(Chapter 2, Question 4)
An economy produces three goods: cars, computers, and oranges. Quantities and prices per unit for years 2012 and 2013 are as follows:
2012
Quantity Price
Cars 10 $2000
Computers 4 $1000
Oranges 1,000 $1
2013
Quantity Price
Cars 12 $3000
Computers 6 $500
Oranges 1000 $1
a. What is nominal GDP in 2012 and in 2013? By what percentage does nominal GDP change from 2012 to 2013?
b. Using the prices for 2012 as the set of common prices, what is real GDP in 2012 and in 2013? By what percent-age does real GDP change from 2012 to 2013?
c. Using the prices for 2013 as the set of common prices, what is real GDP in 2012 and in 2013? By what percent-age does real GDP change from 2012 to 2013?
d. Why are the two output growth rates constructed in parts b and c different? Which one is correct? Explain your answer.