Question

1. The country of Chocolandia was founded by Willy Wonka in 2018. The country has no central government. In 2018, Willy Wonka’s chocolate factory invested 550,000 Choco Dollars (C$) in equipment. That same year, the citizens of the newly created country spent C$370,000 on various products, half of which was for domestically produced goods. Finally, the neighboring country of Narnia, Chocolandia’s only trading partner, purchased C$150,000 worth of chocolate products from Chocolandia. Which of the following statements is least accurate?

1. Chocolandia’s nominal GDP in 2018 was C$885,0000
2. If in 2019, investment into factory decreased significantly, it would be impossible for Chocolandia’s 2019 real GDP to be higher than its 2018 real GDP.
3. If the 2018 GDP deflator (base year 2019) was 0.6, then prices for goods and services in Chocolandia increased from 2018 to 2019.
4. If the 2018 GDP deflator (base year 2019) was 0.6, then Chocolandia’s Real GDP in 2018 was C$1,783,000.

Answer 1

GDP = C+I+G+(X-M)

= 370,000 + 550,000 + 150,000 - 185,000

(150,000 = X, since this is what Narnians bought from Chocolandia, and 185,000 = M, since it is half of Chocolandiars' consumption which is non-domestically produced goods)

GDP = 885,000

so statement a. is not the answer

if GDP in 2018 dollars is 885,000 and GDP deflator is 0.6, the GDP in 2018 in 2019 dollars is 885000 * 0.6 =531,000

We see that statement d. says real GDP in 2018 was 1783000, hence it is the least accurate statement