Question

In: Economics

Consider the following information. 2010 (base year) &n

Consider the following information.

2010 (base year) 2011

Price Quantity Price Quantity

Car $100 400 $120 420

Rice $25 2,000 $36 2,005

2012

Price Quantity

Car $130 450

Rice $38 2,100

Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2010 as the base year.
Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2011 and 2012 from the preceding year.
Did economic well-being rise more in 2011 or 2012? Explain.

Solutions

Expert Solution

a) Nominal GDP in 2010 = 100x400+25x2000 = 90000

Real GDP in 2010 = same as nominal GDP as it is the base year = 90000

GDP Deflator = Nominal GDP/Real GDP x100 = 90000/90000x100=100

Nominal GDP in 2011 = 120x420+36x2005 = 122580

Real GDP in 2011=100x420+25x2005=92125

GDP Deflator = 122580/92125x100 = 133

Nominal GDP in 2012 = 130x450+38x2100=138300

Real GDP in 2012=100x450+25x2100 = 97500

GDP Deflator = 138300/97500x100=142

b) Percentage change in Nominal GDP

year 2011=122580-90000/90000x100 = 36.2%

year 2012 = 138300-122580/122580x100 = 12.82%

Percentage change in Real GDP

year 2011 = 92125-90000/90000x100= 2.36%

year 2012 = 97500-92125/92125x100 = 5.83%

Percentage change in GDP Deflator

year 2011 = 133-100/100x100=33%

year 2012 = 142-133/133x100=6.76%

c) The economic well being rose more in the year 2012 than 2011 as the percentage change in real GDP is more in year 2012 than in year 2011.

Rahul Sunny answered 1 year ago

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