Gorgonzola is a small island nation with a simple economy that produces only six goods: sugar cane, yoyos, rum, peanuts, harmonicas, and peanut butter. Assume that one-quarter of all the sugar cane is used to produce rum and one-half of all the peanuts are used to produce peanut butter.
a. Use the production and price information in the table to calculate nominal GDP for 2015.
b. Use the production and price information in the table to calculate real GDP for 2013, 2014, and 2015 using 2013 as the base year. What is the growth rate of real GDP from 2013 to 2014 and from 2014 to 2015?
c. Use the production and price information in the table to calculate real GDP for 2013, 2014, and 2015 using 2014 as the base year. What is the growth rate of real GDP from 2013 to 2014 and from 2014 to 2015?
2013 2014 2015
Product Quantity Price Quantity Price Quantity Price
Sugar cane 240 $0.80 240 $1.00 300 $1.15
Yo-yos 600 $2.50 700 3.00 750 4.00
Rum 150 10.00 160 12.00 180 15.00
Peanuts 500 2.00 450 2.50 450 2.50
Harmonicas 75 25.00 75 30.00 85 30.00
Peanut butter 100 4.50 85 4.50 85 5.00

A) Remember, nominal GDP means a summation of the monetary values of all the goods produced in Gorgonzola. By multiplying the price of each product with its quantity produced found in the table we get $10,145.

B) Since the average price of the base year 2013 is $7.46;

the Real GDP = nominal GDP of each year/ average price of the base year. That is:

Real GDP for 2013 = 6517/7.46 = 873.5 units

Real GDP for 2014 = 8017.5/7.46 = 1074.73 units

Real GDP for 2015 = 10145/7.46 = 1359.9 units

To find the Growth rate of real GDP we use the formula = change in the GDPs/ GDP of year in question x 100

- Growth rate from 2013 to 2014

= 873.5/873.5 *100 = 23.03%

- Growth rate of real GDP from 2014 to 2015 = 1074.73/1074.73 x 100 = 26.53%

C) Real GDP is calculated by dividing the nominal GDP of each year with the price of the base year. We could notice that the Average price of the base year 2014 is $8.83. Therefore:

Real GDP for 2013 = 6517/8.83 = 768.05 units

Real GDP for 2014 = 8017.5/8.83 = 907.98 units

Real GDP for 2015 = 10145/8.83 = 1148.92 units

While

- the Growth rate of real GDP from 2013 to 2014 = change in the GDPs/ GDP of 2013 *100

= 873.5/873.5 x 100 = 23.03%

- the Growth rate of real GDP from 2014 to 2015 = change in the GDPs/ GDP of 2014 x 100

= 1074.73/1074.73*100 = 26.53%