Question

In: Economics

1. Suppose that a simple economy produced only three goods: wheat, automobiles, and chairs. The table...

1. Suppose that a simple economy produced only three goods: wheat, automobiles, and chairs. The table below lists the quantity and prices for each of the goods for year 2000 and 2010. Based on table, answer the following questions

	Quantity produced in 2000	Price in 2000
Wheat	100	$5
Automobiles	200	$40,000
Chairs	400	$10

Calculate nominal GDP in year 2000.
Suppose prices doubled by 2010 but production stayed the same. Calculate the nominal value of GDP in 2010.
Suppose production in wheat and chairs rose by 10 percent in 2010 compared to 2000. Automobile production fell by 5 percent. If prices remain unchanged over this period, what is nominal value of GDP in 2010?

Expert Solution

a. Nominal GDP = Prices of goods * Quantity of goods

For wheat = 100 * 5 = $500

For Automobiles = 200 * $40,000 = $8,000,000

For Chairs = 400 * $10 = $4,000

GDP = 500 + 8,000,000 + 4000

= $8,004,500

	Quantity produced in 2000	Price in 2000	Value
Wheat	100	5	$500
Automobiles	200	40000	$8,000,000
Chairs	400	10	$4,000
GDP			$8,004,500

b. If the prices double, the nominal would double too, becoming $16,009,000.

	Quantity produced in 2000	Price in 2000	Value
Wheat	100	10	$1,000
Automobiles	200	80000	$16,000,000
Chairs	400	20	$8,000
GDP			$16,009,000

c. Wheat and chair production rose by 10%, becoming 110 and 440 respectively. And the production of automobiles fell bt 5%

New productions are

Wheat 110

Automobiles 190

Chair 440

GDP:

	Quantity produced in 2000	Price in 2000	Value
Wheat	110	$5	$550
Automobiles	190	$40,000	$7,600,000
Chairs	440	$10	$4,400
GDP			$7,604,950

The new GDP is $7,604,950

Rahul Sunny answered 2 years ago

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