Week 05, Day 4 - Assignment 3 Solutions

Week 05, Day 4 - Assignment 3 Solutions - ASSIGNMENT#3...

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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)/
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This note was uploaded on 10/13/2009 for the course ECON 1221 taught by Professor Whitaker during the Winter '09 term at Langara.

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Week 05, Day 4 - Assignment 3 Solutions - ASSIGNMENT#3...

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