1
Homework 2 Answer Key
1.
a.
Calculating nominal GDP:
2001:
($1 per qt. of milk
×
100 qts. milk) + ($2 per qt. of honey
×
50 qts.
honey) = $200
2002:
($1 per qt. of milk
×
200 qts. milk) + ($2 per qt. of honey
×
100 qts.
honey) = $400
2003:
($2 per qt. of milk
×
200 qts. milk) + ($4 per qt. of honey
×
100 qts.
honey) = $800
Calculating real GDP (base year 2001):
2001:
($1 per qt. of milk
×
100 qts. milk) + ($2 per qt. of honey
×
50 qts.
honey) = $200
2002:
($1 per qt. of milk
×
200 qts. milk) + ($2 per qt. of honey
×
100 qts.
honey) = $400
2003:
($1 per qt. of milk
×
200 qts. milk) + ($2 per qt. of honey
×
100 qts.
honey) = $400
Calculating the GDP deflator:
2001:
($200/$200)
×
100 = 100
2002:
($400/$400)
×
100 = 100
2003:
($800/$400)
×
100 = 200
b.
Calculating the percentage change in nominal GDP:
Percentage change in nominal GDP in 2002 = [($400  $200)/$200]
×
100
= 100%.
Percentage change in nominal GDP in 2003 = [($800  $400)/$400]
×
100
= 100%.
Calculating the percentage change in real GDP:
Percentage change in real GDP in 2002 = [($400  $200)/$200]
×
100 =
100%.
Percentage change in real GDP in 2003 = [($400  $400)/$400]
×
100 =
0%.
Calculating the percentage change in GDP deflator:
Percentage change in the GDP deflator in 2002 = [(100  100)/100]
×
100
= 0%.
Percentage change in the GDP deflator in 2003 = [(200  100)/100]
×
100
= 100%.
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 Spring '08
 NA
 Macroeconomics, Inflation

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