You are the marketing manager for your company. The following data represents th
ID: 1141418 • Letter: Y
Question
You are the marketing manager for your company. The following data represents the historical advertising budget of your company, as well as the values of the GDP deflator (a common price index):
Year Ad Budget GDP deflator
2000 $20,000 81.883
2005 $22,000 91.981
2010 $25,000 101.217
2015 $27,000 110.010
2017 $28,000 113.417
a. What does the change in the GDP deflator over time tell you about the value of the dollar over time?
b. Your company has been trying to grow since its creation in the year 2000, and the board of directors is dissatisfied that your department’s advertising budget has increased 40% since the year 2000 but that little growth has occurred as a result. What argument might you make in your defense?
Explanation / Answer
We define the GDP deflator as = (Nimnal GDP / Real GDP)X 100
The GDP deflator is a measure of price inflation
NominalGDP is the market value of goods and services produced in an economy, unadjusted for inflation.
a) Now coming to the problem where the deflator got changed from 81.883 to gradually 113.417 which means the figures for 2000 depicted Real GDP is more than nominal GDP and it shows there was negative inflation of deflation.
Similarly for gradually upto 2017 the deflation got converetd into inflation , crossed the figure of 100 and landed up to 113.417 @ 2017.
As the inflation rose up gradually, the value of dollar fal down in the same period.
b) The company had increased the budget by 40% from 20000 to 28000 but effectively it got changed as under:
Ad Budget (Real)=Ad Budget (Nominal) x 100/ GDP Deflator
Hence the real budget for the period had not increased at all and maintained at the same level.
Year Ad Budget (Nominal) GDP Deflator Ad Budget (Real) 2000 20000 81.883 24425.09 2005 22000 91.981 23917.98 2010 25000 101.217 24699.41 2015 27000 110.01 24543.22 2017 28000 113.417 24687.66Related Questions
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