Transcript 4. Ch 22 Practice Qz keyx

• Year P of Soda
• 2003
$1.09
• 2004
$1.09
• 2005
$1.13
Q of Soda
214
222
222
P of Jeans
$23.00
$26.00
$26.00
Q of Jeans
50
50
56
1. What is the value of the nominal GDP in 2003?
$1.09 x 214 + $23 x 50 = $1383.26
2. What is the value of the real GDP in 2003? $1383.26
• Year P of Soda Q of Soda
P of Jeans
Q of Jeans
• 2003
$1.09
214
$23.00
50
• 2004
$1.09
222
$26.00
50
• 2005
$1.13
222
$26.00
56
• 3. What is the value of the nominal GDP in 2004?
$1.09 x 222 + $26 x 50 = $1541.98
4. What is the value of the real GDP in 2004?
Hold Prices Constant
$1.09 x 222 + $23 x 50 = $1391.98
• Year P of Soda Q of Soda
P of Jeans
Q of Jeans
• 2003
$1.09
214
$23.00
50
• 2004
$1.09
222
$26.00
50
• 2005
$1.13
222
$26.00
56
5. a. What is the value of the GDP deflator in 2004? N / R x 100
$1541.98 / $1391.98 x 100 = 110.776
b. So what does this mean ?
Prices increased by 10.776% from 03-04
• Year P of Soda
• 2003
$1.09
• 2004
$1.09
• 2005
$1.13
Q of Soda
214
222
222
P of Jeans
$23.00
$26.00
$26.00
6. What is the value of the GDP deflator in 2005?
First – find nominal
$1.13 x 222 + $26 x 56 = $1706.86
Next – find real
$1.09 x 222 + $23 x 56 = $1529. 98
Next- find deflator = N/R x 100 = 111.56
Q of Jeans
50
50
56
7. Was the increase in nominal GDP from 2003-2005 mostly due to an increase
in real output or mostly due to an increase in prices? (Explain – using #’s to
support your answers)
Step 1 : Find % change in NGDP from 03 ($1383.26) to 05 ($1706.86)
$1706.86 - $1383.26 / $1383.26 = 23.4%
Step 2: Choice A: Find GDP Deflator in 2005 = 111.56
= 11.56% increase in prices
Conclude that out of the 23.4% increase in NGDP; 11.56% was due to prices and
the remaining 11.84% was due to increase in productivity (RGDP)
*These #’s are approximate and it gives you a good indication of the cause of the increase in
NGDP
Or Step 2: Choice B: Find Real GDP in 03 ($1383.26 ) and 05 ($1529. 98 )
Find % change = tells us how much productivity increased (economic growth)
$1529.98 - $1383.26 / $1383.26 x 100 = 10.6 %
Conclude that out of the 23.4 % increase in NGDP; 10.6% was due to
productivity and the remaining 12.8% was due to increase in prices
*These #’s are approximate and it gives you a good indication of the cause
of the increase in NGDP
• Year P of Soda
• 2003
$1.09
• 2004
$1.09
• 2005
$1.13
Q of Soda
214
222
222
P of Jeans
$23.00
$26.00
$26.00
8. Use 2004 as Base year :
a. What is the value of the real GDP in 2003?
• $1.09 x 214 + $26 x 50 = $1533.26
• b. real GDP in 2005?
• $1.09 x 222 + $26 x 56 = $1697.98
Q of Jeans
50
50
56
Year
NGDP
RGDP
Deflator
2003
#9_______ $50
2004
$55
#10______ 110
2005
$60.50
$55
100
#11______
9. N/R x 100 = 100
N = $50
Logic : base year Deflator = 100 so N and R have to be same
10. N/R x 100 = 110 R = $50
Logic : NGDP increased from $50 to $55 = 10% ; Deflator increased 10% ; so…
RGDP did not increase
11. N/R x 100
Deflator = 110
Logic: NGDP increased 10%; Real increased by 10%; so…..
Deflator did not change
• 15. yes – it is a market activity = Consumption
• 16. no – it is a used good – avoid double counting
• 17. yes – it is market activity = Investment
• 18. no – not produced in this country = but is part of GN
• **Y = C+I +G+Nx = expenditures approach
• **Y= Wages + Rent + Interest + Profits (W+R+Int+Profit) = income
approach