Question

Sizing Up the Economy Using GDP — Work It Out

The table displays price and quantity information for two vehicle models produced by Ford Motor Company, the F-series trucks and Escape SUVs.

2016 2017
Price Quantity Price Quantity
Escape SUVs $24,485 307,069 $24,645 308,296
F-series trucks $44,400 820,799 $47,800 896,764


Round all numerical answers to two decimal places.

a. Calculate the amount contributed by Ford to U.S. real and nominal GDP from the sales of the two models in 2016 and 2017.
Nominal GDP 2016:

billion
Nominal GDP 2017:

billion
Real GDP 2016:

billion
Real GDP 2017:

billion
b. Determine the growth rate of nominal GDP (if Ford were the entire economy).
Growth rate of nominal GDP:

%
c. Determine the growth rate of real GDP (if Ford were the entire economy).
Growth rate of real GDP:
%
d. Use the shortcut you learned to convert between real and nominal GDP growth rates to determine the growth rate of prices.
Growth rate of prices:
%
e. The increase in nominal GDP in part a is due to a change in

both quantity and prices.

quantity.

prices.

Answer 1

Answer:

a. Calculate the amount contributed by Ford to U.S. real and nominal GDP from the sales of the two models in 2016 and 2017.

Nominal GDP 2016:

F-series trucks = $44,400 x 820,799 trucks = $36,443.48 million

Escape SUVs = $24,485 x 307,069 SUVs = $7,518.58 million

total = $43,962.06 million

Nominal GDP 2017:

F-series trucks = $47,800 x 896,764 trucks = $42,865.32 million

Escape SUVs = $24,645 x 308,296 SUVs = $7,597.95 million

total = $50,463.27 million

since we are not given any base year, I will assume that 2016 is the base year:

Real GDP 2016:

F-series trucks = $36,443.48 million

Escape SUVs = $7,518.58 million

total = $43,962.06 million

Real GDP 2017:

F-series trucks = $44,400 x 896,764 trucks = $39,816.32 million

Escape SUVs = $24,485 x 308,296 SUVs = $7,548.63 million

total = $47,364.95 million

b. growth rate of nominal GDP = ($50,463.27 million - $43,962.06 million) / $43,962.06 million = 14.79%

c. growth rate of real GDP = ($47,364.95 million - $43,962.06 million) / $43,962.06 million = 7.74%

d. I do not know what you learned in class, we can use the GDP deflator to calculate inflation rate:

GDP deflator = nominal GDP / real GDP = $50,463.27 million / $47,364.95 million = 1.0654

inflation rate = (1.0654 - 1)/1 = 0.0654 = 6.54%

e. the increase in nominal GDP is due to a change in prices and quantity produced.