Question

The country of Sunnyland produces two final goods: tubes of sun block and bags of sand. Below, you are provided data on the quantity of each of these goods that was produced in Sunnyland and the price that was charged per unit during 2014 and 2015:

Year	Quantity of Sun Block	Price of Sun Block	Quantity of Sand	Price of Sand
2014	20	$4	8	$1.00
2015	24	$5	12	$1.50

Task 1: Calculate the value of 2014 nominal GDP in Sunnyland.

Task 2: Using 2014 as your base year, calculate the value of 2015 real GDP in Sunnyland.

Task 3: Calculate the growth rate between 2014 and 2015 of real GDP in Sunnyland.

Task 4: Suppose that Sunnyland continued to grow at this rate. How many years would it take for Sunnyland’s economy to double in size?

hello, can anyone help me with this problem

Answer 1

(Task 1)

Nominal GDP (NGDP) = Sum of (Current year price x Current year quantity)

NGDP, 2014 = $4 x 20 + $1 x 8 = $80 + $8 = $88

(Task 2)

Real GDP (RGDP) = Sum of (Base year (2014) price x Current year quantity)

RGDP, 2015 = $4 x 24 + $1 x 12 = $96 + $12 = $108

(Task 3)

RGDP in base year = NGDP in base year, so in 2014, RGDP = NGDP = $88

Growth rate in RGDP = ($108 / $88) - 1 = 1.2273 - 1 = 0.2273 = 22.73%

(Task 4)

If current RGDP be R and doubling period be N years, then

R x (1.2273)^N = 2R

(1.2273)^N = 2

Taking natural logarithm on each side,

N x ln 1.2273 = ln 2

N x 0.2048 = 0.6931

N = 0.6931 / 0.2048 = 3.38 years