In year 1, the quantity produced is Q1 and the price is P1. In year 2, the quant
ID: 1252491 • Letter: I
Question
In year 1, the quantity produced is Q1 and the price is P1. In year 2, the quantity produced is Q2 and the price is P1. In year 2, the quantity produced is Q1 and the price is P2. In year 3, the quantity produced is Q3 and the price is P3. Year 1 is the base year. Answer the following questions in terms of these variables, and be sure to simplify your answer if possible.A. What is nominal GDP for each of these years?
B. What is real GDP for each of these years?
C. What is the GDP deflator for each of these years?
D. What is the percentage growth rate of real GDP from year 2 to year 3?
E. What is the inflation rate as measured by the GDP deflator from year 2 or year 3?
Explanation / Answer
In year 1, the quantity produced is Q1 and the price is P1. In year 2, the quantity produced is Q2 and the price is P2. In year 3, the quantity produced is Q3 and the price is P3. Year 1 is the base year. Answer the following questions in terms of these variables, and be sure to simplify your answer if possible. A. What is nominal GDP for each of these years? Nominal GDP=Year's Price*Year's Quantity Year1:Q1P1 Year2:Q2P2 Year3:Q3P3 B. What is real GDP for each of these years? Real GDP=Base Year's Price*Year's Quantity Year1:Q1P1 Year2:Q2P1 Year3:Q3P1 C. What is the GDP deflator for each of these years? GDP Deflator=Nominal GDP/Real GDP*100 Year1: Deflator=Q1P1/Q1P1*100=100 (always 100 in base year) Year2: Deflator=Q2P2/Q2P1*100=P2/P1*100 Year3: Deflator=Q3P3/Q3P1*100=P3/P1*100 D. What is the percentage growth rate of real GDP from year 2 to year 3? % Growth Rate=((New-Old)/Old)*100 % Growth Rate=((Q3P1-Q2P1)/Q2P1)*100 % Growth Rate=((Q3-Q2)/Q2)*100 E. What is the inflation rate as measured by the GDP deflator from year 2 or year 3? Inflation Rate=((NewDeflator-OldDeflator)/OldDeflator)*100 Inflation Rate=(((P3/P1)-(P2/P1))/(P2/P1))*100 Inflation Rate=((P3-P2)/P2)*100