Question

Question 20 In 2019 Apples cost $2 and Bananas cost $1.50. A store sells 100 Apples and 100 Bananas. In 2020 Apples cost $1.50 and Bananas cost $2. A store sells 80 Apples and 120 Bananas. What is the nominal GDP for 2020? What is the real GDP for 2020? (2019 base year)

Answer 1

To calculate nominal GDP and real GDP, we need to use the formula:

Nominal GDP = Price in Current Year × Quantity in Current Year

Real GDP = Price in Base Year × Quantity in Current Year

Given the information:

For the base year 2019:

Apples: Price = $2, Quantity = 100

Bananas: Price = $1.50, Quantity = 100

For the year 2020:

Apples: Price = $1.50, Quantity = 80

Bananas: Price = $2, Quantity = 120

Let's calculate:

Nominal GDP for 2020:

Nominal GDP = (Price of Apples in 2020 × Quantity of Apples in 2020) + (Price of Bananas in 2020 × Quantity of Bananas in 2020)

Nominal GDP = ($1.50 × 80) + ($2 × 120)

Nominal GDP = $120 + $240

Nominal GDP = $360

Real GDP for 2020 (using 2019 as the base year):

Real GDP = (Price of Apples in 2019 × Quantity of Apples in 2020) + (Price of Bananas in 2019 × Quantity of Bananas in 2020)

Real GDP = ($2 × 80) + ($1.50 × 120)

Real GDP = $160 + $180

Real GDP = $340

Therefore, the nominal GDP for 2020 is $360 and the real GDP for 2020 (using 2019 as the base year) is $340.

Explanation:

Answer 2

To calculate the nominal GDP for 2020, we need to multiply the quantity of each good sold by its price in 2020 and then add up the total. The quantity of apples sold in 2020 is 80 and the price is $1.50, so the total value of apples sold is $120. The quantity of bananas sold in 2020 is 120 and the price is $2, so the total value of bananas sold is $240. Therefore, the nominal GDP for 2020 is $360.

To calculate the real GDP for 2020 using 2019 as the base year, we need to use a price index to adjust for inflation. The price index for 2019 is 1 (since it is the base year), and the price index for 2020 can be calculated as follows:

Price index for 2020 = (Total value of goods and services in 2020 at current prices) / (Total value of goods and services in 2019 at base-year prices)

Using the values we calculated earlier, we get:

Price index for 2020 = ($120 x $1.50 + $240 x $2) / ($100 x $2 + $150 x $1.5) = 1.08

Therefore, the real GDP for 2020 is:

Real GDP for 2020 = Nominal GDP for 2020 / Price index for 2020 = $360 / 1.08 = $333.33 (rounded to two decimal places)

I hope this helps! Let me know if you have any other questions.