3. (10 points) Consider an economy that produced computers, wheat and beer. The
ID: 1165726 • Letter: 3
Question
3. (10 points) Consider an economy that produced computers, wheat and beer. The following table describes the prices and quantities of goods that this economy produced on years Price of Quantity of Price of Quantity of Price of Quantity of 2005 2010 2015 computers computerswheat $1500 $2000 $2500 10 15 20 $2 $1 $2 wheat 10000 15000 25000 beer $10 $10 $15 beer 1000 1500 2000 What is nominal gross domestic product (GDP) for this economy in 2005? 2010? 2015? (Show work What is real GDP (in 2010 prices) for this economy in 2005? 2010? 2015? (Show work) What is the GDP deflator in 2005? 2010? 2015? (Show work)Explanation / Answer
A). Nominal GDP = Total value of goods and services produced in that year
Nominal GDP (2005) = 1500*10 + 2*10000 + 10*1000
= 15000 + 20000 + 10000
= $ 45000
Nominal GDP (2010) = 2000*15 + 1*15000 + 10*1500
= 30000 + 15000 + 15000
= $ 60000
Nominal GDP (2015) = 2500*20 + 2*25000 +15*2000
= 50000 + 50000 +30000
= $ 130000
B). Real GDP (in2010 prices) is calculated by taking the quantities of all goods and services purchased in a year and multiplying them by their 2010 prices.
Real GDP ( 2005) = 2000*10 + 1*10000 + 10*1500
= 20000 + 10000 + 15000
= $ 45000
Real GDP ( 2010) =2000*15 + 1*15000 + 10*1500
= $ 60000
Real GDP ( 2015) = 2000*20 * + 1*25000 + 10*2000
= 40000 + 25000 + 20000
= $ 85000
C). The GDP deflator is a measure of price inflation. It is calculated by dividing Nominal GDP by Real GDP and then multiplying by 100.
GDP Deflator ( 2005) = Nominal GDP (2005)/Real GDP (2005) * 100
= 45000/45000 *100
= 100
GDP Deflator (2010) = 60000/60000*100
=100
GDP Deflator (2015) = 130000/85000 * 100
= 152.94
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