Consider a simple economy that produces two goods: pencils and erasers. The foll
ID: 1132022 • Letter: C
Question
Consider a simple economy that produces two goods: pencils and erasers. The following table shows the prices and quantities of the goods over a three-year period Pencils ErasersS Price (Dollars per pencil) Quantity (Number of pencils) 110 155 120 Price Year 2014 2015 2016 Quantity (Number of erasers) 150 215 180 (Dollars per eraser) 4 4 Use the information from the preceding table to fill in the following table. Nominal GDP Real GDP Year(Dollars) 2014 2015 2016 (Base year 2014, dollars) GDP Deflator From 2015 to 2016, nominal GDP and real GDP The inflation rate in 2016 was Why is real GDP a more accurate measure of an economy's production than nominal GDP? O Real GDP is not influenced by price changes, but nominal GDP Is O Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes O Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.Explanation / Answer
Po = prices in the base year
Real GDP (nth year) = Po x Qn
Nominal GDP (nth year) = Pn x Qn
GDP deflator = Nominal GDP/Real GDP x 100
From 2015 to 2016, nominal GDP decreased, and real GDP decreased
The inflation rate in 2016 = (225 - 200)/200 x 100 = 12.5%
Correct option:
Real GDP is not influenced by price changes, but nominal GDP is.
Year Nominal GDP Real GDP GDP Deflator 2014 410 410 100 2015 1170 585 200 2016 1080 480 225