country produces only two goods, sweaters and pairs of shorts.The table below provides the number...

country produces only two goods, sweaters and pairs of shorts. The table below provides the number of sweaters and pairs of shorts that were produced in each of three years. It also provides the market price of a sweater and the market price of a pair of shorts in each year. When calculating Real GDP, country treats 2018 as the “base year.”

Calculate the: 1) value of Nominal GDP in each year, 2) value of Real GDP in each year, 3) the Nominal GDP Growth Rates in 2019 and 2020, and 4) the Real GDP Growth Rates in 2019 and 2020. Your submission should explain the process of completing your calculations, but you do not need to provide the actual formulas or calculations themselves. Round all growth rates to the nearest one-hundredth of one percent.

year	Quantity of Sweaters	Price of sweaters	Quantity of pairs of shorts	Price of a pair of shorts
2018	210	$45	380	$30
2019	220	$47	400	$31.50
2020	235	$50	415	$34

Expert Solution

Ans.

a) Nominal GDP in 2018 = Sum of (Price* Quantity of each good in 2018) = 210*45 + 380*30 = 9450 + 11400 = $20850

Real GDP in 2018 = Nominal GDP in 2018 [Because 2018 is the base year]

b) Nominal GDP in 2019 = Sum of (Price* Quantity of each good in 2019) = 220*47 + 400*31.5 = 10340 + 12600 = $22940

Real GDP in 2019 = Sum of (Price of good in 2018*Quantity of each good in 2019) = 220*45 + 400*30 = 9000 + 12000 = $21000

c) Nominal GDP in 2020 = Sum of (Price* Quantity of each good in 2020) = 235*50 + 415*34 = 11750 + 14110 = $25860

Real GDP in 2020 = Sum of (Price of good in 2018*Quantity of each good in 2020) = 235*45 + 415*30 = 10575 + 12450= $23025

d) Growth rate of nominal GDP between 2019 and 2020 = (Nominal GDP 2020/Nominal GDP 2019)-1 = (25860/22940)-1 = 0.127288 or 12.7288%

e) Growth rate of real GDP between 2019 and 2020 = (Real GDP 2020/Real GDP 2019) - 1 = (23025/21000) - 1 = 0.096428 or 9.6428%

Rahul Sunny answered 2 years ago

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