7 In the year 2017 the economy produces 100 loaves of bread

7. In the year 2017, the economy produces 100 loaves of bread that sell for $2 each. In the year 2018, the econ- omy produces 200 loaves of bread that sell for $3 each. Calculate nominal GDP, real GDP, and the GDP defla- tor for each year. (Use 2017 as the base year.) By what percentage does each of these three statistics rise from one year to the next?

Solution

Answer : Table showing information:

Year 2017 :

Nominal GDP = Current year Price * Current year quantity = $2*100 = $200

Real GDP =Base year Price * Current year quantity = $2*100 = $200

GDP Deflator =Nominal GDP*100/ Real GDP = $200*100/ $200 =100

Year 2018

Nominal GDP = Current year Price * Current year quantity = $3*200 = $600

Real GDP =Base year Price * Current year quantity = $2*200 = $400

GDP Deflator =Nominal GDP*100/ Real GDP = $600*100/ $400 =150

STATISTICAL ANALYSIS:

NOMINAL GDP:

2017 $200

2018 $600

% Increase = New -OLd *100/ Old

% Increase in Nominal GDP =400*100/200 = 200%

REAL GDP:

2017 $200

2018 $400

% Increase = New -OLd *100/ Old

% Increase in Real GDP =200*100/200 = 100%

GDP Deflator

2017 100

2018 150

% Increase = New -OLd *100/ Old

% Increase in GDP Deflator=50*100/100 = 50%

YEAR	PRICEOF LOAVES	QUANTITY OF LOAVES
2017(Base year)	$2	100
2018	$3	200