1. Year P of Soda Q of Soda P of Jeans Q of Jeans 2003 $1.09 214 $23.00 50 2004 $1.09 222 $26.00 50 2005 $1.13 222 $26.00 56 1. What is the value of the nominal GDP in 2003? $1.09 x 214 + $23 x 50 = $1383.26 2. What is the value of the real GDP in 2003? $1383.26

2. Year P of Soda Q of Soda P of Jeans Q of Jeans 2003 $1.09 214 $23.00 50 2004 $1.09 222 $26.00 50 2005 $1.13 222 $26.00 56 3. What is the value of the nominal GDP in 2004? $1.09 x 222 + $26 x 50 = $1541.98 4. What is the value of the real GDP in 2004? Hold Prices Constant $1.09 x 222 + $23 x 50 = $1391.98

3. Year P of Soda Q of Soda P of Jeans Q of Jeans 2003 $1.09 214 $23.00 50 2004 $1.09 222 $26.00 50 2005 $1.13 222 $26.00 56 5. a. What is the value of the GDP deflator in 2004? N / R x 100 $1541.98 / $1391.98 x 100 = 110.776 b. So what does this mean ? Prices increased by 10.776% from 03-04

4. Year P of Soda Q of Soda P of Jeans Q of Jeans 2003 $1.09 214 $23.00 50 2004 $1.09 222 $26.00 50 2005 $1.13 222 $26.00 56 6. What is the value of the GDP deflator in 2005? First – find nominal $1.13 x 222 + $26 x 56 = $1706.86 Next – find real $1.09 x 222 + $23 x 56 = $1529. 98 Next- find deflator = N/R x 100 = 111.56

5. 7. Was the increase in nominal GDP from 2003-2005 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 ($1383.26) to 05 ($1706.86) $1706.86 - $1383.26 / $1383.26 = 23.4% Step 2: Choice A: Find GDP Deflator in 2005 = 111.56 = 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

6. Or Step 2: Choice B: Find Real GDP in 03 ($1383.26 ) and 05 ($1529. 98 ) Find % change = tells us how much productivity increased (economic growth) $1529.98 - $1383.26 / $1383.26 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

7. Year P of Soda Q of Soda P of Jeans Q of Jeans 2003 $1.09 214 $23.00 50 2004 $1.09 222 $26.00 50 2005 $1.13 222 $26.00 56 8.Use 2004 as Base year : a. What is the value of the real GDP in 2003? $1.09 x 214 + $26 x 50 = $1533.26 b. real GDP in 2005? $1.09 x 222 + $26 x 56 = $1697.98

8. Omit #9-14

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