LO 3 In year 1 and year 2, there are two products produced in a given economy, smartphones and earphones. Suppose that there are no intermediate goods. In year 1, 4,000 smartphones and 2,000 earphones are produced and sold at

$2,000 and $200 each, respectively. However, due to an earthquake in year 2, some production lines are destroyed and the production of smartphones and earphones falls to 1,000 and 1,500 units, respectively. However, the price of each pair of smartphone doubled and the price of each pair of earphones increased to $300.

(a) Calculate nominal GDP for year 1 and year 2.

(b) Calculate real GDP in each year and the percentage change in real GDP from year 1 to year 2 using year 1 as the base year. Next, do the same calculations using the chainweighting method.

(c) Calculate the implicit GDP price delator and the percentage inlation rate from year 1 to year 2 using year 1 as the base year. Next, do the same calculations using the chainweighting method.

(d) Suppose that the design and quality of smartphones improved signiicantly in year 2. For example, the battery life of smartphones in year 2 was twice as long in year 1. Discuss how this quality improvement may afect real GDP through the output and the price level.