Question

Consider a simple economy that produces two goods: cupcakes and oranges. The following table shows the prices and quantities of the goods over a three-year period.
Use the information from the preceding table to fill in the following table.

Answer 1

Answer:

Nominal GDP

= (Price of cupcakes in year * quantity of cupcakes in year) + (Price of oranges in year * quantity of oranges in year)

2018

= (2 * 125) + (3 * 155)

= $715

2019

= (4 * 135) + ( 3 * 210)

= $1,170

2020

= (2 * 125) + (3 * 165)

= $745

Real GDP using 2018 as base year:

= (Price of cupcakes in 2018 * quantity of cupcakes in year) + (Price of oranges in 2018 * quantity of oranges in year)

2018

=  (2 * 125) + (3 * 155)

= $715

2019

= (2 * 135) + (3 * 210)

= $900

2020

= (2 * 125) + (3 * 165)

= $745

GDP Deflator

= Nominal GDP in year / Real GDP in year * 100

2018

= 715/715 * 100

= 100

2019

= 1,170 / 900

= 130

2020

= 745/745 * 100

= 100