Question

Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 2 bars and the price is $5. In year 2, the quantity produced is 4 bars and the price is $8. In year 3, the quantity produced is 6 bars and the price is $10.
Required:
Using year 1 as the base year, compute nominal GDP, real GDP, and the GDP deflator for each year.

Answer 1

Answer:

Nominal gdp in year 1 = $10

Real gdp in year 1 =  $10

GDP deflator in year 1  = 100

Nominal gdp in year 2 = $32

Real GDP in year 2 =$20

GDP deflator in year 2  =160

Nominal gdp in year 3 =  $60

Real gdp in year 3 =  $30

GDP deflator in year 3   = 200

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 = current year price x quantity produced

Real GDP = base year price x quantity produced

GDP deflator = (nominal GDP / real GDP) x 100

Nominal gdp in year 1 = (2 x $5) = $10

Real gdp in year 1 = (2 x $5) = $10

GDP deflator in year 1  =( $10 /$10 ) x 100 = 100

Nominal gdp in year 2 = (4 x $8) = $32

Real GDP in year 2 = 4 x $5 = $20

GDP deflator in year 2  = ($32 / $20) x 100 = 160

Nominal gdp in year 3 = 6 X $10 = $60

Real gdp in year 3 = 6 x$5 = $30

GDP deflator in year 3  = ($60 / $30) x100  = 200