Question

Lemonade 2016 2016 Price 2017 2017 P Output Output 200 glasses $1 per glass 220 glasses $ 1 per 100 cookies $ 2 per 100 cookies $2.25 cookie cookie Cookies Look at the table Lemonade and Cookies. Assume that an economy produces O 11.25 % - 11.25 % O 596

Answer 1

5%(Answer)

GDP growth = (GDP in current year-GDP in previous year)/(GDP in previous year)*100%

Real GDP is calculated at a constant price of base price.Here, 2016 is assumed to be the base price so the same price will be used in calculation of GDP for both years.

Real GDP of 2016 = 200*1+100*2 = 200+200 = $400

Real GDP of 2017(Price will be used for 2016 and quantity will be used for 2017)= 220*1+100*2 = 220+200 = $420.

Growth rate of real GDP from 2016 to 2017 =

( $420-$400)/$400 *100% =0.05*100%= 5%

8.) GDP deflator of 2016 = 100.

Real GDP in 2016 = $400 (as calculated above)

Nominal GDP in 2016 = GDP at price of 2016 = 1*200+2*100= $400.

GDP deflator =( nominal GDP/Real GDP)*100 = ($400/$400)*100 = 100