#Question please answer with deatils. 1. The table below shows the production of a small economy:Price of Tea$1Quantity of Tea100 liters$1$2Year201620172018Yeara) If you calculated this economy's nominal GDP, what three things would that numberrepresent?b) Calculate the economy's nominal GDP for each year. Show your work201620172018Year20162017200 liters200 litersNominalGDPc) Calculate the economy's real GDP for each year (use 2016 as the base year). Show your work2018Price of Coffee$2$2$4Real GDPQuantity of Coffee50 liters100 liters100 liters d) Calculate the economy's GDP deflator for each year. Show your workYear201620172018GDP Deflatore) Based on your calculations, did economic well-being increase more in 2017 or 2018? Why? d

Nominal GDP is the GDP that has been determined using current market prices. Nominal GDP is measured as a product of the prevailing prices and the quantities of goods and services bought and sold. The distinction between nominal and real GDP is that the former does not take inflation-related price fluctuations into account. Real GDP is also measured as a product of price and quantity, only here the prices are based on some constant base year. The GDP price deflator calculates the variation between nominal and real GDP. Real GDP differs from nominal GDP in that the latter does not account for inflation. As Real GDP differs from nominal GDP in that the latter does not account for inflation, hence, in an expanding economy, nominal GDP will typically be higher than real GDP.a) The Nominal GDP of any country represents: the total amount of goods and services consumed in dollars (or any other currency), plus government purchases, corporate investments, and net exports.. effects of price rise (inflation) or price fall (deflation), as well as currency fluctuations Because debt is usually expressed in current dollars, nominal GDP is be used to compare a country's debt to its GDP. Therefore, Nominal GPD represents the total value of products and services at current prices, the inflationary effects and fluctuations in currency and debt-to-GDP ratio.b) Nominal GDP =Price of good 1 (tea) × quantity of good 1 (tea) + Price of good 2 (coffee) × quantity of good 2 (coffee) Nominal GDP for 2016 = $ 1×100+2×50 = $ 200Nominal GDP for 2017 = $ 1×200 + 2×100 =$400Nominal GDP for 2018 = $ 2×200 + 4×100 = $800 c)Real GDP =Price of good 1 (tea) in base year × quantity of good 1 (tea) + Price of good 2 (coffee) in base year × quantity of good 2 Real GDP for 2016 (with 2016 as base) =$1×100+ 2×50 =$200Real GDP for 2017 (with 2016 as base) = $1×200+ 2×100 =$400Real GDP for 2018 (with 2016 as base) =$1×200 + 2×100 = $400d) GDP Deflator = Nominal GDPReal GDP × 100 GDP Deflator for 2016 =Nominal GDP of 2016Real GDP of 2016 × 100 = $200$200 × 100 =100GDP deflator for 2017 =Nominal GDP of 2017Real GDP of 2017 × 100 = $400$400 × 100 = 100GDP deflator for 2018 =Nominal GDP of 2018Real GDP of 2018 × 100 = $800$400 × 100 = 200 e) Based on the calculations, the GDP deflator for 2017 is the same as for 2016. In 2018, the GDP deflator doubled to 200, which indicates that economic well being increased more in 2018 than in 2017.The quantities of goods and services that are purchased and sold are multiplied by the current prices to calculate nominal GDP. Real GDP is also calculated as a function of quantity and price, but in this case, the prices are set against a constant base year. The difference between nominal and real GDP is computed using the GDP price deflator. a) The NGDP (Nominal Gross Domestic Product) measures the overall value of various services and goods at current prices, taking into account inflation, currency fluctuations, and the debt-to-GDP ratio. b) Nominal GDP for 2016,2017 and 20148 are $200, $400 and $800 respectively. c)Real GDP for 2016, 2017 and 2018 are $200, $400 and $400 respectively. d) GDP deflator for for 2016, 2017 and 2018 are 100, 100 and 200 respectively e)Economic well being rose more in 2018 than in 2017.

Answered: 1. The table below shows the production…

Business

Economics

1. The table below shows the production of a small economy: Year Price of Tea 2016 $1 $1 2017 Quantity of Tea 100 liters 200 liters Price of Coffee $2 $2 Q

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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