Calculating nominal GDP, real GDP, price index and the inflation rate from a given set of data
Consider an economy where only three products x,y, and z are produced and sold for the prices indicated below:
Product;(Base year price);(Current year price);(Current year production)
X; $1; $2; 200
Y; $4; $5; 50
Z; $5; $6; 100
A. What are the values of nominal GDP and real GDP in the current year?
B. Explain the difference between the two answers in a.
C. What is the major advantage of the real GDP measure? The disadvantage?
D. Construct a price index giving all products equal weight. What is the rate of inflation?© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/economics/basic-economic-concepts-and-principles/calculating-nominal-gdp-real-gdp-price-index-and-the-inflation-rate-from-a-given-set-of-data-2ro
...s, of all goods and services produced during one year, which is the product of Current year price and Current year production. So, RGDP= 1*200+4*50+5*100 = $900
B) The key difference is that nominal GDP is measured in current (or actual prices) while Real GDP is measured in constant prices (the ...