Economics

Help

The answer i got is :
GDP grew 10%

GDP for 2006 using 2005 as the base year increase by 20%

real GDP grow? 10%

If i'm right, let me know, if not, please show Calculation

Thank You

Use the following data to answer questions 1-3 (be sure to provide all calculations).
Quantity
Year CDs Tennis Racquets

2005 90 180
2006 100 90

Price
CD's Tennis Racquets
\$18 \$100
\$20 \$110

Calculate real GDP for 2005 and 2006 using 2005 prices. By what percent did real GDP grow?

Calculate the value of the price index for GDP for 2006 using 2005 as the base year. By what percent did prices increase?

Now calculate real GDP for 2005 and 2006 using 2006 prices. By what percent did real GDP grow?

1. Some clarifying questions first.

1) Am I to assume the entire economy consists of CDs and Tennis Racquets? I presume yes.
2) Is the Tennis Racquets production in 2006 really 90 -- should it be 190? I will assume 190.
3) You are asked to calculate a price index. There are 2 general methodologies: the Laspeyres index and the Paasche index. As the CPI is a Laspeyres index, I will assume you want the Lapeyres price index.
3) Most people calculate percentage change as (Xt/X0 - 1) (0 is the base y ear's value and t some time in the future or past). However, some economists prefer the mid-point method. I presume you want the "common" method over the mid-point method.

Now then GDP = sum(P*Q) over all goods so:
2005 GDP is 18*90 + 100*180 = 19620
2006 GDP is 20*100 + 110*190 = 22900
2006 GDP at 05 prices is 18*100 + 100*190 = 20800

Q1) Real GDP grew by 20800/19620 = 1.06 = 6%

The price index (Laspeyres method) is 100*(P2*Q1)/(P1*Q1)
CPI05 = 100
CPI06 = (20*90 + 110*180) / (18*90 + 100*180) = 100*(21600/19620) = 110

Q2) price index for 2006 is 110

Q3) Real 2006 GDP using 06 prices (e.g., deflate by CPI) is 22900/1.10 = 20818. Percent change in Real GDP is 20818/19620 = 6.1%

I hope this helps.

posted by economyst
2. Thank You

posted by Randy

Similar Questions

1. Economics

The answer i got is : GDP grew 10% GDP for 2006 using 2005 as the base year increase by 20% real GDP grow? 10% If i'm right, let me know, if not, please show Calculation Thank You Use the following data to answer questions 1-3 (be
2. Macroeconomics: GDP

John (who lives in "Statsyan"--nation) buys a new mini Cooper, which is assembled in England. What part of the GDP component(s) does this transaction belong to? I'm thinking it belongs to both the imports and consumption
3. macroeconomics

should we care more about nominal GDP or real GDP?? Thank you for using the Jiskha Homework Help Forum. Here is a link that discusses that very question: http://economics.about.com/cs/macrohelp/a/nominal_vs_real.htm A GDP based on
4. macroeconomics

GDP rises from \$4 trillion in 2006, the base year, to \$5 trillion in 2012. The GDP deflator in 2012 is 120. Find real GDP in 2012. Find the percentage increase in real GDP between 2006 and 2012.
5. Economics

What is the % of GDP is the national debt? My Answer: The percentage of GDP is national debt is approx. 77%. Is this correct? Please post the figures you're using for GDP and national debt. I went and used the latest figure of
6. macroeconomics

Year - 2000 Nominal GDP: 9,817 Real GDP: ___________ GDP Deflator: 1 Inflation 2.2 Real GDP Per capita: _________ Population 283.7 Year – 2001 Nominal GDP: ________ Real GDP: 9,891 GDP Deflator: _________ Inflation 2.4 Real GDP
7. math

Average Growth Rate(2000-2009)of China - GDP: 10.9 Population: 0.8 Per Capita GDP: 10.1 Ethiopia - GDP: 7.5 Population: 2.8 Per Capita GDP: 4.7 How fast does total output(GDP)have to grow in order to raise per capita GDP in
8. Economics

Discuss the relationship between the level of Gross Domestic Product (GDP) and economic well-being. What factors of well-being are missing from the GDP? Is there a point where the GDP could increase to such a high level that
9. Economics

1. What is the % of GDP is the national debt? My Answer: The percentage of GDP is national debt is approx. 77%. Is this correct? I went and used the latest figure of Real GDP which was the third quarter of 2006 being
10. math

Help please!: By what factor (2x, 4x, etc.) would the per capita GGP have to be increased to U.S. per capita GGP to equal the U.S. GDP in 2005? This is the information I have: -the per capita GGP is 9297 billion -the U.S. per

More Similar Questions