This exercise addresses some issues related to calculating real GDP. Consider a model economy with only...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
This exercise addresses some issues related to calculating real GDP. Consider a model economy with only two goods. The following table shows the prices and quantities of goods produced: Year 1 2 3 4 Price (in euros per piece) Product 1 Product 2 1.00 0.95 0.90 1.00 1.00 1.10 1.20 1.10 (a) Compute nominal GDP YNOM,t for t = 1, 2, 3, 4. (b) Compute real GDP Y for t = 1,2,3, 4 using year 1 as base year (fixed base year method), i. e., using the prices in year 1. Furthermore, compute the GDP deflator Pt for t= 1, 2, 3, 4 and both the annual real GDP growth rates Yt-Yt-1 and the inflation rates πt = Pt-Pt-1 for t = 2, 3, 4. Pt-1 = YNOM,t Yt 9Y,t = Yt-1 Report Pt, gy,t and Tt rounded to four decimal places. (c) Repeat (b) using year 4 as base year. What do you observe? (d) Many countries use the (weighted) chain-linking method that uses previous years' prices to calculate real GDP. In the following, for i = {1, 2} and t = {1,2,3,4}, let qi,t denote the quantity produced of product i in year t and pi,t the price of product i in year t. The (weighted) chain-linking method consists of the following steps: gy, t . For some reference year t* = {1,...,4} compute Y₁ = YNOM,t*. • If t* < 4, for t = t* +1,...,4: Compute the weighted annual growth rate of real GDP: 2 Σ i=1 Compute the weighted real GDP: • If t* > 1, for t = t* - 1, ..., 1: gy,t+1 Quantity (in pieces) Product 1 Product 2 Pi,t qi,t YNOM,t 2 i=1 Y = (1 + gy,t) Yt-1. 100 100 90 100 X Compute the weighted annual growth rate of real GDP: Compute the weighted real GDP: Pi,t+19i,t+1 YNOM,t+1 Yt = qi,tqi,t-1 qi,t-1 90 100 110 110 X qi,t+1 gi,t qi,t Yt+1 1+gy,t+1 This exercise addresses some issues related to calculating real GDP. Consider a model economy with only two goods. The following table shows the prices and quantities of goods produced: Year 1 2 3 4 Price (in euros per piece) Product 1 Product 2 1.00 0.95 0.90 1.00 1.00 1.10 1.20 1.10 (a) Compute nominal GDP YNOM,t for t = 1, 2, 3, 4. (b) Compute real GDP Y for t = 1,2,3, 4 using year 1 as base year (fixed base year method), i. e., using the prices in year 1. Furthermore, compute the GDP deflator Pt for t= 1, 2, 3, 4 and both the annual real GDP growth rates Yt-Yt-1 and the inflation rates πt = Pt-Pt-1 for t = 2, 3, 4. Pt-1 = YNOM,t Yt 9Y,t = Yt-1 Report Pt, gy,t and Tt rounded to four decimal places. (c) Repeat (b) using year 4 as base year. What do you observe? (d) Many countries use the (weighted) chain-linking method that uses previous years' prices to calculate real GDP. In the following, for i = {1, 2} and t = {1,2,3,4}, let qi,t denote the quantity produced of product i in year t and pi,t the price of product i in year t. The (weighted) chain-linking method consists of the following steps: gy, t . For some reference year t* = {1,...,4} compute Y₁ = YNOM,t*. • If t* < 4, for t = t* +1,...,4: Compute the weighted annual growth rate of real GDP: 2 Σ i=1 Compute the weighted real GDP: • If t* > 1, for t = t* - 1, ..., 1: gy,t+1 Quantity (in pieces) Product 1 Product 2 Pi,t qi,t YNOM,t 2 i=1 Y = (1 + gy,t) Yt-1. 100 100 90 100 X Compute the weighted annual growth rate of real GDP: Compute the weighted real GDP: Pi,t+19i,t+1 YNOM,t+1 Yt = qi,tqi,t-1 qi,t-1 90 100 110 110 X qi,t+1 gi,t qi,t Yt+1 1+gy,t+1
Expert Answer:
Answer rating: 100% (QA)
To compute the nominal GDP YNOM for each year we multiply the quantity produced by the respective prices and sum the values Lets calculate the nominal GDP for each year a Nominal GDP YNOM Year 1 YNOM1 ... View the full answer
Related Book For
Posted Date:
Students also viewed these economics questions
-
List three specific parts of the Case Guide, Objectives and Strategy Section (See below) that you had the most difficulty understanding. Describe your current understanding of these parts. Provide...
-
The file survey.mtw contains selected variables from an online survey of ADM 2304 students. Assume that these results represent a random sample of all Telfer undergraduate students. The variables are...
-
Consider the economy from exercise 4. Calculate the inflation rate for the 20162017 period using the GDP deflator based on the Laspeyres, Paasche, and chain-weighted indexes of GDP. Exercise 4...
-
Garcia Corporation has paid 60 consecutive quarterly cash dividends (15 years). The last 6 months, however, have been a cash drain on the company, as profit margins have been greatly narrowed by...
-
Writing the first- and second-law relations and simplifying, obtain the reversible work relation for a uniform-flow system that exchanges heat with the surrounding medium at T0 in the amount of Q0 as...
-
The accounts of Taylor Electronics Company are listed along with their balances before closing for the month ended March 31, 2012. Requirements 1. Prepare Taylor Electronics multi-step income...
-
The General Social Survey asked a sample of 2780 adults how many children they had, and also how many siblings (brothers and sisters) they had. The results are summarized in the following contingency...
-
T. Hilliary, Inc., uses backflush costing to account for its manufacturing costs. The trigger points for recording inventory transactions are the purchase of materials, the completion of products,...
-
In 2021, Matthews Company's first year of operations, the following transactions occurred: (a) Inventory costing $372,000 was sold on credit to customers for a total of $534,000. Johnson uses a...
-
Each morning, Ruma randomly selects and buys one of the four newspapers available at her local shop. Find the probability that she buys: a. The same newspaper on two consecutive mornings b. Three...
-
2. A stone is thrown vertically upward with a speed of 15.0 m/s from the edge of a cliff of height 95 m. Ignore air resistance. [10] I. "Using the upward direction positive" and using kinematics...
-
What is Feigenbaum's constant? A DOF system with a cubic nonlinearity has a linear natural frequency of \(120 \mathrm{rad} / \mathrm{s}\). The system is forced by harmonic excitations at different...
-
The longitudinal vibrations of a bar and the transverse vibrations of a beam are both governed by the wave equation. Indicate whether the statement presented is true or false. If true, state why. If...
-
A finite-element model of a bar with \(\mathrm{n}\) elements predicts \(\mathrm{n}\) natural frequencies of the bar. Indicate whether the statement presented is true or false. If true, state why. If...
-
A continuous system has an infinite number of natural frequencies. Indicate whether the statement presented is true or false. If true, state why. If false, rewrite the statement to make it true.
-
What is the signature of the Fourier transform? A DOF system with a cubic nonlinearity has a linear natural frequency of \(120 \mathrm{rad} / \mathrm{s}\). The system is forced by harmonic...
-
Hume plc and Hegel plc are two companies operating in the maritime transport industry. The companies enjoy the same business risk and are identical in all material respects except for their capital...
-
Ball bearings are widely used in industrial applications. You work for an industrial food machinery manufacturer and your role is to design the driveshaft assembly on a new type of equipment that...
-
In Problems 3544, each matrix is nonsingular. Find the inverse of each matrix. b 3 b 2 b = 0
-
In Problems 7998, find the slope and y-intercept of each line. Graph the line. x + 2y = 4
-
In Problems 524, graph each equation of the system. Then solve the system to find the points of intersection. 2 [x = y [xy = 1
-
(a) Use a histogram to graph the empirical distribution of the duration times between American Airline trades. Compare the graph with Figure 2.9. Figure 2.9. (b) Interpret the shape of the...
-
Consider the equity prices of the United States companies Microsoft and Walmart for the period April 1990 to July 2004 ( \(T=172)\). (a) Compute the continuously compounded (log) returns on Microsoft...
-
(a) Compute the monthly excess returns on Exxon, General Electric, Gold, IBM, Microsft and Walmart. Be particularly carefully when computing the correct risk free rate to use. (b) Estimate the CAPM...
Study smarter with the SolutionInn App