FRQ PRACTICE Time Price of Apples Quantity of
- Slides: 6
FRQ PRACTICE
Time Price of Apples Quantity of Apples Price of Oranges Quantity of Oranges Year 1 4 15 10 4 Year 2 6 10 5 20 The table above shows data for the economy of Narvaizville, which produces two goods, apples and oranges. (a) Calculate the nominal gross domestic product (GDP) for year 2. (6 x 10) + (5 x 20) = 60 + 100 = 160 GDP = Quantity x Price
Time Price of Apples Quantity of Apples Price of Oranges Quantity of Oranges Year 1 4 15 10 4 Year 2 6 10 5 20 The table above shows data for the economy of Narvaizville, which produces two goods, apples and oranges. (a) Calculate the nominal gross domestic product (GDP) for year 2. (6 x 10) + (5 x 20) = 60 + 100 = 160 (b) Using year 1 as the base year, calculate real GDP for year 2. Use year 2 quantity but year 1 price since year 1 is the base year (4 x 10) + (10 x 20) = 40 + 200 = 240
Time Price of Apples Quantity of Apples Price of Oranges Quantity of Oranges Year 1 4 15 10 4 Year 2 6 10 5 20 The table above shows data for the economy of Narvaizville, which produces two goods, apples and oranges. (a) Calculate the nominal gross domestic product (GDP) for year 2. (6 x 10) + (5 x 20) = 60 + 100 = 160 (b) Using year 1 as the base year, calculate real GDP for year 2. (4 x 10) + (10 x 20) = 40 + 200 = 240 (c) Calculate the GDP deflator for year 2 160 x 100 = 67 240 Nominal GDP x 100 = GDP Deflator Real GDP
Time Price of Apples Quantity of Apples Price of Oranges Quantity of Oranges Year 1 4 15 10 4 Year 2 6 10 5 20 The table above shows data for the economy of Narvaizville, which produces two goods, apples and oranges. (d) Assuming the market basket is compused of the quantites in year 1, calculate the consumer price index for year 2 (4 x 15) + (10 x 4) = 60 + 40 = 100 -- market basket year 1 (6 x 15) + (5 x 4 ) = 90 + 20 = 110 -- market basket year 2 110 x 100 = 110 100 _Market basket in a year__ Market basket in base year x 100 = price inex
Time Price of Apples Quantity of Apples Price of Oranges Quantity of Oranges Year 1 4 15 10 4 Year 2 6 10 5 20 The table above shows data for the economy of Narvaizville, which produces two goods, apples and oranges. (d) Assuming the market basket is compused of the quantites in year 1, calculate the consumer price index for year 2 (4 x 15) + (10 x 4) = 60 + 40 = 100 -- market basket year 1 (6 x 15) + (5 x 4 ) = 90 + 20 = 110 -- market basket year 2 110 x 100 = 110 100 (e) Suppose apple and orange pickers received a 2 percent increase in their wages. Based on your answer in part (d), would real wages of apple and orange pickers increase, decrease, or stay the same from year 1 to year 2? Explain 110 – 100 x 100 = 10% increase in prices 100 Real wages decrease because wages have not kept up with inflation year later – year earlier x 100 = % price change year earlier
