Reference no: EM132007881

Real versus nominal GDP

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

Year Price (Dollars per cup cake) Quantity (Number of cupcakes) Price (Dollars per muffin) Quantity (Number of muffins)

2012 1 110 2 150

2013 2 155 4 215

2014 3 120 4 180

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

Nominal GDP Real GDP

Year (Dollars) (Base year 2012, dollars) GDP Deflator

2012 ? ? ?

2013 ? ? ?

2014 ? ? ?

From 2013 to 2014, nominal GDP A. increases or B. decreases, and real GDP A. Increase or B. Decreases. The inflation rate in 2014 was (A. -12.5%) (B. 0.1%) (C. 12.5%) (D. 88.9%) (E. 112.5%)