Consider a simple economy that produces two goods: cupcakes and muffins. The fol
ID: 1147569 • Letter: C
Question
Consider a simple economy that produces two goods: cupcakes and muffins. The following table shows the prices and quantities of the goods over a three-year period.
Cupcakes
Muffins
Use the information from the preceding table to fill in the following table.
From 2013 to 2014, nominal GDP _____(decreased/increased), and real GDP ______( decreased/increased .
The inflation rate in 2014 was _______.
YearCupcakes
Muffins
Price Quantity Price Quantity (Dollars per cupcake) (Number of cupcakes) (Dollars per muffin) (Number of muffins) 2012 1 120 1 195 2013 2 130 4 195 2014 4 130 4 145Explanation / Answer
2012
Nominal GDP = Price of 2012 * quantities of 2012
=1*120+1*195
=120+195
=$315
Real GDP GDP = Price of 2012 * quantities of 2012
=1*120+1*195
=120+195
=$315
GDP Deflator = (Nominal GDP/Real GDP)*100
=(315/315)*100
=100%
2013
Nominal GDP = Price of 2013 * quantities of 2013
=2*130+4*195
=260+780
=$1040
Real GDP GDP = Price of 2012 * quantities of 2013
=1*130+1*195
=130+195
=$325
GDP Deflator = (Nominal GDP/Real GDP)*100
=(1040/325)*100
=320%
2014
Nominal GDP = Price of 2014 * quantities of 2014
=4*130+4*145
=520+580
=$1100
Real GDP GDP = Price of 2012 * quantities of 2014
=1*130+1*145
=130+145
=$275
GDP Deflator = (Nominal GDP/Real GDP)*100
=(1100/275)*100
=400%
From 2013 to 2014, nominal GDP increased, and real GDP decreased.
The inflation rate in 2014 was 400%.
Year Nominal GDP Real GDP GDP Deflator (Dollars) (Base year 2012, dollars) 2012 315 315 100% 2013 1040 325 320% 2014 1100 275 400%