Question

In: Economics

Assume that is produced only two products; Coffee bean and plastic where are the price and quantity produced are:

Assume that is produced only two products; Coffee bean and plastic where are the price and quantity produced are:

Year

Coffee bean

Plastic

2018 (base year)

P= 10    Q= 1,000


P= 5     Q= 2,000


2019

P= 10    Q= 1,100


P= 5      Q= 2,100


2020

P= 12    Q= 900


P= 6      Q= 1,900


 

Calculate GDP deflator for the years 2018, 2019 and 2020.  Also, calculate the Nominal and real GDP growth on 2019 & 2020, compare between them by explaining why they are different.  Calculate the 2019 & 2020 inflation rates.


Solutions

Expert Solution

Formulas used in the table are the following:

Real GDP = Base Year Price*Output

Nominal GDP = Current Year Price*Output

GDP Deflator = Nominal GDP/Real GDP

Inflation Rate = (Current Year GDP Deflator/Previous Year GDP Deflator) – 1:

Real GDP Growth Rate = (Current Year Real GDP/Previous Year Real GDP) – 1

Nominal GDP Growth Rate indicates the % increase in the Nominal GDP:

Nominal GDP Growth Rate = (Current Year Nominal GDP/Previous Year Nominal GDP) – 1

 

Year

Coffee bean

Plastic

Real GDP

Nominal GDP

GDP Deflator

Inflation Rates

Real GDP Growth Rate

Nominal GDP Growth Rate

2018 (base year)

P= 10  Q= 1,000


P= 5 

Q= 2,000


20000

20000

1




2019

P= 10  Q= 1,100


P= 5 

Q= 2,100


21500

21500

1

0%

7.5%

7.5%

2020

P= 12  Q= 900


P= 6  Q= 1,900


18500

22200

1.2

20%

-13.95%

3.26%

 



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