Question

1. Red Hawk Woods spent $400,000 in consumption, $200,000 in gross investment, $100,000 in government goods and services, $100,000 in exports, and $250,000 in imports

1. What is the GDP of Red Hawk Woods?
2. If the population in Red Hawk Woods is 3,000, what is GDP per capita?

Good	Price 2011	Quantity 2011	Price 2012	Quantity 2012
Shampoo	$8	1000	$10	1500
Conditioner	$7	5000	$8	6000

2. Use the table above for Hairy Island to answer the following questions.

1. What was nominal GDP in 2011?
2. What was nominal GDP in 2012?
3. What is real GDP in 2011?
4. What was real GDP in 2012?

3. In 2012 Hairy Island had a population of 500, what was their real GDP per capita/standard of living?

Answer 1

GDP = C + I + G + (X-M)

C = Consumption = $400,000

I = Investment = $200,000

G = Government Income = $100,000

X =Exports = $100,000

M = Imports = $250,000

GDP = 400,000 + 200,000 + 100,000 +(100,000 - 250,000)

= $550,000

b. If the population is 3,000, the per capita income is:

550,000/3000

= $183.333

2.

a. Nominal GDP in 2011

= Nominal GDP = Value of all goods and services produced in a country at the current price

Good	Price 2011	Quantity 2011	Value
Shampoo	$8	1,000	$8,000
Conditioner	$7	5,000	$35,000
Total		6,000	$43,000.00

GDP is $43,000

b. Nominal GDP in 2012

Good	Price 2012	Quantity 2012
Shampoo	$10.00	1500	$15,000
Conditioner	$8.00	6000	$48,000
Total		7,500	$63,000.00

GDP is $63,000

c. Real GDP is the inflation-adjusted measure that shows the value of all goods and services produced in the economy. Real GDP is calculated by taking base year prices rather than current year prices to show the value of products that really increased and not because of inflation.

Real GDP in 2011 will be calculated on 2011 price since there is no year previous to that and base year is not mentioned

Good	Price 2011	Quantity 2011	Value
Shampoo	$8	1,000	$8,000
Conditioner	$7	5,000	$35,000
Total		6,000	$43,000.00

Real GDP will be the same at $430,000

d.

Good	Price 2011	Quantity 2012	Value
Shampoo	$8	1500	$12,000
Conditioner	$7	6000	$42,000
Total		7,500	$54,000.00

Real GDP of 2102 is $54,000

With a population of 500 and real GDP of $54,000 the GDP per capita is

= $54,000/500

= $108