Question

Consider an economy with the following market prices and production quantities over time:

	Good A		Good B		Good C
Year	P ($)	Q (units)	P ($)	Q (units)	P ($)	Q (units)
2017	9.00	10	5.00	56	21.00	40
2018	9.00	12	5.25	60	22.00	42

13. Nominal GDP in 2017 was _____.

A. $1,210

B. $1,347

C. $1,425

D. None of the above/not enough information

14. Nominal GDP in 2018 was _____.

A. $1,180

B. $1,347

C. $1,425

D. None of the above/not enough information

15. Using 2018 as the base year, real GDP in 2017 was _____.

A. $1,264

B. $1,347

C. $1,425

D. None of the above/not enough information

16. Using 2018 as the base year, real GDP in 2018 was _____.

A. $1,290

B. $1,347

C. $1,425

D. None of the above/not enough information

17. The real GDP growth between 2017 and 2018 was _____.

A. 5.93%

B. 6.16%

C. 6.57%

D. None of the above/not enough information

18. Using 2018 as the base year, the GDP deflator in 2017 was _____.

A. 95.73

B. 100

C. 104.46

D. None of the above/not enough information

19. Using 2018 as the base year, the GDP deflator in 2018 was _____.

A. 95.73

B. 100

C. 104.46

D. None of the above/not enough information

Answer 1

Q 13) Nominal GDP in 2017 = (price of good A in 2017 x quantity of good A in 2017)

+ (price of good B in 2017 x quantity of good B in 2017)

+ (price of good C in 2017 x quantity of good C in 2017)

= (9 x 10) + (5 x 56) + (21 x 40)

= 90 + 280 + 840 = 1210 is the answer.

Q 14) Nominal GDP in 2018 = (price of good A in 2018 x quantity of good A in 2018)

+ (price of good B in 2018 x quantity of good B in 2018)

+ (price of good C in 2018 x quantity of good C in 2018)

= (9 x 12) + (5.25 x 60) + (22 x 42)

= 108 + 315 + 924 = 1347 is the answer.

Q 15) Real GDP in 2017 using 2018 as the base year = (price of good A in 2018 x quantity of good A in 2017)

  + (price of good B in 2018 x quantity of good B in 2017)

+ (price of good C in 2018 x quantity of good C in 2017)

= (9 x 10) + (5.25 x 56) + (22 x 40)

= 90 + 294 + 880 = 1264 is the answer.

Q 16) Real GDP in 2018 using 2018 as the base year = (price of good A in 2018 x quantity of good A in 2018)

+ (price of good B in 2018 x quantity of good B in 2018)

+ (price of good C in 2018 x quantity of good C in 2018)

= (9 x 12) + (5.25 x 60) + (22 x 42)

= 108 + 315 + 924 = 1347 is the answer.

Since 2018 is the base year in this case, nominal GDP and real GDP will be equal. Nominal and real GDP are always equal in the base year.