 # C method 1 use a price index 1 price index measures

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.C.Method 1 [use aprice index1.Price index measures the price level in a given year relative to abase yearGDP Price indexyear t=Price of market basketyear tPrice of market basketbase year2Steps to follow to calculatereal GDPa.Calculate nominal GDP for each year.b.Calculate the price index for each year.c.Calculatereal GDPfor each year.Real GDPyear t=Nominal GDPyear tPrice indexyear tD.Method 2 [useconstant prices1.Steps to follow to calculatereal GDPa.Useconstantbase-year pricesto calculatereal GDPfor each year.b.Real GDPyear t=Pricebase yearQuantityyear t]]
8XI.Critical thinking applied learning exercisesA.Using the price index method to determine real GDPBetween 2009 and 2014 in the nation of Floridastan nominal GDP increased from \$360 billion to\$450 billion and the GDP price index increased from 120 to 125 (2008 = 100).The nation’snominal GDP____________________(\$450-\$360)The nation’sreal GDP_______________________\$450=?\$3601.251.20BUsing the constant-price method to determine real GDPThe nation of Erewhon produces two goods, hot dogs (HD) and hamburgers (H).The data for theeconomy is given below. Thebase yearis 2001. Calculate nominal GDP and usemethod 2calculate real GDP.YearPrice of HDQuantity of HDPrice of HQuantity of H2001\$1100\$2502002\$2150\$31002003\$3200\$41501.2001nominal GDPis\$100+\$100=______2.2002 nominal GDP is____________________3.2003 nominal GDP is\$600+\$600= _____4.2001real GDPis\$100+\$100=______5.2002 real GDP is____________________6.2003 real GDP is\$200+\$300=______If you have nominal GDP and real GDP, then you can indirectly calculate the price index withouthaving to use the more direct “market basket” approachIfReal GDPyear t=Nominal GDPyear t,thenPrice indexyear t=Nominal GDPyear tPrice indexyear tReal GDPyear t7.2001GDP price indexis____________8.2002 GDP price index is____________9.2003 GDP price index is____________=?to

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Term
Summer
Professor
van boven
Tags
The Market System
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