(solution) Consider a simple economy that produces two goods: apples and

(solution) Consider a simple economy that produces two goods: apples and

Consider a simple economy that produces two goods: apples and muffins. The following table shows the prices and quantities of the goods over a three-year period.

2014 2 125 3 155
2015 4 135 3 210
2016 2 125 3 165

Use the information from the previous table to fill in the following table.

2014                  
2015                  
2016                  

Points: Close Explanation Explanation:

From 2015 to 2016, nominal GDP selector 1

  • decreased
  • increased

, and real GDP selector 2

  • decreased
  • increased

. Points: Close Explanation Explanation:

The inflation rate in 2016 was selector 1

  • -23.1%
  • -0.2%
  • 23.1%
  • 76.9%
  • 130%

. Points: Close Explanation Explanation:

Why is real GDP a more accurate measure of an economy’s production than nominal GDP?

Real GDP is not influenced by price changes, but nominal GDP is. Real GDP does not include the value of intermediate goods and services, but nominal GDP does. Real GDP includes the value of exports, but nominal GDP does not.