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Nominal and real GDP

1. You have the following data for a developing country (in thousands of
dollars). Calculate each sector's value added and the country's GDP.

Name Total Intermediate Value GDP
Output Inputs Added

Agriculture $15,000 $ 7,000 $_____
Mining 9,000 4,000 ______
Textiles & Apparel 3,000 1,500 ______ = $
Manufacturing 600 100 ______
Trade & Services 2,000 1,000 ______
Government 6,000 2,000 ______

2. You have the following data to calculate some key economic indicators:

National Income $4,000 Wages $2,800
Depreciation 400 Exports (X) 1,000
Consumption (C) 3,500 Rental Income 200
Interest Income 300 Gross Investment (I) 500
Imports (M) 700 Indirect Taxes 200
Government Outlays 1,000 Government Purchases (G) 300

a. GDP =

b. Net investment =

c. NDP =

d. Profit income=

3. Consider an economy that produces only two goods, computers and
television sets in 1995 and 1996.

Output Prices Nominal GDP Real GDP
1995 1996 1995 1996 1995 1996 1995 1996

Computers: 100 200 $1,000 $500

TV Sets: 1,000 800 $500 $600

a. Fill in the table to calculate nominal and real GDP for each year, using 1995 as the base year.

b. Use the growth rate formula to calculate the 1995-96 percentage
Rates of change in:

1) Nominal GDP =

2) Real GDP =

3) Implicit Price Deflator =

4) Suppose an economy has 10,000 people looking and available for work
and 90,000 people working.
a) Calculate the unemployment rate:

U = unemployed =
Labor force

b) Suppose 4,000 of the people looking for work get discouraged and give up
their search.

1) Calculate the new unemployment rate:

U =

2) Would you interpret this as good news or bad news for the economy? Explain.


Solution Preview

Some basic concepts:
The GDP is Gross Domestic Product and GNP is Gross National Product. Gross Domestic Product (GDP) is the total value of final goods and services produced within a country's borders in a year. GDP counts income according to where it is earned rather than who owns the factors of production.

Gross National Income comprises the total value of goods and services produced within a country (i.e. its Gross Domestic Product), together with its income received from other countries (notably interest and dividends), less similar payments made to other countries. For example, if a British-owned company operating in another country sends some of their incomes (profits) back to UK, UK's GNI is enhanced. Similarly, a British production unit of a ...

Solution Summary

This discusses the concepts related to nominal and real GDP