ASSIGNMENT #3 SOLUTIONS
Note: All of the numbers in the calculations shown below were not rounded until the final
answer.
1.
a)
Nominal GDP in 2006
= bicycles 2006 x price 2006 + snowboards 2006 x price 2006
= 560,000 x $230 + 240,000 x $140
= $162,400,000 or $162.4 million
Nominal GDP in 2007
= bicycles 2007 x price 2007 + snowboards 2007 x price 2007
= 580,000 x $250 + 250,000 x $150
= $182,500,000 or $182.5 million
b)
Real GDP in 2006
= bicycles 2006 x base year price + snowboards 2006 x base year price
= 560,000 x $250 + 240,000 x $150
= $176,000,000 or $176 million
Real GDP in 2007
= bicycles 2007 x base year price + snowboards 2007 x base year price
= 580,000 x $250 + 250,000 x $150
= $182,500,000 or $182.5 million
c)
You need your answers from parts a) and b) to answer this question.
GDP deflator in 2006 = (nominal GDP 2006/real GDP 2006) x 100
= ($162,400,000/$176,000,000) x 100
= 92.2727
GDP deflator in 2007 = (nominal GDP 2007/real GDP 2007) x 100
= ($182,500,000/$182,500,000) x 100
= 100.00
Inflation
= [(GDP deflator 2007 – GDP deflator 2006)/GDP deflator 2006] x 100
= [(100.00 – 92.2727)/92.2727] x 100
= 8.3744% or 8.4%
d)
To calculate inflation using the approximation method, you need to find
the % change in nominal GDP and the % change in real GDP first.
You need
your answers from parts a) and b) to answer this question.
% change in nominal GDP = [(nominal GDP in 2007 – nominal GDP in 2006)/