Homework SourseConsider a simple economy that produces two goods cupcakes a
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 _______.
| Year | Cupcakes | 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 | 145 |
Solution
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% |
