Year P of Soda Q of Soda P of Jeans Q of Jeans 2003 $ $ $ $ $ $ What is the value of the nominal GDP in 2003? $1.09 x $23 x 50 = $ What is the value of the real GDP in 2003? $

Year P of Soda Q of Soda P of Jeans Q of Jeans 2003 $ $ $ $ $ $ What is the value of the nominal GDP in 2004? $1.09 x $26 x 50 = $ What is the value of the real GDP in 2004? Hold Prices Constant $1.09 x $23 x 50 = $

Year P of Soda Q of Soda P of Jeans Q of Jeans 2003 $ $ $ $ $ $ a. What is the value of the GDP deflator in 2004? N / R x 100 $ / $ x 100 = b. So what does this mean ? Prices increased by % from 03-04

Year P of Soda Q of Soda P of Jeans Q of Jeans 2003 $ $ $ $ $ $ What is the value of the GDP deflator in 2005? First – find nominal $1.13 x $26 x 56 = $ Next – find real $1.09 x $23 x 56 = $ Next- find deflator = N/R x 100 =

7. Was the increase in nominal GDP from mostly due to an increase in real output or mostly due to an increase in prices? (Explain – using #’s to support your answers) Step 1 : Find % change in NGDP from 03 ($ ) to 05 ($ ) $ $ / $ = 23.4% Step 2: Choice A: Find GDP Deflator in 2005 = = 11.56% increase in prices Conclude that out of the 23.4% increase in NGDP; 11.56% was due to prices and the remaining 11.84% was due to increase in productivity (RGDP) *These #’s are approximate and it gives you a good indication of the cause of the increase in NGDP

Or Step 2: Choice B: Find Real GDP in 03 ($ ) and 05 ($ ) Find % change = tells us how much productivity increased (economic growth) $ $ / $ x 100 = 10.6 % Conclude that out of the 23.4 % increase in NGDP; 10.6% was due to productivity and the remaining 12.8% was due to increase in prices *These #’s are approximate and it gives you a good indication of the cause of the increase in NGDP

Year P of Soda Q of Soda P of Jeans Q of Jeans 2003 $ $ $ $ $ $ Use 2004 as Base year : a. What is the value of the real GDP in 2003? $1.09 x $26 x 50 = $ b. real GDP in 2005? $1.09 x $26 x 56 = $

Omit #9-14

15. Yes, Consumption 16. no, used good, double counting 17. yes, Investment 18. no, not produced in this country