## Explain the difference between nominal and real GDP.

Question 1.
The following table shows the prices and quantities of each good consumed in 2016, 2017, and 2018.
Cheese Meat Fish
Year Price Quantity Price Quantity Price Quantity
2016 11 300 11 300 15 100
2017 12 330 10 320 16 110
2018 14 270 9 330 18 140

• Explain the difference between nominal and real GDP.
• Calculate nominal GDP, real GDP (base year 2016) and GDP deflator. Analyze the results.
• Quantify CPI if the base year is 2016 and consumer basket corresponds to the quantities of 2016. Explain why CPI is different from GDP deflator.
• Quantify inflation rate in 2017 and 2018 and interpret the results.

Question 2.

Table 1. GDP of Singapore
Country: Singapore 2016 2017 2018 2019
GDP (constant 2010 US\$) 308,640,184,767.9 322,024,690,203.1 333,096,256,633.7 335,538,884,575.3
GDP (current US\$) 318,652,334,419.1 341,863,349,989.1 373,217,081,850.5 372,062,527,488.6
GDP per capita (constant 2010 US\$) 55,042.7 57,378.9 59,073.5 58,829.6
GDP per capita, PPP (current international \$) 89,386.1 94,941.0 100,126.0 101,649.1
Created from: World Development Indicators

• Analyze the data.
• Define economic growth and calculate it for 2019.
• Compare GDP (current US\$) and GDP per capita (constant 2010 US\$) in 2018 and 2019.
Explain the possible reasons for an increase/decrease in values.
• Explain why the GDP per capita in Singapore is considerably different when measured in US dollars compared with GDP per capita based on PPP

Question 3.

Read the excerpt from the ‘Background document on the 2019 revision of the consumer price index for Germany” and answer the following questions. Use examples to support your answers when appropriate.
“The consumer price index for Germany is regularly revised…Calculating the consumer price index is based on the basket of goods and services that represents all goods and services purchased by households in Germany for consumption purposes. The individual products included in price monitoring are always those that currently are often <link is hidden> example, products connected with the progressing digitalisation were included already some years ago. Since the index was rebased, they have been shown separately. They include music streaming, e-book reader and e-book download. Also, hearing aids and the repair of dentures are shown separately. One reason for the health sector becoming more and more important is certainly the rising proportion of elderly people in the total population… …In the weighting pattern on the new base, food and non-alcoholic beverages have an expenditure proportion of 9.7%. On the old base, their proportion was 10.3%. This decrease is due to several factors, some of which show opposite trends. Generally, it is a typical phenomenon in
highly industrialized countries that food expenditure as a proportion of total expenditure is decreasing. In relative terms, high-income consumers spend decreasing amounts on food. Households with relatively low income are assumed to react to disproportionate price rises by changing over to lower-quality products or lower-price shops. However, people probably are increasingly aware of organic food and, consequently, are ready to pay higher food prices. The fact that people eat more often at restaurants and the like seems to have a downward effect on the expenditure proportion of food, too. This is suggested by the higher expenditure proportion of restaurant and accommodation services…”

With reference to the article, explain why items get added and removed from the ‘basket’ when calculating CPI. Explain why the adjustments caused by such revisions are expected to have a downward effect on the inflation rates.

Question 4.
• Discuss if an economic growth rate of 10% means that a country has higher living standards than a country with an economic growth rate of 2.5%.

• An economy of a country A starts off with a GDP per capita of 12,000 EUR and an annual growth rate of 10%. An economy of a country B starts off with a GDP per capita of 25,000 EUR and an annual growth rate of 2.5%. Calculate GDP per capita of the country A and the country B in 10 years.

Question 5.

a. From 2018 to 2019, the number of employed rose by 2 million to 19 million. In 2019
Unemployment increased from 2 million to 2.2 million and the labor force grew by 3.5 million to 25 million. The population was 40 million in both years.
Calculate the unemployment rate in 2018 and 2019. Determine how did the labor force participation rate change from 2018 to 2019.

b. COVID-19 pandemic caused economic activity to collapse and unemployment to soar. However, in many countries, these increases in unemployment have not been fully recorded in national statistics, reporting lower figures. Discuss the potential reasons for this.

 Use theories, formulate your answers to sub-questions in a clear and concise way (from several sentences to 1/3 of a page) .
 When needed, use relevant graphs, label and explain them carefully. All the graphs should be self-constructed in Word.
 Calculation tasks require an equation / math / way to achieve the result, NOT only one figure.
 Support your answers with examples and references. Use the Harvard Referencing System

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