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gdp-handout with answers1

# gdp-handout with answers1 - A closer look at calculating...

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A closer look at calculating GDP. Consider an economy that produces only wheat and computers. In year 1 it produced 500 bushels of wheat which sold for \$7.00 a bushel. It also produced 10 computers which sold for \$1,000. In year 2 it produced 600 bushels of wheat which sold for \$10.00 a bushel. It also produced 8 computers which sold for \$1,100. Year 1 Year 2 Price Quantity Price Quantity wheat \$7 500 \$10 600 computers \$1,000 10 \$1,100 8 Nominal GDP in a year is the market value of all goods (see book & notes for more careful definition). o In Year 1 Nomimal GDP was ____\$13,500________? o In Year 2 Nominal GDP was ____\$14,800________? o The growth rate of Nominal GDP was __9.63%_____? To calculate Real GDP, we used fixed prices. That is, we choose the prices from one of the years and use those prices for all calculations of the value of market output. The year whose prices we choose is called the base year. The GDP deflator is the ratio of Nominal GDP to Real GDP multiplied by 100. Let Year 1 be the base year.

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gdp-handout with answers1 - A closer look at calculating...

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