The economy of Grossmania produces three goods: Widgets, Gizmos, and Thingamajigs. The accompanying table shows the output and prices for years 2006 and 2007. (Hint: GDP, in its most basic form, is P x Q. You take the quantity of output and multiply by the price of output.)
Widgets Gizmos Thingamajigs
Year Price Quantity Price Quantity Price Quantity
2006 $100 1 $10 8 $5 4
2007 $110 1 $12 10 $4 5
7. Calculate the nominal GDP for:
a. 2006
b. 2007
8. Compute the percentage of growth in nominal GDP from 2006 to 2007.
9. Using 2006 as the base year, calculate the real GDP for 2007.
10. What is the GDP deflator for 2007? What was the inflation rate between 2006 and 2007?
11. Compute the real rate of output growth from 2006 to 2007.
12. Which of the following is true of real GDP?
I. It is adjusted for changes in prices.
II. It is always equal to nominal GDP.
III. It increases whenever aggregate output increases.
a. I only
b. II only
c. III only
d. I and III
e. I, II, and III
13. The best measure for comparing a country's aggregate output over time is
a. Nominal GDP.
b. Real GDP.
c. Nominal GDP per capita.
d. Real GDP per capita.
e. Average GDP per capita.
For questions 14-15 use the information provided in the table below for an economy that produces only apples and oranges. Assume year 1 is the base year.
Year 1 Year 2
Quantity of Apples 3,000 4,000
Price of Apples $0.20 $0.30
Quantity of Oranges 2,000 3,000
Price of Oranges $0.40 $0.50
14. What was the value of real GDP in each year?
Year 1 Year 2
a. $1,400 $2,700
b. $1,900 $2,700
c. $1,400 $2,000
d. $1,900 $2,000
e. $1,400 $1,900
15. What is the GDP Deflator for Year 2?
a. 105
b. 135
c. 136
d. 142
e. 143