Homework 2

Q1. Suppose that an economy produces only baseballs, footballsandbasketballs. The

prices and quantities of these goods for years 2000 and 2011 are given below.

Year Baseballs Footballs Basketballs

P Q P Q p Q
2000 $10 100 $70 50 $20 80
2011 $12 120 $80 70 $23 100

a. Calculate nominal GDP and real GDP assuming that the year 2000 is the
base year.

b. Explain why nominal GDP increased more than real GDP. Also calculate
the GDP deflator.

True/False Questions
Personal income is the best measure of the income households have available for
spending.

The circular flow diagram indicates that GDP can be measured either by adding the
values of expenditures on final goods and services or by adding the values of different
types of income.