Gross Domestic Product

Consider an economy with only 3 goods being produced and consumed: goods X, Y, and Z. The evolution of this economy's prices and quantities is reported in the table below.

Year P_x Q_x P_y Q_y P_z Q_z

2015 2 100 1 50 4 70

2016 5 102 6 43 9 50

2017 8 110 9 50 12 55

2018 9 130 9 60 13 80

Using this table answer the following questions.

1. Nominal GDP.

(a) Compute nominal GDP for years 2015 to 2018. Show your reasoning.

(b) Compute the percentage change of Nominal GDP for each individual year between 2016 to 2018. Show your reasoning.

(c) Is the economy growing according to your calculations?

2. Real GDP.

(a) Compute real GDP for years 2015 to 2018. Take 2015 as the base year. Show your reasoning

(b) Compute the percentage change of real GDP for each individual year between 2016 to 2018. Show your reasoning.

(c) Is the economy growing according to your calculations?

(d) What explains the difference between your answer in 1(c) and 2(c)?

3. GDP Deflator.

(a) Compute the GDP deflator for years 2015 to 2018. Show your reasoning

(b) Compute inflation in this economy for years 2016 to 2018 using the GDP Deflator. Show your reasoning

(c) Can your measure of inflation explain the difference between nominal and real GDP? Why?