Question

Year # Cool Ranch Price of Cool Ranch # Nacho Cheesier Price of Nacho Cheesier 2005 10 $5 20 $5 2006 15 $4 20 $6 Suppose the nation of El Dorito produces only two products, Cool Ranch and Nacho Cheesier. The prices and quantities are shown for two years above. What was nominal GDP in 2005? It was Blank 1. Fill in the blank, read surrounding text. . What was nominal GDP in 2006? It was Blank 2. Fill in the blank, read surrounding text. . Now determine what Real GDP was in 2005 using 2006 dollars. It was Blank 3. Fill in the blank, read surrounding text. . Just for fun, figure out what Real GDP was in 2006 using 2005 as the base year. Blank 4. Fill in the blank, read surrounding text. . Now if we use 2005 for the base year again, what is the GDP deflator for 2006? Blank 5. Fill in the blank, read surrounding text. Use at least two decimal places!

Answer 1

					Nominal GDP		Real GDP (Base year 2005)		Real GDP in 2005 (Base year 2006)
	2005		2006		Expenditure in 2005 $	Expenditure in 2006 $	Expenditure in 2005 $	Expenditure in 2006 $
	Price ($ )	Quantity	Price ($ )	Quantity
Cool Ranch	5.00	10	$4.00	15	50	60	100	75	40
Nacho Cheesier	5.00	20	$6.00	20	100	120	150	100	120
					150	180	250	175	160
Nominal GDP: the value of final goods and services at current prices
Real GDP: The value of final goods and services at base year prices
Base year is 2000	Nominal and Real GDP are same
GDP deflator = (Nominal GDP/Real GDP)100
Nominal GDP in 2005		$150
Nominal GDP in 2006		$180
Real GDP in 2005 using 2006 base year prices				$160.
Real GDP in 2006 using 2005 base year prices				$175
GDP deflator in 2006
Nominal GDP in 2006/Real GDP in 2006
($180/$175) =1.03