Question

Consider a simple economy that produces two goods: apples and envelopes. The following table shows the prices and quantities of the goods over a three-year period.

Year	Apples		Envelopes
	Price	Quantity	Price	Quantity
	(Dollars per apple)	(Number of apples)	(Dollars per envelope)	(Number of envelopes)
2018	1	145	2	195
2019	2	165	4	225
2020	3	110	4	165

Use the information from the preceding table to fill in the following table.

Year	Nominal GDP	Real GDP	GDP Deflator
	(Dollars)	(Base year 2018, dollars)
2018
2019
2020

From 2019 to 2020, nominal GDP   , and real GDP .

The inflation rate in 2020 was .

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.

Real GDP is not influenced by price changes, but nominal GDP is.

Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

Answer 1

						Nominal GDP	Real GDP (Base year= 2018)
Base year 2018	2019	2020	Expenditure in base year= 2018 $	Expenditure in 2019 $	Expenditure in 2020- $	Expenditure in 2019 $	Expenditure in 2020 $
Price ($ )	Quantity	Price ($ )	Quantity	Price ($ )	Quantity
1.00	145	2.00	165	3.00	110	145.00	330.00	330.00	165.00	110.00
2.00	195	4.00	225	4.00	165	390.00	900.00	660.00	450.00	330.00
						535.00	1230.00	990.00	615.00	440.00
Nominal and Real GDP are same
	Nominal GDP $	Real GDP $	GDP Deflator
2018 ( base year)	535.00	535.00	100
2019	1230.00	615.00	200
2020	990.00	440.00	225
GDP deflator= Nominal GDP/Real GDP
Inflation rate in 2020
( GDP deflator in 2020- GDP deflator in 2019)/GDP Deflator in 2019)) x100
(225-200)/200)) x100
12.50%
Choice 2 is answer.
Real GDP is not affected by changes in prices.