ECON 330D1 Lecture Notes - Lecture 2: Fixed Investment, Gdp Deflator, Inventory Investment

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copperotter592

8 Dec 2012

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Nominal gdp is output measured at current prices. Gdp- price of melons * quantity of melons. + price of grapes * quantity of grapes. Real gdp is output measured using a constant set of prices. E. g. chooses pries in 2010 to compute real gdp in 2010, 2011, 2012. Real gdp 2010= 2010 prices of melons * 2010 quantity of melons + 2010 price of grapes * 2010 quantity of grapes = nominal gdp as cause yrs the same. Real gdp 2010= 2010 prices of melons * 2011 quantity of melons + 2010 price of grapes * 2011 quantity of grapes. This is where the base year is 2010. Gdp deflator- nominal gdp/ real gdp it reflects what"s happening to the overall level of prices in the economy. Consider the economy with a single bread if p= price of bread and q= quantity sold then nominal gdp = p *q.

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YEAR	P of Shoes	Q of Shoes	P of Hammers	Q of Hammers
2010	$5	400	$2	50
2011	$6	400	$2	100
2012	$7	400	$3	100

a) What is the Nominal GDP for each year?

2010: $ 2100 2011: $ 2600 2012: $ 3100

b) What is Real GDP for each year using 2011 as the base year?

2010: $ 2410 2011: $2600 2012: $2700

c) What is the GDP deflator for each year?

2010: 87.136 2011:100 2012: 114.8

d) Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2010 and 2011 from the previous year.

NOMINAL: 2010 to 2011: %23.8 2011 to 2012: %19.23

REAL: 2010 to 2011: %7.88 2011 to 2012: %2.8

DEFLATOR: 2010 to 2011:% 14.7 2011 to 2012: % 14.8

this is my question :

e) Did economic well being rise more from 2010 to 2011 or from 2011 to 2012? Why?

Consider an economy that produces Camembert and wine

Prices and production of Camembert

2010 2011 2012

Price $10 $14 $18

Quantity 20,000 20,500 21,000

Prices and production of wine

2010 2011 2012

Price $50 $52.5 $55

Quantity 3,000 4,000 6,000

For the calculations involving the fixed-weight and variable-weight indexes use 2010 as the base year.

a.) Compute nominal GDP for each year

b.) Compute the Fixed Weight Price Index for each year.

c.) Compute the Variable Weight Price Index for each year.

d.) Compute the rates of inflation in 2011 and 2012 using the fixed weight price index and the variable weight price index.

e.) Compute real GDP in 2010, 2011 and 2012 by deflating nominal GDP's in the above three years using the fixed weight price index and the variable weight price index.

f.) Compute real GDP growth rates in 2011 and 2012 using the fixed weight price index and the variable weight price index.

aquamarinealligator757

4. Suppose the economy of Stockton produces four goods: strawberries, ice cream, sushi, andcoolers. However, consumers only purchase strawberries, ice cream, and sushi. Coolers are a final good, but are only used by ice cream trucks to store ice cream. The total production of all final goods is given in the table below: Year Strawberries Ice Cream Quantity Price ($ per unit) Quantity Price ($ per unit) 2010 8 $4 10 $2 2011 9 $5 14 $2 2012 10 $6 18 $3 Year Quantity Sushi Price ($ per unit) Coolers Quantity Price ($ per unit) 2010 12 $3 1 $12 2011 12 $3 2 $8 2012 15 $4 8 $2 (a) Using 2010 as the base year, calculate the value of the CPI in each year, and thencalculate the rate of inflation based on the CPI for all years (i.e., inflation rate from 2010 to 2011 and from 2011 to 2012). (b) Keeping in mind that the GDP deflator is a fixed-prices measure (fixed in the base year),calculate nominal GDP and real GDP for each year using 2010 as the base year. Using the expression for the GDP deflator, calculate the value of the GDP deflator in each year, then calculate the rate of inflation based on the GDP deflator for all years (i.e., inflation rate from 2010 to 2011 and from 2011 to 2012). (c) The following table gives the average nominal wage (in thousands) of workers in Stockton. In which year did they have the highest real wage?

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ECON 330D1 Lecture Notes - Lecture 2: Fixed Investment, Gdp Deflator, Inventory Investment

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