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!
To calculate nominal GDP, we need to multiply the quantity of each good or service sold in a given year by its respective price in that year.
In the base year (Year 1), 10 new cars were sold at $7,000 each, and 20 new office chairs were sold at $1,500 each.
Calculating nominal GDP for Year 1:
Nominal GDP = (Quantity of new cars sold x Price per new car) + (Quantity of new office chairs sold x Price per new office chair)
Nominal GDP = (10 x $7,000) + (20 x $1,500)
Nominal GDP = $70,000 + $30,000
Nominal GDP = $100,000
In year two (Year 2), 12 new cars were sold at $6,000 each, and 22 new office chairs were sold at $3,000 each.
Calculating nominal GDP for Year 2:
Nominal GDP = (Quantity of new cars sold x Price per new car) + (Quantity of new office chairs sold x Price per new office chair)
Nominal GDP = (12 x $6,000) + (22 x $3,000)
Nominal GDP = $72,000 + $66,000
Nominal GDP = $138,000
Next, to calculate real GDP, we need to adjust the nominal GDP for inflation by using constant prices from the base year (Year 1).
Calculating real GDP for Year 2:
Real GDP = (Quantity of new cars sold x Price per new car in Year 1) + (Quantity of new office chairs sold x Price per new office chair in Year 1)
Real GDP = (12 x $7,000) + (22 x $1,500)
Real GDP = $84,000 + $33,000
Real GDP = $117,000
Finally, to find the percentage increase in Year 2, we can use the formula:
Percentage increase = ((Real GDP in Year 2 - Real GDP in Year 1) / Real GDP in Year 1) x 100
Percentage increase = (($117,000 - $100,000) / $100,000) x 100
Percentage increase = ($17,000 / $100,000) x 100
Percentage increase = 0.17 x 100
Percentage increase = 17%
In this economy, we observe an increase in nominal GDP from $100,000 in Year 1 to $138,000 in Year 2. Real GDP, on the other hand, increased from $100,000 in Year 1 to $117,000 in Year 2 after accounting for inflation. This indicates that there was economic growth in Year 2, as both nominal and real GDP increased. The percentage increase of 17% represents the growth rate of the economy from Year 1 to Year 2.