MID1econ3SA

MID1econ3SA - Elements of Economics 3 LE B Midterm1...

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Elements of Economics 3, LE B Midterm1, Solution MIDTERM 1 Suggested Solution Section II – Short Answer Questions Q1. a) Nominal GDP is the value of the goods produced in a given year valued at the prices that prevailed in that year. So Sweetland's nominal GDP in 2003 is: Its nominal GDP in 2004 is b) Because 2003 is the base year, real GDP in 2003 is the same as nominal GDP, \$3,500. GDP in 2003 using 2004 prices is \$4,500 and GDP in 2004 using 2004 prices is \$4,920. So using 2004 prices, GDP has grown by or 9.3 percent. Next GDP in 2003 using 2003 prices is \$3,500 and GDP in 2004 using 2003 prices is \$3,800. So using 2003 prices, GDP has grown by or 8.6 percent. The average growth rate between these two years is 8.95 percent, so real GDP has grown 8.95 percent. As a result, real GDP in 2004 is which is \$3,813.25. c) Sweetland's price level in 2004 is measured by the GDP deflator, which equals So Sweetland's price level is d) Sweetland's economic growth rate is the percentage change in real GDP. This

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MID1econ3SA - Elements of Economics 3 LE B Midterm1...

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