Answer to Question #261555 in Macroeconomics for Soma

Question

In Maryland, only three goods are produced domestically - popcorns, movie tickets, and diet drinks. The following table shows the price and quantities of these goods produced in the year 2018, 2019, 2020. 2018 is the base year

The market bundle for a typical family is 3 popcorns, 3 movie tickets and 5 diet drinks.

Calculate Nominal and Real GDP in all three years.

Calculate real economic growth rate in 2020

Calculate CPI in all three years.

Calculate inflation rate in 2020

2019

2020

2021

P

Q

P

Q

P

Q

Popcorn

1

500

1

600

1.05

590

Movie ticket

5

300

10

200

10.5

210

Diet drink

0.7

300

0.8

400

0.75

420

Answer 1

a)Nominal and Real GDP in all three years.

Nominal GDP=(Units Produced in a Year)$\times$ (Price in a Year)

For 2018: =$(500\times 1.00)+(300\times5.00)+(300\times 0.70)=2210$

For 2019: =$(600\times 1.00)+(200\times10.00)+(400\times 0.80)=2920$

For 2020: =$(590\times 1.05)+(210\times5.00)+(420\times 0.75)=3045$

Real GDP:

is equal to the sum of the base year price×current year quantity of all the goods.

For 2018: =$(500\times 1.00)+(300\times5.00)+(300\times 0.70)=2210$

For 2019: =$(600\times 1.00)+(200\times5.00)+(400\times 0.70)=1880$

For 2020: =$(590\times 1.00)+(210\times5.00)+(420\times 0.70)=1934$

b)Real economic growth rate in 2020

=((Real GDP$_{20}$ -Real GDP$_{19}$ )$\div$ Real GDP$_{19}$ ))$\times$ 100

=$\frac{1934-1880}{1880}\times 100=2.87\%$

c)Calculate CPI in all three years.

CPI= (Current year cost $\div$ Base year cost) $\times$ 100

CPI$_{18}=\frac{(5\times1.00)+(3\times5.00)+(3\times0.7)}{(5\times1.00)+(3\times5.00)+(3\times0.7)}\times100=100$

CPI$_{19}=\frac{(5\times1.00)+(3\times10.00)+(3\times0.8)}{(5\times1.00)+(3\times5.00)+(3\times0.7)}\times100=169.2$

CPI$_{20}=\frac{(5\times1.05)+(3\times10.05)+(3\times0.75)}{(5\times1.00)+(3\times5.00)+(3\times0.7)}\times100=176.5$

d)Inflation rate in 2020

$\frac{CPI_{20}​ -CPI_{19}}{CPI_{19}}\times100=\frac{176.5-169.2}{169.2}\times100=4.3\%$