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A5-9. Suppose the data below represents the entire production of an economy, where the table
shows the production of goods and their prices for 2012 and 2013: (a) Calculate nominal GDP
for each year. Calculate the percentage growth rate of nominal GDP. [3] (b) Calculate real GDP
for each year using 2012 as the base year. Calculate its growth rate. [3] (c) Calculate the GDP
deflator for each year and its inflation rater. Briefly explain the relationship between the inflation
rate and the growth rates of nominal and real GDP. [4]
Solution
(a)
Nominal GDP for 2012 = 400 x $1 + 200 x $2 = $800
Nominal GDP for 2013 = 420 x $0.90 + 215 x $2.20 = $851
Growth rate = (851

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A5-9- Suppose the data below represents the entire production of an ec (1).docx

  • 1. A5-9. Suppose the data below represents the entire production of an economy, where the table shows the production of goods and their prices for 2012 and 2013: (a) Calculate nominal GDP for each year. Calculate the percentage growth rate of nominal GDP. [3] (b) Calculate real GDP for each year using 2012 as the base year. Calculate its growth rate. [3] (c) Calculate the GDP deflator for each year and its inflation rater. Briefly explain the relationship between the inflation rate and the growth rates of nominal and real GDP. [4] Solution (a) Nominal GDP for 2012 = 400 x $1 + 200 x $2 = $800 Nominal GDP for 2013 = 420 x $0.90 + 215 x $2.20 = $851 Growth rate = (851