Ch (10)
Refer the Table. Assume 2011 is a base year. In which year was real GDP the lowest? (Quizlet 13)
2011 - 2011 Real GDP = $1.50 x 50 + $2 x 75 = $225. 2012 Real GDP = $1.50 x 60 + $2 x 80 = $250. 2013 Real GDP = $1.50 x 50 + $2 x 120 = $315. 2014 Real GDP = $1.50 x 60 + $2 x 120 = $330.
During recessions what happens to profits and the unemployment rate?
the unemployment rate rises and profits fall. - Recessions are periods of reduced economic activity. Profits fall and unemployment rises.
If in some year real GDP was $45 billion and the GDP deflator was 130, what was nominal GDP?
$58.5 billion - The GDP deflator = 100 X nominal GDP/real GDP. So 130 = 100 x nominal GDP/$45 billion. So 1.3 = nominal GDP/$45 billion and $58.5 = nominal GDP.
Last year was the base year, this year inflation was 5%. What is this year's GDP deflator?
105 - In the base year the GDP deflator = 100. 5% inflation means that the deflator rose by 5%.
Refer the Table. In which year was the GDP deflator lowest? (Quizlet 13)
2012 - 2011 GDP deflator: 225/225*100 = 100 (The deflator is always 100 in the base year). 2012 GDP deflator: 220/250*100 = 88. 2013 GDP deflator: 435/315*100 = 138.1. 2014 GDP deflator: 420/330*100 = 127.3.
Refer to the Table. Assuming the GDP deflator in 2010 was 96 with a base year of 2011, in which year was inflation the lowest? (Quizlet 13)
2012 - Inflation rate: 2011: (100-96)/96 = 3.5%. 2012: (88-100)/100 = -12%. 2013: (138.1-88)/88 = 56.9%. 2014: (127.3-138.1)/138.1 = -7.8%.
Refer the Table. In which year was nominal GDP the lowest? (Quizlet 13)
2012 - Nominal GDP for 2011 = $1.50 x 50 + $2 x 75 = $225. Nominal GDP for 2012 = $1 x 60 + $2 x 80 = $220. Nominal GDP for 2013 = $1.50 x 50 + $3 x 120 = $435. Nominal GDP for 2014 = $2 x 60 + $2.50 x 120 = $420.
Refer the Table. In which year was the GDP deflator highest? (Quizlet 13)
2013 - 2011 GDP deflator: 225/225*100 = 100 (The deflator is always 100 in the base year). 2012 GDP deflator: 220/250*100 = 88. 2013 GDP deflator: 435/315*100 = 138.1. 2014 GDP deflator: 420/330*100 = 127.3.
Refer the Table. In which year was nominal GDP the highest? (Quizlet 13)
2013 - Nominal GDP for 2011 = $1.50 x 50 + $2 x 75 = $225. Nominal GDP for 2012 = $1 x 60 + $2 x 80 = $220. Nominal GDP for 2013 = $1.50 x 50 + $3 x 120 = $435. Nominal GDP for 2014 = $2 x 60 + $2.50 x 120 = $420.
Refer the Table. Assume 2011 is a base year. In which year was real GDP the highest? (Quizlet 13)
2014 -2011 Real GDP = $1.50 x 50 + $2 x 75 = $225. 2012 Real GDP = $1.50 x 60 + $2 x 80 = $250. 2013 Real GDP = $1.50 x 50 + $2 x 120 = $315. 2014 Real GDP = $1.50 x 60 + $2 x 120 = $330.
An economy recently had nominal GDP of 5 trillion euro and a GDP deflator of 125. What was real GDP?
4 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP. - Real GDP = Nominal GDP/GDP Deflator/100 = 5 trillion euro/1.25 = 4 trillion euro. Because it reflects only changes in quantities produced real GDP is a better gauge of economic activity than nominal GDP.
If nominal GDP is $16 trillion and real GDP is $24 trillion, then the GDP deflator is
67, and this indicates that the price level has decreased by 33 percent since the base year. - The GDP deflator = (Nominal GDP / Real GDP) x 100 = ($16 trillion / $24 trillion) x 100 = 67. In the base year, the GDP deflator =100. So the percentage change in the deflator since the the base year is (100-67)/100 = 33/100 = 33%.
Nominal GDP is a better gauge of economic well-being than real GDP.
False - Because real GDP measures the economy's production of goods and services, it reflects the economy's ability to satisfy people's needs and desires. Thus, real GDP is a better gauge of economic well-being than is nominal GDP.
If real GDP rises and the GDP deflator falls, then it must be that nominal GDP rose.
False - Nominal GDP = (GDP Deflator x Real GDP)/100. An increase in real GDP makes nominal GDP higher, but a decrease in the GDP deflator makes nominal GDP lower. Without
If the GDP deflator in 2015 was 210 and the GDP deflator in 2014 was 200, then the inflation rate in 2015 was 10%.
False - The inflation rate is computed as the percentage change, not the change, in the price level. Here the price level is measured by the GDP deflator. Inflation = percentage change in the price level = (210 -200)/200 = 10/200 = .05 = 5%.
An increase in total spending from one year to the next means that an economy's production of goods and services has risen.
False - Total spending reflects changes in both prices and quantities.
Real GDP uses constant base year prices to place a value on the economy's production of goods and services, while nominal GDP uses current prices to place a value on the economy's production of goods and services.
True - Real GDP uses base-year prices nominal GDP uses current prices.
Real GDP is computed using
base-year prices and current quantities. - Real GDP is computed using base-year prices and current quantities. So, it reflects changes in quantities not changes in prices.
If the prices of all goods and services produced in the economy stayed the same while the quantity of all goods and services rose, which would rise?
both real GDP and nominal GDP. - Real GDP reflects changes in quantities, not prices. Nominal GDP reflects changes in prices or quantity. Therefore, both real GDP and nominal GDP increases in this case.
When nominal GDP rises, we can be certain that
either prices or quantities of goods and services must have risen. - Nominal GDP is the dollar value of final goods and services produced within the economy, so it changes if either prices or quantities change.
If nominal GDP is three times its old value and the GDP deflator is twice its old value, then real GDP
is 1.5 times its original value. - The GDP deflator = 100 X Nominal GDP/Real GDP. So, real GDP = 100 X Nominal GDP/GDP Deflator. Current real GDP is then equal to 3x 100 x old Nominal GDP/2 old GDP Deflator = 1.5 x old real GDP.
The GDP deflator equals
nominal GDP divided by real GDP multiplied by 100. - Nominal GDP uses current prices and quantities and so is 100 X $4.50 + 50 X $3.00 = $600. Real GDP uses base year prices and current quantities and so is 100 x $3.00 + 50 x $4.00 = $500. The GDP deflator is 100 x Nominal GDP/Real GDP = 100 x $600/$500 = 100 x 1.2 = 120.
Suppose an economy produces only eggs and ham. In 2015, 100 dozen eggs are sold at $4.50 per dozen and 50 pounds of ham sold at $3 per pound. In 2014, the base year, eggs sold at $3 per dozen and ham sold at $4 per pound. For 2015
nominal GDP is $600, real GDP is $500, and the GDP deflator is 120 - Nominal GDP uses current prices and quantities and so is 100 X $4.50 + 50 X $3.00 = $500. Real GDP uses base year prices and current quantities and so is 100 x $3.00 + 50 x $4.00 = $500. The GDP deflator is 100 x Nominal GDP/GDP Deflator = 100 x $600/$500 = 100 x 1.2 = 120.
Real GDP will decrease
only when production of goods and services decreases. - Real GDP uses prices from a base year, so real GDP reflects only changes in the production of goods and services.
