Answer:
A. Nominal GDP in 2013 = $880,000
Nominal GDP in 2014 = $878,400
Real GDP in 2014 = $864,000
B. An assessment of growth using nominal GDP would overstate growth due to the effect of inflation on 2014 prices. The real GDP was lower than the nominal GDP
Explanation:
Gross domestic product is the total sum of final goods and services produced in an economy within a given period which is usually a year
GDP calculated using the expenditure approach = Consumption spending by households + Investment spending by businesses + Government spending + Net export
Nominal GDP is GDP calculated using current year prices while Real GDP is GDP calculated using base year prices. Real GDP has been adjusted for inflation
Nominal GDP in 2013 = ( 1,000,000 x $0.40 ) + ( 800,000 x $0.60) = $880,000
Nominal GDP in 2014 = ( $0.50 x 900,000 ) + ($0.51 x 840,000) = $878,400
Real GDP in 2014 = ( $0.40 x 900,000 ) + ($0.60 x 840,000) = $864,000
An assessment of growth using nominal GDP would overstate growth due to the effect of inflation on 2014 prices. The real GDP was lower than the nominal GDP
