2015 - Price index for 2014) / Price index for 2014] *100

Inflation rate from 2014 to 2105 = [(140.42 - 100) / 100]*100

Inflation rate from 2014 to 2105 = 40.42%

(e) Real rates of economic growth = [(Real GNP of 2015 - Real GNP of 2014) / Real GNP of 2014] * 100

Real rates of economic growth = [($1920000 - $1590000) / $1590000] *100

Real rates of economic growth = 20.75%

Nominal rates of economic growth = [( Nominal GNP for 2015 - Nominal GNP for 2014) / Nominal GNP of 2014]*100

Nominal rates of economic growth = [($2696000 - $1590000) / $1590000] *100

Nominal rates of economic growth = 69.55%