given the following information, calculate nominal GDP, real GDP, and the percentage increase in year two. Be sure to label the answers. Describe what is taking place in the economy. In the base year, 10 new cars were sold at $7,000 each, 20 new office chairs at $1500 each. In year two, 12 new cars were sold at $6,000 each, 22 new office chairs at $3,000.
Can someone go through a step by step process and also label. I'm not sure that I understand this at all. Please help. Thankyou!
please anyone help!!! Really stuck!
To calculate the nominal GDP, real GDP, and the percentage increase in year two, we need to follow these steps:
Step 1: Calculate the nominal GDP in both the base year and year two.
Step 2: Adjust the nominal GDP in year two to obtain the real GDP.
Step 3: Calculate the percentage increase in year two.
Let's go through the calculations step by step.
Step 1: Calculate the nominal GDP in both the base year and year two.
In the base year, 10 new cars were sold at $7,000 each, and 20 new office chairs were sold at $1,500 each.
Nominal GDP in the base year = (Number of new cars sold * Price of each car) + (Number of office chairs sold * Price of each chair)
Nominal GDP in the base year = (10 * $7,000) + (20 * $1,500)
Nominal GDP in the base year = $70,000 + $30,000
Nominal GDP in the base year = $100,000
In year two, 12 new cars were sold at $6,000 each, and 22 new office chairs were sold at $3,000 each.
Nominal GDP in year two = (Number of new cars sold * Price of each car) + (Number of office chairs sold * Price of each chair)
Nominal GDP in year two = (12 * $6,000) + (22 * $3,000)
Nominal GDP in year two = $72,000 + $66,000
Nominal GDP in year two = $138,000
Step 2: Adjust the nominal GDP in year two to obtain the real GDP.
To obtain the real GDP, we need to adjust for changes in prices by using the base year as a reference.
Real GDP in year two = Nominal GDP in year two / Price Level in the base year
Real GDP in year two = $138,000 / ($100,000 / 100)
Real GDP in year two = 138,000 / 1000
Real GDP in year two = $138,000
Step 3: Calculate the percentage increase in year two.
To determine the percentage increase, we compare the difference between the real GDP in year two and the nominal GDP in the base year.
Percentage increase = ((Real GDP in year two - Nominal GDP in the base year) / Nominal GDP in the base year) * 100
Percentage increase = (($138,000 - $100,000) / $100,000) * 100
Percentage increase = ($38,000 / $100,000) * 100
Percentage increase ≈ 38%
In terms of what is taking place in the economy, we see an increase in the quantity of cars and office chairs sold in year two compared to the base year. However, the decrease in prices for both cars and office chairs has caused the real GDP to remain the same as the nominal GDP. This suggests that the overall production in the economy has not increased, even though more goods were sold. The 38% increase in the nominal GDP reflects only the inflation-adjusted price changes, not an actual increase in output.