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MEASURING ECONOMIC
PERFORMANCE
FREE RESPONSE QUESTION
2009 Quantity
2009 Price
base year
2010 Quantity
2010 Price
Apples
6
$2
8
$2
Oranges
5
$6
10
$10
Bananas
2
$4
5
$5
The outputs and prices of goods and services in Narvaizland are shown in
the table above. Assuming that 2009 is the base year, calculate each of
the following.
(i) The nominal gross domestic product (GDP) in 2010
(ii) The real GDP in 2010
2009 Quantity
2009 Price
base year
2010 Quantity
2010 Price
Apples
6
$2
8
$2
Oranges
5
$6
10
$10
Bananas
2
$4
5
$5
The outputs and prices of goods and services in Narvaizland are shown in
the table above. Assuming that 2009 is the base year, calculate each of
the following.
(i) The nominal gross domestic product (GDP) in 2010
(ii) The real GDP in 2010
(i) (8 x 2) + (10 x 10) + (5 x 5)
16 + 100 + 25 = $141
2009 Quantity
2009 Price
base year
2010 Quantity
2010 Price
Apples
6
$2
8
$2
Oranges
5
$6
10
$10
Bananas
2
$4
5
$5
The outputs and prices of goods and services in Narvaizland are shown in
the table above. Assuming that 2009 is the base year, calculate each of
the following.
(i) The nominal gross domestic product (GDP) in 2010
(ii) The real GDP in 2010
Real GDP = (8 x 2) + (10 x 6) + (5 x 4)
= 16 + 60 + 20 = 96
If in one year the price index is 50 and in the next
year the price index is 65, what is the rate of
inflation from one year to the next?
65 – 50 x 100 = 30%
50
Assume that next year’s wage rate will be 10
percent higher than this year’s because of
inflationary expectations. The actual inflation rate
is 5 percent. At the beginning of next year, will
the real wage be higher, lower, or the same as
today?
Real wage rate will be higher because the inflation
rate is 5% but people got a 10% raise
Assume that Janice gets a fixed-rate loan from a bank
when the expected inflation rate is 5 percent. If the
actual inflation rate turns out to be 10 percent, who
benefits from the unexpected inflation: Janice, the bank,
neither, or both? Explain.
Janice will benefit --- The bank set the loan rate so they
would make a profit at 5% inflation ---- When the actual
inflation rate is 10% the bank is making less profit
because Sarah is paying back money that has less value.