Question

In: Economics

Suppose that the British economy produces two goods: laptops and books. The quantity produced and the...

Suppose that the British economy produces two goods: laptops and books. The quantity produced and the prices of these items for 2015 and 2016 are shown in the table below:

Year Quantities produced Price ($)
2015 Laptops = 50
Books = 1,000		 Laptops = 250
Books = ?
2016 Laptops = 90
Books = ?		 Laptops = 150
Books = 10



Instructions: Round your answer to two decimal places.

a. Let’s assume that the base year was 2015, so that real GDP in 2015 equals nominal GDP in 2015.     

If the real GDP in Britain was $20,000 in 2015, the price of books was

.

Instructions: Round your answer to the nearest whole number.

b. Using your answer from part (a), if the growth rate in nominal GDP was 10 percent,  books must have been produced in 2016.

Instructions: Round your answer to one decimal place.

c. Using your answers from parts (a) and (b), the growth rate in real GDP between 2015 and 2016 was

Solutions

Expert Solution

Nominal GDP Real GDP
2015 2016 Expenditure in 2015 Expenditure in 2015 Expenditure in 2016
Price ($ ) Quantity Price ($ ) Quantity
Laptops 250.00 50 150.00 90 12500.00 13500.00 22500.00
Books 7.50 1000 10.00 850 7500.00 8500.00 6375.00
Nominal GDP 20000.00 22000.00 28875.00
Nominal GDP in 2015 is the (price of laptops in 2015 times quantity of laptops in 2015) + (price of books in 2015 times quantity of books in 2015)
Nominal GDP in 2015 is $22,000
a) $7.50
(250*50) +(X *1000) = 22000
12500 + 1000X = 22,000
1000X= 22000-12500
1000X=7500
X=$7.5
where X= Price of books in 2015
b) New GDP is $22,000 in 2016 due to 10% increase in GDP of $20000 in 2015
(150 * 90) +(10 *X)=22000
13,500 + 10X= 22000
10X=22000-13500
10X=8500
X=8500/10=85
where X= Quantity of books in 2016
c) Growth rate in real GDP from 2015 to 2016
Real GDP is base year price (2015) times current year quantity (20160
Real GDP in 2016 28875
Rate of increase from 2015 to 2016
((28875-20000)/20000))100
(8875/20000)100=44.4%

Rahul Sunny answered 1 year ago
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