Quizzol

QUESTION:

Consider a simple economy that produces two goods: coffees and seltzers. The following table shows the prices and quantities of the goods over a three-year period.

Year	Coffees		Seltzers
	Price	Quantity	Price	Quantity
	(Dollars per coffee)	(Number of coffees)	(Dollars per seltzer)	(Number of seltzers)
2019	2	215	3	155
2020	4	135	3	210
2021	2	150	3	190

Use the information from the preceding table to fill in the following table.

Year	Nominal GDP	Real GDP	GDP Deflator
Year	(Dollars)	(Base year 2019, dollars)	GDP Deflator
2019
2020
2021

From 2020 to 2021, nominal GDP , and real GDP .

The inflation rate in 2021 was .

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.

Real GDP is not influenced by price changes, but nominal GDP is.

Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

ANSWER:

Use the information from the preceding table to fill in the following table.

Year	Nominal GDP	Real GDP	GDP Deflator
Year	(Dollars)	(Base year 2019, dollars)	GDP Deflator
2019	895	895	100
2020	1,170	900	130
2021	870	870	100

Points:

1 / 1

Nominal GDP measures the value of current output using current prices:

Year	Calculating Nominal GDP
2019	$($2 per coffee \times 215 coffees) + ($3 per seltzer \times 155 seltzers) = $895$
2020	$($4 per coffee \times 135 coffees) + ($3 per seltzer \times 210 seltzers) = $1,170$
2021	$($2 per coffee \times 150 coffees) + ($3 per seltzer \times 190 seltzers) = $870$

Real GDP measures the value of output in the current year using prices from a base year, in this case 2019:

Year	Calculating Real GDP (Base Year 2019)
2019	$($2 per coffee \times 215 coffees) + ($3 per seltzer \times 155 seltzers) = $895$
2020	$($2 per coffee \times 135 coffees) + ($3 per seltzer \times 210 seltzers) = $900$
2021	$($2 per coffee \times 150 coffees) + ($3 per seltzer \times 190 seltzers) = $870$

The GDP deflator is a measure of the price level calculated by dividing nominal GDP by real GDP and multiplying by 100:

Year	Calculating the GDP Deflator
2019	$\frac{$895}{$895} \times 100 = 100$
2020	$\frac{$1,170}{$900} \times 100 = 130$
2021	$\frac{$870}{$870} \times 100 = 100$

From 2020 to 2021, nominal GDPdecreased Correct

, and real GDPdecreased Correct

Points:

0 / 1

Nominal GDP in 2021 decreased to $870 from its value of $1,170 in 2020, and real GDP in 2021 decreased to $870 from its value of $900 in 2020. (Note: Because GDP is thought to be the best single measure of a society's economic well-being, it is one of the most closely watched economic statistics.)

The inflation rate in 2021 was-23.1% Correct

Points:

1 / 1

The inflation rate in a given year is estimated by the percentage change in the GDP deflator between that year and the previous year. Therefore, you can compute the inflation rate in 2021 in the following way:

$Inflation Rate in 2021$	$=$	$100 \times \frac{GDP Deflator in 2021 - GDP Deflator in 2020}{GDP Deflator in 2020}$
	$=$	$100 \times \frac{100 - 130}{130}$
	$=$	$100 \times (−0.2308)$
	$=$	$−23.1%$

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.

Real GDP is not influenced by price changes, but nominal GDP is.

Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

Points:

1 / 1

Real GDP is the value of an economy's output after the impact of price changes has been removed. Nominal GDP is the value of an economy's output measured in current prices. Therefore, nominal GDP rises and falls with price changes and may provide a misleading indication of whether output is increasing or decreasing.

Posted by Cleveland on September 3, 2024