Question

$$\begin{array}{lcc} \text { Quantities } & 2012 & 2013 \\ \hline \text { Apples } & 60 & 160 \\ \text { Oranges } & 80 & 220 \\ \text { Prices } & 2012 & 2013 \\ \hline \text { Apples } & \$ 0.50 & \$ 1.00 \\ \text { Oranges } & \$ 0.25 & \$ 2.00 \end{array}$$ Calculate nominal GDP in 2012 and 2013

Short answer

Nominal GDP in 2012 is \(50. Nominal GDP in 2013 is \)600.

Step-by-step solution

- Understand Nominal GDP

Nominal GDP is calculated by multiplying the quantities of goods produced by their current prices in a given year and summing the total.

- Calculate Nominal GDP for 2012

For 2012, the quantities and prices are as follows: Apples (60 units at \(0.50) and Oranges (80 units at \)0.25).Calculate: Nominal GDP = (60 \times 0.50) + (80 \times 0.25)This gives:Nominal GDP = 30 + 20Nominal GDP = 50 dollars

- Calculate Nominal GDP for 2013

For 2013, the quantities and prices are as follows: Apples (160 units at \(1.00) and Oranges (220 units at \)2.00).Calculate: Nominal GDP = (160 \times 1.00) + (220 \times 2.00)This gives:Nominal GDP = 160 + 440Nominal GDP = 600 dollars

Key concepts

GDP calculation

Gross Domestic Product (GDP) is a vital economic indicator that shows the overall economic activity within a country. Calculating GDP helps us understand the value of goods and services produced. One way to evaluate GDP is through **Nominal GDP**, which uses current prices during the year being measured. This calculation does not account for inflation or deflation.
To calculate Nominal GDP, simply multiply the quantities of goods produced by their respective prices, and sum them up. Let's break this down with an example:
For example, in the exercise:

• In 2012, 60 apples at \(0.50 each and 80 oranges at \)0.25 each:

We perform the following steps:
\begin{align*} \text{Nominal GDP (2012)} = (60 \times 0.50) + (80 \times 0.25) &&= 30 + 20 && = 50 \text{ dollars}\br\br Similarly, for 2013:

• In 2013, 160 apples at \(1.00 each and 220 oranges at \)2.00 each:

Performing the calculations:
\begin{align*} \text{Nominal GDP (2013)} = (160 \times 1.00) + (220 \times 2.00) &&= 160 + 440 && = 600 \text{ dollars}\br\br This method is straightforward but remember, Nominal GDP calculations give us the raw total without adjusting for changes in price level over time.

Economic indicators

Economic indicators are crucial for understanding the health of an economy. They provide a way to assess how well different sectors are performing and can inform policy decisions.
Some important economic indicators include:

• **GDP (Gross Domestic Product):** Measures total economic output.
• **Unemployment Rate:** Reflects the percentage of the labor force that is unemployed and seeking employment.
• **Inflation Rate:** Shows the rate at which the general price level for goods and services rises.
• **Trade Balance:** Difference between a country's exports and imports.

GDP, as discussed, can be calculated as Nominal GDP, which uses current prices, or Real GDP, which adjusts for inflation. Understanding both helps in grasping the larger picture of economic growth and price level changes over time.

Price and quantity analysis

Price and quantity analysis is essential for understanding market dynamics. By examining the changes in the quantity of goods produced and their prices, we can infer various economic conditions.
Consider these two factors:

• If quantities increase but prices remain constant, it might indicate increased production efficiency or higher demand.
• If prices increase but quantities remain constant, it may reflect inflation or higher production costs.

In the exercise example, from 2012 to 2013, both quantities (apples from 60 to 160 and oranges from 80 to 220) and prices (apples from \(0.50 to \)1.00 and oranges from \(0.25 to \)2.00) increased significantly. This combination suggests a substantial growth in production and prices, possibly due to high demand or economic expansion.
It's crucial to analyze these changes contextually, as they'll provide insights into the economic conditions affecting both supply and demand.