5. Real versus nominal GDP Consider a simple economy that produces two goods: beers and enamel pins. The following table shows the prices and quantities of the goods over a three-year period. Price Year (Dollars per beer) 2019 2020 2021 2 4 Year 2019 2020 2021 2 Beers 870 Use the information from the preceding table to fill in the following table. Nominal GDP Real GDP (Dollars) (Base year 2019, dollars) 895 1,170 From 2020 to 2021, nominal GDP The inflation rate in 2021 was Quantity (Number of beers) 215 135 150 Price Quantity (Dollars per enamel pin) (Number of enamel pins) 155 210 190 3 3 GDP Deflator and real GDP Enamel pins

6) The following table describes the economic activities of a hypothetical economy in a given year. Calculate the value-added at each step of the economic activities and its contribution to GDP. Item Seller Buyer Price ($) Value added ($) Kilogram of Lemons Famer Factory 6. Liter of lemon juice Factory Restaurant 10 Liter of lemon juice used as salad dressing Restaurant Consumers 16

1. A simple economy produces three commodities: beer, cheese, and popcorn. The following data shows total production for this economy in 1999 and 2000: Beer Cheese Popcorn 1999 2000 1999 Quantity 200 300 100 1999 2000 Using 1999 as the base year, complete the following table for the economy: Nominal GDP (a) (b) Nominal GDP Real GDP 10,000 (1) (c) (d) 1999 Price $ 6.00 7.00 7.00 Real GDP (2) (3) GDP Price Index (e) (f) 2000 Quantity 200 300 100 Inflation Growth rate of rate nominal GDP 2. Complete the following table for a simple economy, assuming that 1999 is the base year: GDP Price (g) Index (4) (5) Inflation rate 2000 Price $7.00 9.00 9.00 --- (h) 5% Growth rate of real GDP Growth rate of nominal GDP (6) (i) Growth rate of real GDP 5%

3. In a small community, breakfast is the most important meal of the day. Therefore, the only two goods that this community produces are coffee and scones in the following amounts: Year 2020 2021 Quantity 60 cups 90 cups Coffee Price $1.25 $1.45 Quantity 45 units 65 units Scones Price $2.10 $3.95 a) Calculate the inflation rate for 2021 using the GDP deflator method (assume that 2020 is the base year for real GDP calculations). Show your work. b) Calculate the inflation rate for 2021 using the CPI method (assume that 2020 is the base year for CPI calculations). Additionally, assume that the consumption basket for both years contains only 10 cups of coffee and 40 scones. Show your work. c) Compare the results of both inflation calculations and explain why they are similar or different based on the two methods and on the specific data used in this example.