3. Suppose an economy produces only one good In the base year (2000), production
ID: 1143846 • Letter: 3
Question
3. Suppose an economy produces only one good In the base year (2000), production was 8 units at a price of $10 each. The next year, production increased to 9 units and the price of the good increased to $12 a. b. Find nominal GDP in years 2000 and 2001. If the price index is 100 in the base year, what is the value of the price index in year 2001? c Find real GDP in year 2001 Suppose a hypothetical national economy can be represented by the following data: Nominal Price Index Real YearGDP (2000-100) GDP 2007 $1536128 2008 $1663132 2009 2010 $1792 135 $1274 140 Find real GDP in years 2007, 2008, and 2010, Find nominal GDP in year 2009 d. e.Explanation / Answer
a.
Nominal GDP in 2000 = market value of goods and services at current market price
=$10*8
=$80
Nominal GDP in 2001 = market value of goods and services at current market price
=$12*9
=$108
b.
The price index for the base year is $100.
The price index for the next year will be= Price of goods in the base year* Quantity of goods produced in the current year.
=$10*9
=$90
The price index for the next year will be
= (Cost of basket in the current year / cost of basket in the base year)*100
=(108/90)*100
=120%
c.
Real GDP in 2001=( Nominal GDP in 2001/ price index of 2001)*100
=(108/120)*100
=$90
d.
Real GDP of 2007 = (Nominal GDP of 2007/ price index of 2007)*100
=($1536/128)*100
=12*100
=$1200
Real GDP of 2008 = (Nominal GDP of 2008/ price index of 2008)*100
=($1663/132)*100
=12*100
=$1259.84
Real GDP of 2010 = (Nominal GDP of 2010/ price index of 2010)*100
=($1792/140)*100
=12*100
=$1280
(e)
Real GDP of 2009 = (Nominal GDP of 2009/ price index of 2009)*100
$1274 = (Nominal GDP of 2009/135)*100
The nominal GDP of 2009 = (1274*135)/100
=$1719.9
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