Question

Assignment Score: 37.5% Resources Give Up? Hint Check Answer Question 7 of 16 > Consider the given simple economy. Sheepnip Co. makes sheep feed. Better-bald Inc. purchases sheep feed for the sheep it raises and sells wool. Sweeter Sweaters Inc. makes and sells wool sweaters. Sheepnip Co. Better-bald Inc. Sweeter Sweaters Inc. Sheep feed $0 $2200 $0 Wool $0 $0 $3800 Wages $700 $300 $550 Interest payments $400 $100 $50 Rent $1000 $450 $500 Profits $100 $750 $800 What is the total payments (income) to factors of Better bald Inc.? What is the total payments (income) to factors of Sweeter Sweaters Inc.?! What is the GDP for this economy?

Answer 1

Nominal GDP 2014

Shirts = Price * Quantity = 8 *1900 = 15,200

Pants = 20 * 2500 = 50,000

Adding Above Two

Nominal GDP = 15,200 + 50,000 = $65,200

Real GDP 2014

Using 2013 as Base Year

Shirts = 5 * 1900 = 9500

Pants = 15 * 2500 = 37,500

Real GDP 2014 = $47,000

Change in Real GDP From 2013 to 2014

Real GDP in 2013

= 5 * 2000 + 15 * 3000 = 10000 + 45000 = $55,000

This clearly shows that real output has decreased from 2013 to 2014. Decrease is $55000 - $47000 = $8000.

A measure of an economy's output using current prices is Nominal GDP. Nominal GDP is an assessment of economic production in an economy but includes the current prices of goods and services

A measure of output that is adjusted for inflation is Real GDP. Real gross domestic product is a macroeconomic measure of the value of economic output adjusted for price changes i.e. inflation or deflation.

A measure of economy's output using constant prices. This description refers to Real GDP. Beacuse real gdp is calculated using constant prices (adjusted inflation).

A measure of output that is not adjusted for inflation. This is Nominal GDP as it is calculated at current prices.