Please answer digitally, also provide formulas and an elaborate explanation. you
ID: 1127045 • Letter: P
Question
Please answer digitally, also provide formulas and an elaborate explanation.
your help is very appreciated!
Lets suppose that only three types of goods are produced in a particular.country. Output levels and prices of these goods are presented in the table below Year 2010 2015 Quantity, units 4000 500 20 Quantity, units 5000 600 15 Price, euros Price, euros Canned juice Shoes (pairs) Furniture 20 300 25 405 If the year 2015 is set as a basic period, calculate for both periods a) b) Nominal and Real GDP; GDP deflator, and explain its meaning.Explanation / Answer
a) Nominal GDP is the value of the goods and services produced in a year at the current price.
The nominal GDP in 2010 = 2 * 4,000 + 20 * 500 + 300 * 20 = 8,000 + 10,000 + 6,000 = 24,000 euro.
The nominal GDP in 2015 = 5 * 5,000 + 25 * 600 + 405 * 15 = 25,000 + 15,000 + 6,075 = 46,075 euro.
Real GDP is the value of the goods and services produced in a year at the constant price. In the base year, real GDP and nominal GDP are the same. So, in 2010, real GDP = 24,000 euro.
In order to calculate the real GDP of 2015, we need to calculate the value of all the goods and services produced in 2015 according to the price of 2010.
So, real GDP of 2015 = 2 * 5,000 + 20 * 600 + 300 * 15 = 10,000 + 12,000 + 4,500 = 26,500 euro.
b) GDP deflator = (Nominal GDP/Real GDP) * 100
GDP deflator in 2010 = (Nominal GDP/Real GDP) * 100 = (24,000/24,000)*100 = 1*100 = 100
GDP deflator in 2015 = (Nominal GDP/Real GDP) * 100 = (46,075/26,500)*100 = 1.7386 * 100 = 173.86
GDP deflator represents the price change in the current year from the base year. Therefore, GDP deflator reflects how much change in the current year's GDP is because of change in the price level.