Calculate nominal GDP, real GDP, and GDP deflator for each year using 2015 as a

ID: 1153822 • Letter: C

Question

Calculate nominal GDP, real GDP, and GDP deflator for each year using 2015 as a base year. Show detailed calculations.

2014 - Price of Milk: $1 Quantity of Milk: 10,000 - Price of Honey $4, Quantity of Honey: 5,000

2015 - Price of Milk: $2 Quantity of Milk: 20,000 - Price of Honey $5, Quantity of Honey: 6,000

2016 - Price of Milk: $3 Quantity of Milk: 30,000 - Price of Honey $5, Quantity of Honey: 7,000

Compute the percentage change in nominal GDP, real GDP, and GDP deflator. From 2014-15 and from 2015-16. Show detailed calculations.

Did economic well being rise more in 2015 (from 2014-15) or 2016 (from 2015-16) Explain.

Nominal GDP = Q x P

Real GDP = Base Price x Q

Base Price = Price of 2015

NGDP in 2014 = 1 x 10000 + 4x5000 = 30000

NGDP in 2015 = 2x20000 + 5x6000 = 70000

NGDP in 2016 = 3x30000 + 5x7000 = 125000

RGDP in 2014 = 2 x 10000 + 5x5000 = 45000

RGDP in 2015 = 2x20000 + 5x6000 = 70000

RGDP in 2016 = 2x30000 + 5x7000 = 95000

GDP deflator = NGDP/ RGDP

GDP deflator in 2014 = 30000 / 45000 = 0.67 = 67

GDP deflator in 2015 = 70000/70000 = 1 = 100

GDP deflator in 2016 = 125000 / 95000 = 1.32 = 132

Change in growth = [ (Present year / past year ) - 1 ] x 100

NGDP growth in 2015 = [ (NGDP 2015 / NGDP 2014 ) - 1 ] x 100

NGDP growth in 2015 = [ (70000 / 30000) - 1 ] x 100 = 133.33%

NGDP growth in 2016 = [ (NGDP 2016 / NGDP 2015 ) - 1 ] x 100

NGDP growth in 2016 = [ (125000/70000 ) - 1 ] x 100 = 78.6%

RGDP growth in 2015 = [ (RGDP 2015 / RGDP 2014 ) - 1 ] x 100

RGDP growth in 2015 = [ (70000 / 45000) - 1 ] x 100 = 55.6%

RGDP growth in 2016 = [ (RGDP 2016 / RGDP 2015 ) - 1 ] x 100

RGDP growth in 2016 = [ (95000/70000 ) - 1 ] x 100 = 35.71%

% GDP deflator 2015 = ([ 100/67 ] - 1 ) x 100 = 49.3%

% GDP deflator in 2016 = [ (132/100 ) - 1 ] x 100 = 32%

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