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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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