Attempts: Keep the Highest:13 4. Real versus nominal GDP Aa Aa Consider a simple

Question

Attempts: Keep the Highest:13 4. Real versus nominal GDP Aa Aa Consider a simple economy that produces two goods: apples and oranges. The following table shows the prices and quantities for the goods over a three-year period. Prices and Quantities Quantity of Price of Price of Quantity of Year Apples ($) Apples Oranges ($) Oranges 2012 2013 2014 100 125 115 100 95 92 Use the information from the previous table to fill in the following table Real GDP Year Nominal GDP () (Base year 2012) () GDP Deflator 2012 2013 2014 From 2013 to 2014, nominal GDP and real GDP

Explanation / Answer

Nominal GDP determines the value of current output using the current prices Nominal GDP Penclies Muffinss Nominal GDp Price Qty Price Qty 2012 1 100 5 100 600 2013 2 125 4 95 630 2014 4 115 4 91 824 Real GDP Nominal GDP Penclies Muffinss Real GDp Price Qty Price Qty 2012 1 100 5 100 600 2013 1 125 5 95 600 2014 1 115 5 91 570 GDP Deflator = Nominal GDP/Real GDP 2012 600/600 1 2013 630/600 1.05 2014 824/570 1.45 YEAR NOMINAL GDP REAL GDP DEFLATOR 2012 600 600 1 2013 630 600 1.05 2014 824 570 1.45 From 2013 to 2014, Nominal GDP Increases and real GDP Decreases. Inflation rate in 2014 = ( GDO Deflation in 2014 - Deflator in 2013)/Deflator in 2013 Inflation rate in 2014 = ( 1.45 - 1.05)/1.05 Inflation rate in 2014 =38.09% Correct option:- Real GD is not influenced by price changes but nominal GDP is.

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