Problem Set 1
Kate Kaprosy
1. A. Real annual GDP in the U.S. as of 2022 is $20,014.128 (in billions of dollars)
Nominal annual GDP in the U.S. as of 2022 is $25,462.722 (in billions of dollars)
There is a difference between their numbers because real GDP is adjusted for
inflation and calculated in 2012 dollars, whereas nominal GDP calculations do not
account for the rise in prices.
B. Real GDP in 1970 was 4,954.436 (in billions of dollars) and Nominal GDP in 1970
was 1,073.311 (in billions of dollars).
C. Real GDP increased by a factor of 4.04
Nominal GDP increased by a factor of 23.72
D. The difference in the increase rate is due to the fact that the rate at which prices rise
was greater than the rate of increase in real output produced in the economy.
3. A. $ 2 Million toward GDP
B. $ 6,000 toward GDP
C. $0 toward GDP
D. -$50,000,000
7. A. GDP ratio: $ 152 Trillion / 65.1 =$ 2.3348 Trillion —-> $ 2.3348 Trillion / $17.7 trillion=
0.1319
B. Price level India / Price level US = 0.277
So,Price level US/Price level India = 1/0.277 = 3.6101
Real GDP India / Real GDP US = (GDP India * Price Level US) / (GDP US *Price Level
India) =(GDP India / GDP US)* (Price level US/Price level India)
=(152 Trillion Rupees /$17.7 trillion dollars)*3.6101 =31.00198
C. Using market prices to compare the GDP of one country to another tends to
exaggerate the differences between the GDP of poor countries versus rich countries. Lower
price levels increase the living standards of people in the poor country, and increase the real
value of the poor country’s GDP relative to that of the rich country – which is missed by the
market exchange rate.
2. A./B. The price of a loaf of white bread in 1980 was $0.51 and in 2018, $1.29
C.
Nominal GDP per capita
Real GDP per capita
1980
$12,574.80
$29,765.71
2018
$62,823.31
$56,936.67
D. The average cost of white bread in 1980 was $0.51, therefore one could purchase
($29,765.71/ $0.51) roughly 58,364 loaves of white bread. The average cost of white
bread in 2018 was $1.29, therefore one could purchase ($56,936.67/ $1.29) roughly
44,137 loaves of white bread.
The change in the standard of living by this method was -24.3%
E. Change in standard of living from 1980 to 2018 (in Real GDP per capita) is
($56,936.67 - $29,765.71) / $29,765.71 = 91%
White bread has changed in quality and variety over time. There are many
different brands, styles, and flavors of white bread on the market now, and it is
likely easier to produce great quantities of and quality of white bread than it was
in 1980. However these numbers are drastically different, one suggesting the
standard of living decreased, and the other increased, likely because the quality
of bread has increased so much and products are worth more, so the Burgers
and Coke method misrepresents standards of living. Products are more
expensive but they are worth much more and are better quality, meaning you are
living a better life.
For these two numbers to be the same, bread in 1980 would have needed to cost
(or be worth) $2.32 more, costing $2.83 total.
𝑥
44,137
=
56936.67
29765.71
𝑥 = 84426. 47
84426. 47/29,765.71= $2.83
2.83-.51= 2.32
% Change of
Price for Hats
1.5%
4.3%
-8.3%
11.3%
12.6%
2.2%
-1.4%
8.8%
0%
0%
0%
1.4%
0.6%
-3.9%
-4.1%
-.7%
4.3%
AVG GROWTH :
1.68%
Peaches price
constant $4
$ value of Hats
Nominal GDP
$ value of hats
(prices are
constant $10)
250
650
250
299
754
260
336
780
280
286
776
260
347.2
946.2
280
391.5
1,100.5
290
386.4
1,156.4
280
394.4
1,185.4
290
399.6
1,241.6
270
284.8
1,100.8
260
284.8
1,124.8
260
399.6
1,279.6
270
420
1,340
280
422.8
1,374.8
280
440.8
1,432.8
290
438
1,391
300
406
1,267
290
430.9
1,293.9
310
464
1,244
320
Real GDP (Year 2000 dollars)
650
664
700
652
708
716
720
742
698
690
700
720
746
776
788
808
782
810
840