Question

Consider the following table for the economy of a nation whose residents produce four final goods.

Assuming a $2018$base year:

a. What is nominal GDP for $2019$ and $2020$?

b. What is real GDP for $2019$and $2020$?

Short answer

Option a

i. As a result, the nominal GDP for $2015$is $\$88,000$.

ii. As a result, the nominal GDP for $2016$is $\$88,000$.

Option b

i. As a result, the real GDP value for $2015$is$\$136,000$

ii. As a result, the real GDP value for $2016$ is$\$88,000$

Step-by-step solution

    Introduction

The nominal GDP is the ultimate value of all goods and services produced within national borders before inflation is factored in, whereas the real GDP is the final value of goods and services produced within national borders after inflation is factored in.

Step a2:     Option ai. Calculate the nominal GDP for 2015

(a) The formula for calculating nominal GDP is as follows:

$NGD{P}_n=(\text{Price}{)}_n\times (\text{Quantity}{)}_n$

The following is the nominal GDP calculation for the year $2015$:

$NGD{P}_{2015}=(\$1,000\times 10)+(\$6\times 3,000)+(\$100\times 500)+(\$1\times 10,000)$

$=\$10,000+\$18,000+\$50,000+\$10,000$

localid="1651733151959" $=\$88,000$

As a result, the nominal GDP for $2015$is $\$88,000$

    ii. Nominal GDP for  2016

The following is the formula for calculating nominal GDP for the year $2016:$

$NGD{P}_{2016}=(\$800\times 15)+(\$11\times 1,000)+(\$150\times 300)+(\$2\times 10,000)$

$=\$12,000+\$11,000+\$45,000+\$20,000$

$=\$88,000$

As a result, the nominal GDP for $2016$is $\$88,000$

    Option bReal GDP for 2015

The formula for calculating Real GDP is as follows:

$RGD{P}_n=(\text{Price}{)}_{\text{Base}}\times (\text{Quantity}{)}_n$

The following is the real GDP calculation for the$2015$ year :

$RGD{P}_{2015}=(\$800\times 10)+(\$11\times 3,000)+(\$150\times 500)+(\$2\times 10,000)$

$$\begin{gathered} =\$8,000+\$33,000+\$75,000+\$20,000 \\ =\$136,000 \end{gathered}$$

As a result, the real GDP for$2015$ is $\$136,000$.

     ii. Real GDP for 2016

The real GDP computation for the year $2016$is presented below.

$RGD{P}_{2016}=(\$800\times 15)+(\$11\times 1,000)+(\$150\times 300)+(\$2\times 10,000)$

$=\$12,000+\$11,000+\$45,000+\$20,000$

$=\$88,000$

As a result, the nominal GDP value for $2016$is $\$88,000$.