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Part $1$

Consider the following data for a hypothetical economy that produces two$$ goods,

milkmilk

and

honeyhoney.

Quantity Produced

Prices

milkmilk

$($litres$)$

honeyhoney

$($kg$)$

milkmilk

$($$$/$litre$)$

honeyhoney

$($$$/$kg$)$

Year $1$

$100100$

$4040$

$33$

$44$

Year $2$

$130130$

$1616$

$44$

$66$

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Part $1$

a$.$ Compute nominal GDP for each year in this economy.

Nominal GDP in year$1$:

$$$$460460$

$($Round your response to the nearest whole$$ number.$)$

Nominal GDP in year$2$:

$$$$616616$

$($Round your response to the nearest whole$$ number.$)$

The percentage change in nominal GDP from year $1$ to year $2$ is

$33\mathrm{.}9133\mathrm{.}91\%.$

$($Round your response to two decimal places. Use the minus sign to enter negative$$ numbers.$)$

Part $2$

b$.$ Using year $1$ as the base$$ year, compute real GDP for each year using the traditional approach.

Real GDP in year

$1$Subscript$$year

$$Subscript$1$

$$Subscript$$prices$$:

$$$$460460$

$($Round your response to the nearest whole$$ number.$)$

Real GDP in year

$2$Subscript$$year

$$Subscript$1$

$$Subscript$$prices$$:

$$$$454454$

$($Round your response to the nearest whole$$ number.$)$

The percentage change in real GDP from year $1$ to year $2$ is

negative $1\mathrm{.}301\mathrm{.}30\%.$

$($Round your response to two decimal places. Use the minus sign to enter negative$$ numbers.$)$

Part $3$

c$.$ Using year $1$ as the base$$ year, compute the GDP deflator for each year.$($Round your responses to two decimal places. Use the minus sign to enter negative$$ numbers.$)$

The GDP deflator in year

$1$Subscript$$year

$$Subscript$1$

$$Subscript$$prices$$:

$100\mathrm{.}00100\mathrm{.}00$

The GDP deflator in year

$2$Subscript$$year

$$Subscript$1$

$$Subscript$$prices$$:

$135\mathrm{.}68135\mathrm{.}68$

The percentage change in the GDP deflator from year $1$ to year $2$ is

$35\mathrm{.}6835\mathrm{.}68\%.$

Part $4$

d$.$ Using year $2$ as the base$$ year, compute the GDP deflator for each year. $($Enter your responses rounded to two decimal places. Use the minus sign to enter negative$$ numbers.$)$

The GDP deflator in year

$1$Subscript$$year

$$Subscript$2$

$$Subscript$$prices$$:

$71\mathrm{.}8871\mathrm{.}88$

The GDP deflator in year

$2$Subscript$$year

$$Subscript$2$

$$Subscript$$prices$$:

$100\mathrm{.}00100\mathrm{.}00$

Part $5$

e$.$ The measures of real GDP growth$($and growth in the$$ deflator$)$ depend on the choice of base year because of the different

A$.$

consumer spending in different years.

B$.$

relative prices in different years.

Your answer is correct.

C$.$

output level in different years.

D$.$

government policies in different years.

Nominal GDP in year $1$: $$($Round your response to the nearest whole number.Nominal GDP in year $2$: $$($Round your response to the nearest whole number.The percentage change in nominal GDP from year $1$ to year $2$ is$\%.$Real GDP in year $1$year $1$ prices: $$($Round your response to the nearest whole number.Real GDP in year $2$year $1$ prices: $$($Round your response to the nearest whole number.The percentage change in real GDP from year $1$ to year $2$ is$\%.$The GDP deflator in year $1$year $1$ prices:The GDP deflator in year $2$year $1$ prices:The GDP deflator in year $2$year $1$ prices:The percentage change in the GDP deflator from year $1$ to year $2$ isThe percentage change in the GDP deflator from year $1$ to year $2$ is$\%.$The GDP deflator in year $1$year $2$ prices:The GDP deflator in year $2$year $2$ prices:The GDP deflator in year $2$year $2$ prices:The measures of real GDP growth $($and growth in the deflator$)$ depend on the choice of base year because of the different