macro_tif1_ch07

Business week reports thereisa new serious problem in

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Unformatted text preview: al Objective: LO3: Discuss the difference between real GDP and nominal AACSB Coding: GDP Reflective Thinking Special Feature: None 30. Since real adjusted for inflation and nominal GDP is not, nominal GDP must always be higher than real GDP. Do GDP is you agree or disagree? Why? Answer: Disagree. It depends on whether the year being examined is before or after the base year. If after the base year, then nominal GDP will always exceed real GDP if inflation has occurred. If before the base year, then nominal GDP will always be less than real GDP if inflation has occurred. If the year being examined Diff: 3 is before the base year and inflation has occurred , then the base year prices will exceed the prices of that year. Type: SA Page Ref: To pic : 646-7/226-7 R S Analytical Objective: LO3: Discuss the difference between real GDP and nominal AACSB Coding: GDP Analytic Skills Special Feature: None 31. Table 7- Hats French Fries 13 Digital Cameras 200 2,000 40 $20 1 200 250 2,300 50 $21 2 18 2000 2006 Refer to Table 7-13. Consider the data above for a simple economy: Calculate nominal GDP and real Product GDP for 2006, using 2000 as the base year. Show your work. Answer: Nominal GDP for 2006 equals (250 x $21) + (2,300 x $2) + (50 x $180) = $18,850. Real GDP for 2006 equals (250 x $20) Diff: 3 + (2,300 x $1) + (50 x $200) = $17,300. Type: SA Page Ref: To pic : 646/226 R S Analytical Objective: LO3: Discuss the difference between real GDP and nominal AACSB Coding: GDP Analytic Skills Special Feature: Solved Problem: Calculating Real GDP 32. Table 7- MP3s Tacos 14 Coats 40 2,000 300 $250 2.00 50 45 2,200 310 $255 2.25 52 50 2,300 350 $250 2.40 55 2000 2005 2006 Product Refer to Table 7-14. Consider the data above for a simple economy: Using 2000 as the base year, calculate nominal GDP, real GDP, and the GDP deflator for 2006. Show your work. Answer: Nominal GDP for 2006 equals (50 x $250) + (2,300 x $2.40) + (350 x $55) = $37,270. Real GDP for 2006 equals (50 x $250) + (2,300 x $2.00) + (350 x $50) =$34,600. Diff: 3 The GDP deflator equals x 100 = 107.7 Type: SA Page Ref: To pic : 646-8/226-8 R S Analytical Objective: LO3: Discuss the difference between real GDP and nominal AACSB Coding: GDP Analytic Skills Special Feature: Solved Problem: Calculating Real GDP 33. If the GDP deflator is less than 100, which will be higher: nominal GDP or real GDP? Why? Answer: Real GDP will be higher. The GDP deflator is the ratio of nominal GDP to real GDP, so if the value is less than 100, nominal GDP Diff: 2 must be smaller than real GDP. Type: SA Page Ref: To pic : 646-7/226-7 G S Conceptual Objective: LO3: Discuss the difference between real GDP and nominal AACSB Coding: GDP Reflective Thinking Special Feature: None 34. Business week reports there is a new serious problem in reporting real GDP accurately . This problem is related to increases in offshoring and the difficulties the Bureau of Labor statistics has in tracing the connected decline in import prices of these products. Firms receive huge cost savings by having goods such as...
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