Question

If consumers expect a sale next month on a product they desire, what would happen to consumers’ demand this month?

Calculate the real GDP for Year 3 from the following data. Year 1 is the base year.

Year     Quantity of Output   Price of Wheat    Price Index

1 10                             10 1.00

2 12                               20 2.00

3   11                               30 3.00

From the above data, describe the economy in Year 3

Assume that in 2018 the nominal GDP was $8,000 billion and in 2019 the nominal GDP was $8,500 billion. Based on this information can we make any meaningful comparison of the economy’s performance? Briefly explain.

Answer 1

Soln:

Demand forecasting is a method to predict future sales based on relevant past sales data and then make planned decisions regarding planning inventory and warehousing needs and meeting customer expectations.
Consumer's demand greatly depends upon the future sales predictions and pricing strategies adopted by the companies. If based on the marketing strategies and promotions the consumers expect the sales next month on their desired product, it would affect the demand and buying pattern of the consumers in the current month.
For the economical consumers the demand for the desired product would reduce by significant rate as they would focus on saving money for next month sales. While for a Ego customer the demand would remain unchanged as they don't care much about future sales and offers and continue to buy at original high prices.

Real GDP is calculated by multiplying all quantities of goods and services purchased in year 3 by prices in base year to adjust changes in price level over the 2 years.
Real GDP in year 3 = 11* $10 = $110

Assuming that in year 2018 the nominal GDP was $8000 billion and in year 2019 it rose to $8500 billion we can say that there is increase in the price level of goods over the year due to inflation. This happens because the demand of a particular goods increases more than the market can supply and thus to maintain equilibrium the price level increases.
Based on this data we can say that since the nominal GDP has increased the consumption of goods and services has increased from the base year which shows an initial improvement in the economy. But diving deeper into statistics we can infer that this inflation condition will not be beneficial in long run as it would lover the purchasing power of money in the economy.